Will President-elect Barack Obama's Energy Plan Work?

Resident Scholar
Kenneth P. Green

Barack Obama campaigned on an energy agenda of greenhouse-gas pricing, vehicle-efficiency standards and a fleet of plug-in hybrid cars. His plan is supposed to increase energy independence, lower greenhouse-gas emissions and create 5 million green energy jobs. Will it work? There's room for doubt.

Obama's proposed cap-and-trade program, which would reduce greenhouse-gas emissions 80 percent by 2050, is 10 percent more stringent than the variation (S 2191) proposed by Senators John Warner and Joseph Lieberman that was killed in 2007. The Congressional Budget Office estimated their proposal would cost $1.2 trillion from 2009-2018. The Environmental Protection Agency projected it would raise gas prices by $0.53 per gallon and hike electricity prices 44 percent in 2030. Economists at CRA International estimated the Warner-Lieberman proposal would result in a loss of 4 million jobs by 2015, growing to 7 million by 2050. In the face of a global financial crisis and a long, deep recession, passage of such a plan is both unlikely and undesirable.

"Job creation" is simply a myth. Governments do not create private-sector jobs, or wealth.

The Obama plan also calls for reducing oil imports by tightening vehicle fuel-economy standards and subsidizing a fleet of 1 million plug-in hybrid vehicles. But there's a problem here: U.S. automakers are teetering on the brink of bankruptcy, Americans are strapped for cash, and plug-in hybrids are considerably more expensive than currently available cars. The National Renewable Energy Laboratory estimates the additional costs of plug-in hybrid vehicles that slightly outperform conventional hybrids at between $3,000 and $7,000. For the really fuel efficient ones, the laboratory estimates a premium of $12,000-$18,000.

Hybrids also cost more to insure. Are Americans going to shell out that kind of cash in a recession? I don't think so. Government fleets might buy some, but even they are strapped for cash and will have to cut costs elsewhere to afford plug-in hybrids.

As for creating green jobs, "job creation" is simply a myth. Governments do not create private-sector jobs, or wealth. They can only curtail jobs in one way (through taxation or regulation) and generate other jobs with subsidies and incentives. But since they impose costs in "managing" such programs--and because the market has already rejected the goods that the government is pushing (or there would be no need for intervention)--there are invariably less jobs and less wealth creation at the end of the day.

Markets create jobs, as markets create wealth: All the government can do is move it about to suit its priorities.

Kenneth P. Green is a resident scholar at AEI.

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