Carlin Economics and Science

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.

As explained in a recent paper, there are only a few ways in which the US Environmental Protection Agency can be prevented from rewriting the Clean Air Act and issuing sweeping regulations to attempt to control emissions of greenhouse gases such as carbon dioxide. These regulations are not based on good science but rather largely on something called an “Endangerment Finding” issued late in 2009, which in turn is based on a US Supreme Court decision of 2007 that effectively expanded the reach of the Clean Air Act beyond anything mentioned in the Act. In other words, EPA is attempting to greatly expand its power and authority without any Congressional approval of what it is doing. The result is an EPA-initiated expansion of its already vast power over the economy and will result in very large adverse economic costs to the American public (especially “necessarily skyrocket”[ing] energy costs in the words of Barack Obama in the related context of cap and trade) with very little if any economic benefits.

This state of affairs is scheduled for its first real Congressional test on Thursday, June 10, when the Senate is scheduled to vote on the Murkowski Disapproval Resolution (S.J.Res.26), which uses the Congressional Review Act to dispprove the Endangerment Finding. Although further Congressional action would be needed to make the disapproval effective, its approval by the Senate would be a major first step towards this end. As of June 7 the vote was expected to be very close. Those who believe as I do that it is very important to prevent EPA from unilaterally vastly expanding its authority over the economy without approval by Congress can best influence the outcome of the vote by contacting their senators on June 8 or 9 and urging them to vote yes on S.J.Res.26.