Bad Energy Policy and The Heritage Foundation’s Response
Nicolas Loris /
The National Basketball Association’s San Antonio Spurs are known for winning NBA championships in odd years, winning in 1999, 2005, 2005 and 2007. Bad energy bills are beginning to follow the same trend as Congress passed energy bills in 2005 and 2007 that focused on subsidies and mandates as opposed to a market-driven approach. 2009 is shaping up to be no better; in fact, the draft of new energy legislation suggests it will be much, much worse.
Chairman Henry Waxman (D-CA) of the Energy and Commerce Committee and Chairman Edward Markey (D-MA) of the Energy and Environment Subcommittee released draft legislation that includes:
• A clean energy title that promotes renewable sources of energy, carbon capture and sequestration technologies, low-carbon fuels, clean electric vehicles, and the smart grid and electricity transmission;
• An energy efficiency title that increases energy efficiency across all sectors of the economy, including buildings, appliances, transportation, and industry;
• A global warming title that places limits on emissions of heat-trapping pollutants; and
• A transitioning title that protects U.S. consumers and industry and promotes green jobs during the transition to a clean energy economy.
The draft summary can be found here. The full 648 pages can be found here.
Title 1, Clean Energy: The bill includes a renewable electricity standard (RES) that requires 6 percent of electricity come from renewable energy by 2012 and increases to 25% in 2025. It also includes incentives (read: handouts) to develop carbon capture and sequestration, clean fuels and vehicles, facilitates the transition to a smart grid, and allows Federal Energy Regulatory Commission (FERC) to take control over building new transmission lines to carry electricity generated from remote areas by renewable sources to more populated areas.
The Heritage Response: The only reason why a federally mandated RES is needed in the first place is that that these alternatives are far too expensive to compete otherwise. In effect, Washington is forcing costlier energy options on the public. This is particularly true of certain states, especially those in the Southeast and parts of the Midwest, where the conditions are not conducive to wind power. And since renewables are lavished with substantial tax breaks, a national mandate will cost Americans both as taxpayers and as ratepayers.
Secondly, any subsidy, whatever the source of energy or product, distorts normal market forces and encourages government dependence. By subsidizing a portion of the actual cost of a project through a loan guarantee, the government is actually distorting the allocation of resources by directing capital away from a more competitive project. Thirdly, upgrading the nation’s grid has merit, but it cannot be a bureaucratic, Washington-centric approach, nor can it be used as a subsidy to advance renewable energy sources, which means it does not have to be coupled with building new transmission lines. More efficient grid technology should be an investment made by the private sector, and if it will save money as Congress purports it will, consumers will do so.
Title 2, Energy Efficiency: The second title of the bill includes new energy efficiency standards for new buildings, rebates to low income families living in pre-1976 manufactured homes to buy Energy Star-rated manufactured homes, appliance efficiency standards, transportation efficiency, industrial energy efficiency, public & federal energy efficiency and utilities energy efficiency.
The Heritage Response: Energy efficiency can be beneficial for consumers, but rarely when Washington tries to force it on the public. Energy-efficient appliances and mechanisms will not painlessly lower electricity bills. These measures also impose costs, and consumers benefit only if the energy savings outweigh the costs. For one thing, mandatory improvements in efficiency usually raise the purchase price of appliances; sometimes the increase is more than enough to negate the energy savings. In addition, the forced reduction in energy use can come at the expense of reduced product performance, features, or reliability.
Advances in energy efficiency for appliances, or for any other product, do not require government regulations. Manufacturers and consumers are perfectly capable of determining for themselves the proper balance between energy efficiency and other product attributes. Rigid federal standards simply give efficiency priority over everything else, often to the detriment of families and businesses. Congress should keep in mind the unintended consequences when considering to mandate energy efficiency.
Title 3, Global Warming Regulation: The third title of the bill introduces a “market-oriented” cap and trade program that would reduce carbon dioxide 20% below 2005 levels in 2020, 42% below 2005 levels in 2030, and 83% below 2005 levels in 2050. Furthermore, it calls for strict, regulatory oversight by FERC and calls on the Environmental Protection Agency to use the “Clean Air Act to reduce emissions of black carbon domestically and study opportunities for reductions internationally.” The draft also says that “CO2 and other greenhouse gases may not be regulated as criteria pollutants or hazardous air pollutants on the basis of their effect on global warming.”
The Heritage Response: Despite Washington policymakers’ best attempt to call a cap and trade a market-oriented approach, it does not resolve the central problem that will continue to plague attempts to cap CO2. In reality, any carbon capping plan is a costly energy tax in disguise that will raise energy prices and unemployment with little environmental benefit. In fact, White House officials recently acknowledged a cap and trade bill could generate as much as $1.9 trillion in tax revenue over eight years, which amounts to a nearly $2,000 tax every year, for eight years, for every American household.
Since 85 percent of U.S. energy demand is met by fossil fuels, taxing the lifeblood of the American economy would have disastrous consequences. The Heritage Foundation’s Center for Data Analysis’ study of the Lieberman-Warner cap and trade bill found aggregate real GDP losses (adjusted for inflation) of nearly $5 trillion – for comparison, this is equivalent to the economic damage done by over 600 hurricanes. The bill would’ve also destroyed between 400,000 and 800,000 jobs each year. It should be noted that the targets and timetables in the discussion draft are considerably more stringent than those in Lieberman-Warner and thus would be costlier.
Title 4, Transitioning to a Clean Energy Economy: The last title of the bill includes a section that ensures manufacturers are not put at a disadvantage, either through rebates for additional costs for “sectors that use large amounts of energy, and produce commodities that are traded globally”, or by having “foreign manufacturers and importers […] pay for and hold special allowances to “cover” the carbon contained in U.S.-bound products.” The bill also promotes green jobs by providing grants to universities for students enrolling in programs to pursue careers in renewables, energy efficiency, and global warming mitigation. If countries reach an international treaty on climate change, the U.S. would provide foreign aid assistance to developing countries for clean technology.
The Heritage Response: Having foreign manufacturers and importers pay to cover the carbon products coming to the United States will only further increase costs for consumers. Under such a policy, not only will our energy costs be higher, but now everything we import will be more expensive too. Furthermore, it could lead to a trade war. Protectionism begets more protectionism. Other countries will view this as unfair, because it is, and respond by implementing more tariffs in retaliation. Also, any international carbon reduction plan would likely de-develop the developing world even with U.S. assistance for clean technology. Developing countries rely heavily on free trade to prosper. Exporting goods in which countries hold a comparative advantage is critical their economic growth, just like it is ours.
As far as green jobs are concerned, counting the number of green jobs a transition to a clean energy economy creates while ignoring the jobs the initiative destroys is simply highlighting the benefit while ignoring the cost. Support for renewables would likely cost more jobs than are created. For example, subsidies for wind and solar energy would, at least from the narrow perspective of the wind and solar industries, create new jobs as more of these systems are manufactured and installed. But the tax dollars needed to help pay for them cost jobs elsewhere, as would the pricey electricity they produce.