Government Interventions in Markets Are Often Not Justified and Yield Dismal ResultsAlan Carlin | June 10, 2016
When governments usurp the roles that are most efficiently played by markets by interfering in them, the results are almost uniformly disastrous. There are cases, usually serious, proven pollution problems, where such government intervention is advisable, but these are rarer than widely believed.
A case in point is government selection of energy sources. No valid case has been made that such decisions are best made by government. Environmentalists often argue that the market fails to take into account the effects of fossil fuels on climate change/global warming and government should intervene to reduce these climate risks. The problem, of course, is that although fossil fuel use may well affect conventional pollutants (such as sulfur dioxide and carbon monoxide), we already have the world’s strictest standards in the US in this regard and the connection between fossil fuel use and climate is speculative at best while its connection to improved living standards is quite certain. If there are any such effects on climate, they are not catastrophic and appear to be minor at most. But that has not stopped alarmists (including environmentalists and left of center politicians) from claiming that government should intervene immediately to reduce emissions of carbon dioxide.
The Actual Results of Government Interventions in Energy Fuel Choice Markets Have Been Dismal
Government’s record in selecting or favoring particular energy sources does not inspire much confidence. For example, the Federal and some state governments subsidize wealthy people who want to buy electric cars. The intent of such purchases is often as a statement of the buyers’ wealth or values, but does little if anything to reduce CO2 emissions. Most electricity for electric cars comes from fossil fuels–just different ones. So in those areas where it does, substituting electric vehicles for fossil fueled vehicles achieves little or nothing in terms of reducing CO2.
Perhaps the worst example is corn ethanol. Congress has decreed that ethanol made from corn must be blended with gasoline. This is expensive (corn ethanol is less efficient at running vehicles than gasoline), increases CO2 emissions on balance, and damaging to engines, particularly small engines, forcing users to buy chemicals to reduce these effects or search for and pay much higher prices for special ethanol-free gasoline or replace their small engines more frequently. Corn farmers and ethanol producers are major winners at the expense of everyone else. This is almost entirely about income redistribution.
Dubious Use of Cap and Trade Revenue in California
Another example is California’s use of its “cap and trade” revenue. It is supposed to be used to reduce greenhouse gas emissions, but the biggest expenditure to date has been for high speed rail. The cap and trade program is effectively a tax on CO2 emissions by industrial facilities, electricity generation, and heating and transportation fuel use. The major burden falls on those with limited incomes, who may lose their jobs as the jobs move to lower cost areas, and are paying more for vital electricity, home heating, and gasoline. The major beneficiaries, on the other hand, are users of a high speed rail project that is very likely to be ridden (if at all) by higher income users, just like those that now use Amtrak intercity services. Poor people usually ride buses, not trains.
To make matters worse, California plans to initially build the project between two low traffic cities in the Central Valley. High speed rail will not have any significant effect on CO2 emissions and may actually increase them depending on where the electricity comes from to run the trains and whether users actually decrease their use of other modes of transport. I would argue that the cap and trade revenue fund is primarily a slush fund to support public spending by the party currently in power in California.
So with this less than sterling record, why would anyone want to support much further government intervention in energy source selection as now mandated by the Obama Administration, especially when leaving it to market forces has produced much greater CO2 reductions (in the US) than strict government regulation (in Western Europe)?