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View related content: Environmental and Energy Economics
No crisis should go to waste, an eternal truth highlighted in bold by a purported climate change apocalypse that is now the target of actions newly proposed by President Obama. This so-called “crisis” will flood not various coastlines, but instead the front pages, replacing other, less flattering political headlines for the administration.
And if the proposed actions offer the potential of sizeable wealth transfers to political allies? That is far more than mere icing on the cake. Whatever the weakness of the evidence on greenhouse gases (GHG) and climate effects, the real goal of carbon policy is a regional redistribution of wealth, a reality that explains the inability of Congress to enact such policies since the Clinton administration, when a “Sense of the Senate” resolution rejecting the Kyoto Protocol was approved by a margin of 95-0. President Obama too was unable to convince even a fully Democratic Congress to adopt such policies, and so he now proposes that his Environmental Protection Agency and Department of Energy implement regulations reducing emissions of carbon dioxide and other greenhouse gases (GHG).
The President’s Plan
Let us begin with a summary discussion of the president’s three broad proposals: the imposition of a GHG emissions standards on both new and existing electric generating plants; expansion and tightening of energy-efficiency standards for buildings, appliances, and some vehicles; and an increase in (subsidized) renewable power generation from federal lands. The first proposal, the imposition of a GHG emissions standard on power plants, means in a nutshell that no new coal-fired plants will be built, and that some existing coal-fired capacity will be shut down. The cost data from the EIA suggests that future competition between new coal and natural gas power plants will be driven heavily by the relative costs of coal and natural gas, both of which are uncertain. For the government to impose such a solution in place of market forces requires a rationale – the purported effects on climate change – that is very far from obviously correct, as discussed below. With respect to the substitution of gas-fired generation in place of existing coal-fired plants, much hinges on how the regulations are written and implemented; but the EIA data suggest increases in operating costs alone of up to 60 percent.
The president’s speech seems to imply that ‘energy efficiency’ somehow is free.The president’s speech seems to imply that “energy efficiency” is somehow free. That is, that it’s easy to achieve reductions in energy use without causing a reduction in the benefits from energy use. Were that the case, one wonders why market forces do not lead to such outcomes themselves. In reality, energy efficiency requires the substitution of capital, or the acceptance of less safety and comfort, or other adjustments, the net virtues of which government officials and experts simply are not in the best positions to evaluate. There is also the “rebound” effect: if vehicles and appliances use less energy per unit of output, a natural market response is to use more of them and to use them more intensively. The net result: far less energy savings than usually are asserted, and thus a lower economic return to the investments made in efficiency.
With respect to the proposed expansion of renewable energy production: wind and solar power receive subsidies per kilowatt-hour vastly larger than those purportedly received by conventional generation, and it remains the case that renewables simply are uncompetitive, in substantial part because the energy content of wind and sunlight is too diffused to be useful without massive capital investment. For a discussion of the economics of renewable power and the weakness of the arguments in support of policies subsidizing it, see this AEI report.
Read the full text of this article on the American.
Benjamin Zycher is a visiting scholar at AEI.
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