energy costs

Don’t Forget Cap and Trade!

by Iain Murray on August 14, 2009 · 1 comment

in Economy, Employment, Energy, Environment, Global Warming, Regulation

Even though 4 Democratic Senators are so nervous about the electricity tax called cap-and-trade they are urging their leadership to drop it from the global warming bill, no-one should count on that happening yet. More Senators need to wake up to the significant problems cap-and-trade has, and there is no better example of those than the European version of the scheme. With that in mind, my colleague Roger Abbott and I have written a piece for the American Spectator today that outlines just two of the problems the Europeans have encountered. We conclude:

To sum up, the failure of the European ETS should give pause to Senators considering a similar system for the U.S. Cap-and-trade will not result in emissions cuts. It will, however, greatly enhance the power of the government to regulate the economy. And it will lead to higher energy costs, as the costs of trading permits add to utilities’ cost of doing business.

Given these facts, why the strong push for cap-and-trade? The sad fact is that both President Obama and the Democratic Congress are misleading the public. Alternative measures such as a carbon tax have not been considered precisely because their costs are transparent and obvious to the public. By contrast, cap-and-trade allows the President and Congress to claim credit for “taking action” on global warming without acknowledging the real costs that entails — costs which the public, when informed of the facts, is rightly unwilling to accept.

Feel free to send a copy of our piece to your Senator!

Alarmism Has Consequences

by Iain Murray on March 2, 2009 · 4 comments

in Energy, Environment, Global Warming, Precaution & Risk, Sanctimony

In a magnificent display of self-delusion, the green movement is holding a demonstration at the Capitol’s power plant today to protest the continued use of coal to keep people warm. Although I’d love to put the continued operation of Congress at the mercy of the weather, there is a more important point here. Coal is Affordable energy increases people’s income, keeps them in jobs, and keeps them alive. Here is a brief summary of some important research on the subject.

    The Human Consequences of Global Warming Alarmism

• Raising energy costs kills. According to a Johns Hopkins study, replacing ¾ of US coal-based energy with higher priced energy would lead to 150,000 extra premature deaths annually in the US alone.
• Reducing emissions hits the poorest hardest. According to the recent report by the Congressional Budget Office, a cap and trade system aimed at reducing emissions by just 15 percent will cost the poorest quintile 3 percent of their annual household income, while benefiting the richest quintile.
• Raising energy costs loses jobs. According to a Penn State study, replacing 2/3 of US coal-based energy with higher priced energy will cost almost 3 million jobs, and perhaps over 4 million.

    More detailed points

• We are already seeing the adverse effects of global warming policies in the ethanol debacle. Ethanol mandates have not just contributed to the spike in the price of gas, but have also increased food prices. Steaks are up 5.5% from a year ago, chickens up 7.7%. These increased costs force the poorest to make hard choices.
• The ethanol mandates also demonstrate that consumer behavior can’t be fine tuned. As fuel and food prices increased, the choices people made showed that they sacrifice food for fuel. A survey by the Food Marketing Institute found that more than 40% of consumers changed their food-buying habits in response to high gas prices. That illustrates that energy is one of the most important purchases they make.
• Coal production is also fundamental to the US economy. The Penn State study found that by 2015, coal production, transportation and consumption will contribute $1 trillion to the US economy and provide 6.8 million jobs and $362 billion in household income.
• That same study shows pronounced regional variations. If coal production was curtailed by 2/3rds, California would be hard hit. It would lose $58 million in economic activity. California households would lose $22 million a year. And 339,000 Californians would lose their jobs.
• But the states of the Central US would be worst hit – Arkansas, Iowa, Kansas, Louisiana, Minnesota, Missouri, Nebraska, Oklahoma and Texas would lose 1.5 million jobs between them.
• Legislators must consider the unintended effects of their actions. If coal production is to be stamped out, the railroad industry in this country would probably collapse along with it. Without rail transport, other bulk commodities would rise in price. And they would increase congestion on the roads, which don’t have enough capacity to deal with freight transport as it is.

    Background: Lives Lost

The Johns Hopkins study (Harvey Brenner, “Health Benefits of Low Cost Energy: An Econometric Case Study,” Environmental Manager, November 2005) found the following:

An econometric model was applied to a hypothetical regulatory case study, whereby U.S. coal was replaced by alternative higher-cost fuels such as natural gas for the purpose of electricity generation. The model was used to estimate the premature mortality associated with increased unemployment and reduced personal income. The adverse impacts on household income and unemployment due to the substitution of higher-cost energy sources were estimated to result in 195,000 additional premature deaths annually

The results from this hypothetical case study may be scaled to apply to specific policy initiatives affecting the U.S. coal-based electricity generation sector. For example, the U.S. Department of Energy’s Energy Information Administration (EIA) estimates that climate change bills currently before the U.S. Congress—such as Senate Amendment No. 2028, rejected by the Senate in 2003 and again in June 2005—could result in the displacement of up to 78% of U.S. coal-based electricity generation with higher-cost energy sources. The methodology employed here suggests that, absent any direct mitigation measures to offset expected decreases in employment and income, implementation of such measures could result in an annual increase of premature mortality rates by more than 150,000.

    Background: Job, Income and Economic Impacts

The Penn State study (Rose, A.Z., and Wei, D., “The Economic Impact of Coal Utilization and Displacement in the Continental United States, 2015,” Pennsylvania State University, July 2006) found the following:

Assigning equal weight to each of the two energy price scenarios, we estimate that U.S. coal-fueled electric generation in 2015 will contribute:

• $1.05 trillion (2005 $) in gross economic output;
• $362 billion in annual household incomes, and
• 6.8 million jobs.

We also estimated the prospective net economic impacts of the “displacement” of coalfueled electricity generation at assumed levels of 66% and 33% from a projected 2015 base.

These levels of displacement are consistent with some of the potential impacts of major environmental policy initiatives in climate change or other areas. In these cases, we again calculated backward linkage and price differential effects to determine potential negative impacts on each state’s economy.

Additionally, we calculated potential positive economic benefits due to the operation of replacement electricity generation of various types. In all states, the net effect of displacing coal-based electricity was negative for the “high-price” scenarios, and in nearly all states, the net effect was negative for the “low-price” scenarios…

Assigning equal weight to the high- and low-price scenarios, we estimate the average impacts of displacing 66% of coal-fueled generation in 2015 at:

• $371 billion (2005 $) reduction in gross economic output;
• $142 billion reduction of annual household incomes; and
• 2.7 million job losses.

Assigning equal weight to the high- and low-price scenarios, we estimate the average impacts of displacing 33% of coal-based generation in 2015 at:

• $166 billion (2005 $) reduction in gross economic output;
• $64 billion reduction of annual household incomes; and
• 1.2 million job losses.

The Energy Tax Budget

by Iain Murray on February 26, 2009 · 8 comments

in Economy, Energy, Environment, Global Warming, Stimulus to Nowhere

“Not one dime,” said President Obama in his address to Congress, referring to how much extra tax people earning under $250,000 a year will have to pay in his budget. Unfortunately, even if you don’t have to pay extra tax, you will have to pay extra fees for your energy, which are passed on to the government via energy companies. That’s the effect of the President’s cap-and-trade scheme for carbon emissions, an important part of his new budget. Energy companies will have to pay the government for permits for each ton of carbon dioxide or equivalent they emit in the generation of power. They will pass on these costs to the consumer, as has happened everywhere a cap-and-trade scheme has been tried. The Administration will split the revenues between $15bn for alternative energy pork and about $52 billion per year to help pay for the Making Work Pay tax cut/welfare check of $800 for “95 percent of all American workers.” By raising the price of fossil fuel energy and thereby making expensive alternative energy more competitive, the program is also aimed at reducing the amount of greenhouse gases emitted.

How much will cap and trade cost households in increased energy costs? Well, we know from a CBO study last year that a 15 percent reduction in emissions from 1998 levels would cost each household at least $660. That target is about 25 percent more stringent than the budget target, which is simply a return to 1990 emission levels by 2020 (far less than environmentalists demand). So we can apply simple arithmetic to estimate that the current budget cap and trade program will cost each income quintile $510, $660, $870, $1125 and $1635 (in 2006 dollars, slightly more in nominal values) respectively. This is a significant offset to the $800 “tax cut” per worker.

To those who might object that most households have two income earners these days, that’s not true. While the “traditional” family model of a husband supporting his family only accounts for 7 percent of householders now, dual-income families actually account for just 29 percent of households. Moreover, it is the bottom three quintiles that have on average just one earner, meaning that they suffer proportionally more from this energy tax increase.

Finally, for the highest quintile, the lower income limit is just $88,000. If you earn that amount, even if you have two income earners in the household, you will likely lose money from these stealth energy taxes. So will the average household earning between $35,000 and $55,000. So much for “not one dime.”

Obama Inaugural Speech Spurns Notion of Apologizing

by Christine Hall on January 20, 2009

in Energy, Environment, Global Warming

Listening to President Obama’s inaugural address today, I was struck by his rhetoric with respect to “apologizing for our way of life.” It was a bit unclear, but hopefully he was referring, not only to threats to our national security, but to energy consumption — the notion that we (Americans, westerners) should not apologize for the energy we consume, which enables us to live better, more productive, healthy lives.

With old friends and former foes, we will work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet. We will not apologize for our way of life, nor will we waver in its defense, and for those who seek to advance their aims by inducing terror and slaughtering innocents, we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you.

As my colleagues have noted, many of Obama’s energy and environment appointments have a long track record of supporting anti-energy policies, such as renewable energy mandates, that drive up energy costs for the rest of us. But, for a moment, it would be nice to think that our new president doesn’t want us to apologize for the energy that empowers all of us to live better lives.