Energy plan will wreck U.S. economy

Mackubin Thomas Owens: Energy plan will wreck U.S. economy
01:00 AM EDT on Wednesday, August 12, 2009
MACKUBIN THOMAS OWENS
WHILE THE ATTENTION of the public focused on the circus around Michael Jackson’s death, the House of Representatives was laying the groundwork for picking the public’s pockets on a massive scale. The Waxman-Markey energy bill, now set for debate later this year in the Senate, will, if it ever becomes law, hamstring the U.S. economy, raise unemployment and burden taxpayers.
The centerpiece of the legislation is a “cap-and-trade” provision designed to reduce carbon dioxide (CO{-2}) emissions by raising the price of CO{-2}-intensive goods and services such as gasoline, electricity and many industrial products. Legislation should be subjected to some basic cost-benefit analysis. Such analysis is woefully absent from this legislation, which provides little in the way of benefits to American citizens but imposes very high costs.
The goal of the bill is to reduce greenhouse-gas emissions that allegedly cause “global warming,” or as it is now known, “climate change.” But the fact is that global temperatures have been falling since 1998 and have plummeted in the last two years. The melting of Arctic ice caused alarm in 2007. But now the ice is at a 50-year high.
With regard to anthropogenic (man-caused) climate change, there is a growing scientific backlash against global-warming alarmism. Many of the models used to implicate human activity in rising temperatures have proven to be methodologically unsound.
Finally, we don’t know for certain what impact warmer global temperatures will have. The planet has been both warmer and cooler than it is now. And while we know what a normal temperature is for a human being, no one can say what the “normal” temperature of Earth is.
On the benefits side, there is another problem as well. Even if the United States were to significantly reduce CO{-2} emissions, it would have little global effect, given that the biggest producers of greenhouse-gas emissions are rapidly developing countries such as China and India that favor economic growth over environmental concerns. And the fact is that businesses in the United States have cut such emissions in response to market forces.
On the other hand, the costs of something along the lines of Waxman-Markey are staggering. Carbon-based fuels (oil, coal, natural gas) provide about 85 percent of U.S. energy needs and generate most greenhouse gases. Under the legislation, companies would need annual allowances issued by the government in order to emit greenhouse gases. Under the “cap” part of the legislation, these allowances would gradually decline. Indeed, Waxman-Markey requires the CO{-2} level in 2050 to be 83 percent less than it was in 2005. The “trade” part of the legislation permits utilities and oil refineries that need extra allowances to buy them from companies willing to sell. As the annual allowances permitted by the government are reduced in number, their price would rise. The Environment Protection Agency estimates that the price of a permit would increase from $20 a ton in 2020 to $75 a ton by 2050. Of course, the companies would pass the extra expense of the permits on to customers.
The Congressional Budget Office estimates that reducing the level of CO{-2} to 15 percent less than the total level of emissions in 2005 would increase a typical household’s cost of living by $1,600 a year. As Martin Feldstein, the Harvard economist, observes, a typical family of four making $50,000 currently pays an income tax of $3,000. Thus Waxman-Markey would essentially raise this family’s income tax by over 50 percent, and only in the short run. In the long run, the cost to American households would skyrocket.
Meanwhile, U.S. businesses would become less competitive in the world. American companies would suffer in export markets as American prices rose. Domestic producers would suffer because of competition from imports from countries that do not impose the CO{-2} tax on their companies.
It is undeniable that if we reduce CO{-2} emissions, we also suppress today’s energy sources, which in turn suppresses the economy. The idea that we can shift effortlessly from carbon-based fuels to alternative “clean” forms of energy and conservation is a pipedream. Population increases in the United States alone will raise energy demand. According to the Energy Information Administration, the U.S. population will grow by 22 percent (to 366 million) and the number of housing units by 25 percent (to 141 million) by 2030. If the supply of electricity doesn’t keep pace with demand, brownouts, blackouts or other disruptions would mount.
As the Senate debates its version of cap-and-trade, it might learn from the example of Europe. Western European countries have found that it is very difficult and expensive to reduce carbon emissions. To the limited extent that they have succeeded, it has hurt their economies: Nearly every western European state has had higher unemployment and energy costs than America, and a weaker overall economy. And the promise of the new “green” economy is proving elusive as well. For example, Spain is often used as the example of a successful clean-energy economy and source of green jobs, but it is rarely mentioned that Spain currently has 18 percent unemployment.
Let’s hope the Senate does a better job of cost-benefit analysis than the House. It should not be the government’s job to wreck the economy.
Mackubin Thomas Owens is a professor of national security affairs at the Naval War College in Newport and editor of Orbis, the quarterly journal of the Foreign Policy Research Institute, in Philadelphia.