Policy of Energy
Even though much of the world is still suffering from economic stagnation, most of us would agree that we still have a very high standard of living in the United States. Compared to previous generations, we are wealthier, healthier, have better technology more mobility and many more opportunities for a better life. Several factors contribute to a higher standard of living, but one of the most important (and most often overlooked) is access to reliable and inexpensive energy. Affordable energy is essential for almost every aspect of our modern lives. Without it, we wouldn't have many of the things we often take for granted. Affordable energy is needed to run the hospitals and laboratories that improve our health. It’s required to deliver electricity to our homes and put fuel in our vehicles. It also supports the millions of jobs associated with all of these things.
In general, the most affordable forms of energy come from fossil fuels, such as coal, oil and natural gas. Compared to these energy sources, alternative fuels such as solar and wind power are considerably more expensive (and less reliable). Burning fossil fuels to generate electricity or provide power necessarily releases carbon dioxide, or CO2, into the atmosphere. Carbon dioxide, a gas, is what we exhale every time we breathe. Erupting volcanoes, decaying trees, wildfires and the animals on which we rely for food all emit CO2. This by-product, which is essential for plant life and an unavoidable aspect of human life, is at the center of today’s climate change controversies.
Degree of change
There is a vigorous debate about what effects carbon emissions may or may not have on our future climate. Many scientists have estimated that the earth’s atmosphere has warmed by about 1.3 degrees Fahrenheit since 1880. Those who believe that increased CO2 emissions inevitably lead to global warming believe this change is directly attributable to the widespread use of fossil fuels. Because they believe further warming will have catastrophic effects, they have waged a war on carbon for many years. They have persuaded regulators to restrict carbon-based fuels in favor of subsidized alternative energy and encouraged policymakers to make fossil fuels more expensive in hopes of discouraging their use.
A matter of policy
In 2009, some policymakers proposed new legislation called “cap-and-trade,” which would set a cap on carbon emissions and allow businesses to buy, sell or trade permits for emitting carbon.
Due to its severe economic effects and the lack of proven benefits for the environment, the legislation was widely unpopular and failed to become law. Instead of accepting this reality, the Administration decided to bypass Congress entirely and restrict emissions through regulations, which are rules that don’t require the approval of elected officials. The U.S. Environmental Protection Agency began restricting emissions from mobile sources such as cars, working with other agencies to require manufacturers to make more fuel-efficient autos.
Although this might sound like a good idea, such a policy is loaded with unintended consequences. Vehicles with higher fuel efficiency are typically more expensive. They also tend to be smaller. For cash-strapped families with several children, this is a serious problem. Manufacturers have also tended to make cars lighter as a way of improving fuel efficiency which can reduce a car’s safety in the event of an accident.
Truth and consequences
Regulators have also changed the rules for stationary sources of emissions, including mills, manufacturing plants and refineries. The EPA now requires new and modified carbon-emitting sources to have permits from various agencies in addition to separate greenhouse gas requirements. These new requirements, coupled with lawsuits from non-governmental organizations, stop expansions that would create value for society and more good jobs. The new rules also force manufacturers to use the most advanced (which usually means the most expensive) technologies.
Tale of two climates
If the goal is really to reduce carbon emissions, it’s worth noting that the U.S. is doing a good job of achieving that goal without cap-and-trade programs. In Europe, where carbon cap-and-trade was imposed years ago, carbon emissions are actually up, not down. The same is true for European energy prices, which have become more expensive.
In April, the EU’s CO2 emissions-trading program was described as “on the brink of collapse,” as prices crashed by as much as 45 percent, dropping to record lows. In the U.S., which has no national cap-and-trade program, carbon emissions and energy prices are both down in recent years. Thanks to increased U.S. production, natural gas, which cost about $12 per million BTUs two years ago, now costs less than $4. U.S. crude oil prices are also down by more than $20 per barrel since 2011. Meanwhile, the U.S. economy is less sluggish than the recessionary economies of much of Europe. An article in the U.K. acknowledged how the recent boom in U.S. shale oil and natural gas production has already had “profound” effects.
London’s Daily Telegraph noted that increased production of these fossil fuels in the U.S. is “creating hundreds of thousands of jobs, significantly adding to GDP and contributing tens of billions of dollars in federal, state and local taxes.” Instead of celebrating these developments state and federal regulators in the U.S. keep trying to impose new and more restrictive carbon regulations. Considering the numerous and extensive environmental laws already in place, it’s easy to wonder why any additional carbon legislation – such as cap-and-trade – would be necessary.
Inside your numbers
All too often state and federal proposals to tax carbon directly or launch new carbon cap-and-trade schemes have much more to do with raising revenue than helping our environment. Even with the so-called sequestration, total U.S. spending has not gone down, but taxes have certainly gone up. As of Jan. 1, a U.S. household making $50,000 a year pays about $1,000 more in taxes. That isn't nearly enough to erase the $1.3 trillion U.S. budget deficit, let alone the $16 trillion national debt. For those who prefer higher taxation to spending cuts, having an entirely new source of revenue is an appealing way to reduce the deficit. Unfortunately, taxing carbon, as with all taxes, only takes more resources from the private sector to support a swelling federal government.
Does this feel fair?
A recent study by NERA Economic Consulting analyzed the probable effects of a U.S. carbon tax that starts at $20 per ton and then rises 4 percent per year (which is in line with recent proposals). If such a tax were imposed, the study estimated that more than 1.3 million U.S. jobs would be lost this year alone and that workers’ incomes would eventually drop as much as 8.5 percent. Such a tax would also decrease household consumption, due to the increased cost of goods.
In Arkansas, for example, the average household would have to pay 40 percent more for natural gas, 13 percent more for electricity and more than 20 cents per gallon extra for gasoline. And that’s just in 2013. Costs would rise even more in subsequent years. For those living paycheck-to-paycheck, price hikes like these (coupled with higher payroll taxes) can only mean lower standards of living and less opportunity. Families that spend a bigger portion of their household income on transportation utilities and household goods are hurt, not helped, by carbon taxes and cap-and-trade rules that make traditional forms of energy more expensive.
Almost everyone is hurt by these higher costs – the exception being those few who benefit from subsidies.