Carlin Economics and Science

July 22 appears likely to mark a significant turning point in the long global warming/climate change control saga. Yesterday, the Senate Majority Leader, Harry Reid, announced that the Senate would not consider legislation prior to the August recess that involved either cap and trade/tax or a renewable electricity standard. Although this outcome had been predicted for some time by some Republican senators such as James Inhofe, this amounts to a recognition of this reality by the Senate Democratic leadership. This decision makes it unlikely that such legislation will be approved this year. If, as some Republicans hope, the next Congress has more Republican members, such legislation would be even less likely in the next Congress. There remains a risk that such legislation would be passed in a lame-duck session at the end of 2010, but that may not be a strong possibility given the apparent lack of interest by all Senate Republicans and some Democrats.

So the only remaining realistic possibility for implementation of carbon emission controls is probably through actions by the U.S. Environmental Protection Agency. On June 10 the Senate failed by a vote of 47/53 to disapprove the EPA Endangerment Finding of late 2009. It is possible, however, that a two year delay in EPA action will be approved by Congress later this year in accordance with a proposal by Senator Jay Rockefeller. But if this or other ways can be found to halt EPA’s efforts the remaining major risk of global “climate control” would be effectively ended in the US.

This development yesterday is likely to sooner or later result in the end of world support for such approaches if a way is found to end EPA’s threatened regulations. Those countries that choose to continue major governmental efforts to reduce carbon emissions will soon find themselves at a competitive disadvantage to those that do not. Few countries are likely to be willing to take such risks with their economies for very long.

President Obama tonight called for a major transition from “dirty” fossil fuels to “clean” energy sources, and claimed that the Waxman-Markey bill was a major step in that direction. He claimed that such a change would help to prevent future oil spills such as that experienced over the last two months in the Gulf of Mexico. So his new argument is not that cap and trade/tax would reduce emissions of greenhouse gases, which he never mentioned. Instead, his argument is that cap and trade/tax would prevent future major oil spills and other adverse environmental effects of using “dirty” fossil fuels.

This argument is weak to say the least. Conversion to his particular favored energy sources would take many years and prove exceedingly expensive, as the experiences of Spain, Denmark, and Germany with wind/solar energy illustrate. These favored sources each have their own environmental problems. In the meantime fossil fuel use will have to be expanded substantially to meet public and industry demand since the only way to prevent this would be to have a permanent and deepening recession. Finally, it does not really matter whether the proposed conversion starts now (as he said he wants) or many years from now since the alleged reduced risk of oil spills would not be realized for many years, if ever.

Realistic Alternatives to Reduce Dependence on Oil

If the purpose is to reduce major offshore oil spills, the obvious way to do that other than effective regulation (which the Obama Administration has clearly not done) is to prohibit specified types of “risky” offshore drilling until it can be made safe and encourage (not require) and at least not prohibit the development and use of other economical energy sources that will not lead to major offshore oil spills. Such oil-substitutes exist in abundance in the United States, and include land-based heavy oil and oil sands and oil shale and the conversion of coal to oil (for which technology has long existed). It may also prove economical to convert more large vehicle fleets to natural gas, given its falling price. All of these could be accomplished within a few years and with comparatively little cost to US energy users and would actually reduce our dependence on conventional oil and therefore reduce the demand for risky offshore drilling.

The President’s vague call for a change to “clean” energy and praise for the House cap and trade/tax bill as a way to avoid future major offshore oil spills is little more than pie-in-the-sky intended to promote his real aim, which still appears to be reducing greenhouse gas emissions. This is illustrated by his proposal recently to substantially expand off-shore oil drilling apparently as a way to buy votes for cap and trade/tax. Somehow the environmental risks of expanding off-shore drilling did not play any significant role when it came to promoting cap and trade/tax just a few months ago.

Unfortunately, his appeal tonight may result in passage of laws that provide preferences for his favored “clean” fuel sources. Since both coal and oil are currently out of favor, that presumably means solar, wind, and possibly (although he did not specify last night) nuclear. Each of these sources have their own environmental problems and share the common problem of being very expensive. Their use will inevitably lead to much higher energy prices. These problems will not go away by giving them national preferences. Preferences will primarily result in increased energy costs for industry and consumers and increasing non-competitiveness of the US economy in world markets.

Federal Preferences for Particular Energy Sources Would Be a Huge Waste of Resources Needed Elsewhere

So although preferences may be politically “popular,” they are nothing more than gigantic wastes of money which the United States needs for other much more useful purposes. Preferences will not make the technology develop significantly faster and will result in fewer, not more jobs, as shown by studies of the Spanish and Danish experiences with wind/solar energy. Other than providing a few limited incentives for economical alternative sources to oil such as described above, the best course of action for Congress is to keep the Federal Government out of the choice of energy sources (as described in an earlier post), and limit its involvement to effective regulaton of existing health, safety, and environmental laws. Increased concentration on this last but legitimate role for government should more than occupy the Government’s limited resources over the next few years.