No Economic Spark from Energy Bill

The Waxman-Markey Climate Bill is a package deal combining climate change initiatives including cap and trade, smart energy grid , energy efficiency and renewable energy standards. Liberal House Democrats are trying to force the measure through as a package because they know cap and trade alone will not pass. Considerable irritation with the cap and trade proposal is growing on the Democratic side of the aisle because of the increasingly apparent punitive nature of the bill to consumers and certain regions of the country.

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To fight global warming the Obama campaign promoted a program to limit the total amount of carbon dioxide produced by the United States. To regulate this production he promised to help create a “cap and trade’ program. This program would require businesses that produce carbon dioxide to pay at least a base amount of tax on their emissions. Companies that become efficient and produced less emissions could sell off their carbon allowance to other less efficient companies in auctions. During his campaign he admitted the program would carry a high price when he said this as quoted in the San Francisco Chronicle on January 17, 2008: “Under my plan of a cap and trade system electricity rates would necessarily skyrocket. Businesses would have to retrofit their operations. That will cost money. They will pass that cost onto consumers.” Members of his campaign as well as analysts admitted that there would be significant costs per family each year . A tax credit for working families which stops at the level of only $75,000 has been proposed by Obama which would be funded partially at least he says by eliminating the Bush tax cuts. The main academic study that was used as the basis for writing the legislation was done at the Massachusetts Institute of Technology estimated the measure would bring in $366 billion in taxes. However considerable controversy developed about what the cost would be to the average American family. The Coalition for Affordable American Energy which was composed of 200 organizations including the U.S. Chamber of Commerce estimated the new program would not only cost households an average of $1400 per year by 2020 but also 1.9 million job losses. The effects of cap and trade would include hikes in gasoline prices by 13%, electricity 27%, and natural gas by 39%. As a result of spending more for energy there would be less disposable income to be used for other things which would negatively impact the economy. Professor John Reilly of MIT one of the study’s main authors began a controversy in March when he told the press that the cost quoted per family by Republicans including Senator John Cornyn (R-TX) of $3,128 were exaggerated greatly over his personal estimate of $215.05 per family. Subsequently the liberal press went to war with not only clearly left bent publications but also some mainstream publications such as the McClatchy group and the Wall Street Journal repeating the quote of the cap and trade bill sponsor and Chairman of the House Committee on Energy Massachusetts Democrat Edward Markey that Republicans were using “fuzzy math”. MSNBC pundit, Keith Olbermann, even piped in that the costs would be only $79 per family without any reliable scientific reference. As the the American Clean Energy and Security Act, sponsored by Democrats Henry Waxman of California and Edward Markey of Massachusetts was getting ready to go before the House of Representatives closer scrutiny by many has revealed that the “fuzzy math” is with the bills promoters rather than the detractors. MIT professor John Reilly admitted to the Weekly Standard on April 22, 2009 that he had made a “boneheaded” mistake on his excel sheet causing him to rethink his estimate and increase the amount to $800 per household. None of the media or bloggers like Jean Roberts wrote any apologies or corrections after Professor Reilly’s mistake. A big issue is that cap and trade will adversely affect some regions more than others. Ben Lieberman of the Heritage Foundation has created a Manufacturing Vulnerability Index that is a measure of each state and Congressional districts reliance on coal for electricity and manufacturing jobs. His studies show that the “coal-using and industrial Midwest” will be slammed hard by energy costs. The availability of renewable energy is not universally plentiful as an alternative. Texas and California are rapidly increasing their wind and solar power to the extent that up to 40% of domestic electrical demand in those states could be met by those sources within 20 years while many states in the Northeast will struggle to go above 10% or even 5%. The final and perhaps the most important issue is whether the technology really exists at this time to allow replacement of carbon fuels in our economy. Recently 52% of oil executives out of 382 leading industry executives said that alternative energy sources are not viable competitors against fossil fuels for the short term. They predicted that the situation under the best of circumstances would not change significantly until at least 2015. Almost half thought that fossil fuel production would still be needed to provide 80 percent of global energy needs through 2030 but that the Obama administrations action would reduce production by up to 42%. Recently Energy Secretary Steven Chu called for “second industrial revolution” in energy technology . In his call the Secretary admitted that fossils fuels remain cheap and abundant. Mark Muro, Fellow and Policy Director of the Metropolitan Policy Program wrote this week for the Brookings Institute that “We currently lack the technologies we need to fully avert catastrophic global warming.” Many are asking why the proposed program is totally silent on the carbon neutral energy production of nuclear power. Nuclear energy is a key component of energy policy to control carbon emissions in France and Japan. Pete Dupont in the Wall Street Journal noted that America could use 40 new nuclear power plants which would each employ 4000 workers to build and about 500 employees to maintain. A potentially important source of energy that will be killed by cap and trade legislation is the development of biofuels and use of biomass. Although there is reasonable debate about the efficiency of ethanol from corn no one disputes that with further development and research renewable sources of petroleum type substances can be developed not just as fuels but also as important chemicals for many uses. Biofuels may be necessary as a bridge between fossil dependence still remaining when the world’s oil supply dries up or becomes too expensive and the development of other alternatives. Even if you believe as I do that global warming is a potential threat , the Markey-Waxman Energy Bills is not the answer. Great hardship will be imposed upon the economy as a whole and the Midwest United States in particular with its passage. The reality is that our society is not technologically ready to ditch fossil fuels. Instead of punishing consumers and industry, government should be promoting innovation and entrepreneurship in energy discoveries and economies. There is clearly not going to be a one-size fits all approach that will work throughout the country. Society will be better off if technological advancement finds cheaper and cleaner sources of energy through market forces than government fiat. Cap and trade legislation pretends to know exactly in what direction engineering and scientific achievement will go. I cant help but wonder if government is trying to breed better horses for a better “Pony Express” and does not yet know that the discovery of the railroad is just around the corner