The Heat is On

The Heat is On

February 29, 2000

Does America Have the Energy to Weather $2-Per-Gallon gas Prices?

This winter’s spell of cold weather doesn’t tell us anything about whether the theory of global warming is true, but its political effects make it clear that the Kyoto Protocol–the United Nations treaty to reduce greenhouse gas emissions–is not going to be an easy sell to the American people.

Truckers are losing money because of high diesel prices. New Englanders have had a hard time keeping their houses warm because of heating oil shortages. And in many places, gas at the pump is over $1.40 a gallon.

OPEC production cutbacks designed to raise petroleum prices, plus a harsh winter, have caused oil prices to soar. Prices this high (and indeed much higher in constant dollars) have been seen before, but people are having a hard time adjusting. Less than a year ago an oil glut drove gas prices down below a dollar.

So it’s no surprise that complaints and demands that Washington do something are coming from all around the country. In Massachusetts, former US Representative Joe Kennedy demanded more government regulation of heating oil companies, including a requirement to maintain larger reserve supplies. New Hampshire Governor Jeanne Shaheen wants action "to ensure that what happened this winter in New England never happens again."

Three hundred truckers joined a convoy to the US Capitol building in February to ask for suspension or repeal of the 24 cents-per-gallon federal tax on diesel fuel. Numerous calls have been made to release oil from the Strategic Petroleum Reserve in order to increase supplies and drive prices down.

The Clinton-Gore administration and many members of Congress have, naturally, responded to all this pressure. President Clinton released $125 million in low-income energy assistance funds for the northeast states and called on Congress to appropriate $600 million more on an emergency basis. After admitting that his department had been caught napping, Energy Secretary Bill Richardson embarked on a jawboning tour of Arab oil-producing nations to try to convince them to open the spigots.

Bills were quickly introduced in the House and Senate to encourage the president to tap the Strategic Petroleum Reserve, 565 million barrels of oil stored underground by the federal government for use in national emergencies. Insiders report that the administration is seriously considering the idea.

Other members of Congress have used the price spike to call attention to our dependency on foreign oil and attack longstanding federal policies that prohibit further exploration in Alaska and off most of our nation’s coastline.

While tight supplies and consequently higher gas prices will likely persist through the summer vacation season, the major oil exporting nations in OPEC now appear worried that oil has become too expensive. They may therefore soon decide to raise their production quotas. So the end of the crisis will probably be in sight before any federal response has time to take effect.

People may reasonably disagree about what actions, if any, the federal government should take, but what this affair makes clear is that, first, people like cheap energy and complain loudly when prices go up. And second, elected officials are very responsive to these complaints. Curiously, some of the most responsive are also strong supporters of the Kyoto Protocol.

This is curious because meeting the greenhouse gas emission limits set by the Kyoto Protocol will require huge reductions in total US consumption of fossil fuels–coal, oil, and natural gas. And the only practical way to force those cuts, unless one thinks that passing out ration books is practical, is through steep price increases.

Economic experts continue to argue about exactly how high the cost must go to drive down fossil fuel consumption and make alternative fuels competitive, but most estimates range from $1.75 to $3 for a gallon of gas. Replacing coal as the main fuel for producing electricity will require similar price hikes for electric power.

Environmental pressure groups welcome these higher energy prices. As Marc Breslow, an economist for the Commonwealth Institute in Massachusetts, commented recently, "While rising prices hurt consumers, for environmental reasons the price of oil should be higher."

The current political uproar shows how unlikely it is that a president or a majority in Congress will ever have the will to raise fossil fuel taxes enough to comply with the Kyoto Protocol. As soon as voters start to complain, even global warming true believers will run for cover.

That is the political reality suggested by this winter’s price spike, but President Clinton, of course, creates his own reality. On the treaty that his administration negotiated in Kyoto in 1997, his reality is that we can reduce greenhouse gas emissions by 30 or 40 percent with little or no cost. He has come to this surprising conclusion on the basis of reading a book, Natural Capitalism: Creating the Next Industrial Revolution, by Paul Hawken, Amory B. Lovins, and L. Hunter Lovins.

No one has had the heart to tell the president that the book was written by crackpots, and so he continues to make statements like this one from his State of the Union address in January: "Many people in the United States–some people in this chamber–and lots of folks around the world still believe you cannot cut greenhouse gas emissions without slowing economic growth. In the Industrial Age that may well have been true. But in this digital economy, it is not true anymore. New technologies make it possible to cut harmful emissions and provide even more growth."

That is what the president maintains, but the governments of Germany, France, the United Kingdom, Australia, and Japan have all decided that the only way to reach the Kyoto limits is to raise taxes on fossil fuels. These are countries that have had much slower economic growth than the United States over the past decade. Perhaps not coincidentally, they also have much higher energy prices. For example, the price of gas in Europe has been between $2 and $3 a gallon for many years because of high excise taxes.

Vice President Gore knows better. He put his finger on President Clinton’s adolescent approach when he published Earth in the Balance in 1992. There he wrote: "Minor shifts in policy, marginal adjustments in ongoing programs, moderate improvements in laws and regulations, rhetoric offered in lieu of genuine change–these are all forms of appeasement, designed to satisfy the public’s desire to believe that sacrifice, struggle, and a wrenching transformation of society will not be necessary."

Mr. Gore has already said that if elected president, he will build public support for the Kyoto Protocol and submit it to the Senate for ratification. A better bet is that if the American people are told that "sacrifice, struggle, and a wrenching transformation of society" are necessary in order to avoid the predictions of a dubious and unverified theory, they will say, "Sorry, but no thanks."

Myron Ebell (mebell@cei.org) directs the global warming policy department for CEI.