Cooler Heads Digest

Cooler Heads Digest

Issue #3
June 13, 2007

1. Global Warming in the News

2. CEI’s Insider Info

3. Issue of the Week: Price Gouging

4. Action Item: Join the Fight

5. Cooler Heads Digest Calls for Content

1. Global Warming in the News:

 

Top Stories:

News You Can Use:

On the Lighter Side:

 

2. CEI’s Insider Info

 

Inside the Beltway

CEI's Myron Ebell analyzes the state of global warming policy in the nation's capitol.

 

The Reid-Bingaman bill to “address energy prices” by raising them reached the Senate floor this week. It may take two weeks of debate and amendment before a final vote. Many Senators who should know better seem resigned to passing some version out that will raise gasoline, food, automobile, and electricity prices.

 

See our joint letter (below). We will deliver it soon to every Senator, but will keep collecting signatures and delivering them up until the final vote. On Wednesday, 13 th June, the House Natural Resources Committee by a vote of 26 to 22 passed the first pieces of global warming legislation to be sent to the House floor. Three Democrats (Boren, Herseth Sandlin, and Ortiz) voted against and two Republicans (Saxton and Gilchrest) voted for the final bill. H. R. 2337 repeals several important provisions in the Energy Policy Act of 2005 that allowed greater access to energy resources on public lands. This means more energy imports from other countries.

 

Across the US

Daniel Simmons, of the American Legislative Exchange Council, analyzes the state of global warming policy in state capitols.

 

Tracking bills that deal with climate change at the state level is depressing, every week bringing new and potentially harmful legislation. California is the incubator of many bad ideas, which has resulted in the most expensive electricity prices in the nation because of the labyrinthine regulation on electrical utilities. And California 's legislature continues to impose more laws, which will only increase the price of electricity. One example of new regulations is AB 1714 which was recently signed into law by Governor Schwarzenegger. It requires electric utilities to promote solar power. It also provides incentives for renewable power, but draws a distinction only a lawyer could love—according to the bill, currently installed small hydroelectric plants are eligible as renewable energy, but newly-built hydroelectric plants are not renewable energy. My favorite bill this week is New York 's A 8839. It would require cars sold in New York after 2009 be affixed with a sticker that discloses that the car emits “global warming gases.” The bill did not state whether all babies born after 2009 would also be required to wear a tag saying that they too emit global warming gases such as carbon dioxide and methane.

 

Around the World

CEI's Iain Murray analyzes the state of global warming policy outside the U.S.

 

The G8 agreement to try to bring the major developing countries into a post-Kyoto framework of emissions caps fell apart immediately as China and India joined forces to oppose it. China Daily reported that the countries' leaders, President Hu Jintao and Prime Minister Manmohan Singh were of the same mind in opposing any such restrictions (see here). “Developing countries still have a long way to go before achieving industrialization, urbanization and modernization, and they face an arduous task of improving people's life,” Hu said. “To meet their development goals, developing countries need to consume more energy.” In the UK , government policy favoring biofuels is in a shambles after one of its own top science advisers called it a “scam.” Professor Roland Clift of Surrey University , who sits on the advisory council of the Environment Department, argued that promoting biofuels is likely to lead to an increase in greenhouse gas emissions, because the rapeseed that is the favored biofuel in the UK generates Nitrous Oxide, a more potent warming agent than Carbon Dioxide. He also warned of the effects of developing nations deforesting to plant biofuels: “Biodiesel is a complete scam because in the tropics the growing demand is causing forests to be burnt to make way for palm oil and similar crops. We calculate that the land will need to grow biodiesel crops for 70-300 years to compensate for the CO2 emitted in forest destruction.” Unusually for the skilled PR men of Britain 's government, there has been no response yet to the criticism.

 

3. Issue of the Week: Price Gouging

 

Every spring, there are calls to do something about gasoline price gouging. Every year, legislation begins to creep through Statehouses and Congress. Every year the FTC is asked to investigate the issue and every year it comes back with no evidence that price gouging has taken place. Why?

 

The problem is one of perception rather than reality. Gas prices increase every spring as there are issues on the supply side (mandated reformulations of gasoline for summer conditions, anticipation of hurricane season and so on) and on the demand side as well, as driving starts to pick up for the summer. Therefore there are real market reasons for increased gasoline prices at the same time every year.

 

When there are exacerbated by the international situation, the problem gets worse. For instance, this year, the spring has seen an intensification of the armed struggle in Nigeria which has disrupted supply from a major exporter, for instance.

 

Supporters of anti-price gouging legislation nevertheless attempt to target “emergency situations” such as the aftermaths of Hurricanes Katrina and Rita in 2005 as evidence of price gouging. Yet even there the market worked efficiently. With major disruptions to supply, the price increases represented information about that supply. Price controls would merely have substituted long lines and shortages for the high prices. No more gas would have been available and those who really needed it may not have been able to get it.

 

The FTC investigation of the aftermath of the hurricanes found no evidence of systematic price gouging and a few instances of apparent gouging that were virtually all explained by local conditions.

 

The State of Florida received 5,260 allegations of price gouging during the period. It took action on precisely 2 of them.

 

The FTC recommended five tests that any proposed legislation on price gouging should pass. The Federal price Gouging Prevention Act of Rep. Bart Stupak (D.-MI), which passed the House by 284 votes to 141 on May 23 passes only two of them.

 

A recent study by CRA International for the American Council on Capital Formation found that imposition of price gouging controls on the nation after the 2005 hurricanes would have caused a total welfare loss of $1.9 billion, most of it concentrated in the worst affected areas.

 

More background on the issue can be found in Iain Murray's new OnPoint on the issue, “Why Price Gouging Doesn't Exist.”

 

4. Action Item: Join the Fight

 

Please sign this joint letter from non-profits to Senators on S. 1419, which would raise gas prices, electricity prices, food prices, auto prices, and appliance prices.

 

Name:Organization:Title: Tel: Email:

 

Please return to Marlo Lewis ( mlewis@cei.org ) or Myron Ebell ( mebell@cei.org ) ASAP. For further information, you may call Marlo at (202) 331-2267 or Myron at 331-2256.

 

Dear Senator:

 

The undersigned organizations are writing to share our concerns about S. 1419, the Renewable Fuels, Consumer Protection, and Energy Efficiency Act of 2007, sponsored by Sen. Majority Leader Harry Reid (D-NV). This bill should be titled the Making Energy Less Affordable Act. Various provisions and amendments would increase the cost of fuels, food, autos, appliances, and electricity.

 

Title I of the Act would increase the current renewable fuel mandate of 7.5 billion gallons to 36 billion gallons by the year 2022, while leaving in place the 51 cents per gallon federal subsidy. Whatever percentage of the fuel mix renewable fuels constitute in 2022 would then become the mandatory minimum in 2023 and beyond, providing bio-fuel producers a permanent guaranteed market share, regardless of changes in technology or consumer demand. This is corporate welfare joined to a Soviet-style production quota system.

 

Corn ethanol could satisfy the first 15 billion gallons of the mandate, but the remaining 21 billion gallons would have to come from “advanced” biofuels (defined as produced from anything other than corn kernels). This could raise gasoline prices dramatically, considering that “advanced” biofuels are not commercially viable today even with the 51 cents per gallon subsidy.

 

Consumers would take a double hit—once at the gas pump and again at the grocery store. The current 7.5 billion gallon ethanol mandate has already inflated food prices. Corn is a feedstock for meat, poultry, and dairy products, and in the form of corn sweeteners and syrups is used extensively in processed foods. Title I would further increase Americans' pain at the pump and the plate. Ironically, Title I could make consumers more petroleum-dependent rather than less, because as food and fuel markets merge, oil price volatility will increasingly affect food prices.

 

Worse, Title I imperils global food security. The existing 7.5 billion gallon mandate doubled the price of corn tortillas in Mexico , triggering protests and a political crisis because tortillas supply the bulk of calories for most Mexicans. Diverting massive amounts of U.S. grain stock from food to fuel would raise food prices worldwide and threaten millions of hungry people who depend on imports of American grain for their survival. Title I is folly.

 

Title II of the Act would ratchet up energy efficiency standards for dish washers, light bulbs, and numerous other appliances. Many of these standards have already reached the point where the higher costs of the appliance outweigh the benefits from the electricity saved. Consumer Reports recently studied washing machines that meet current federal efficiency standards and found that unless you can pay over $1,000 for a washing machine you can no longer buy one that will get your clothes clean in just one wash. Title II would impose even more stringent efficiency requirements on washers and other appliances. Title II is folly.

 

Title V of the Act would mandate tighter Corporate Average Fuel Economy (CAFE) standards for automobiles and trucks. The average passenger car would have to get 35 miles per gallon by 2020, and then become 4 percent more fuel efficient each year from 2021 to 2030. But the current (27.5 mpg) fuel economy standard already contributes to thousands of deaths each year due to vehicle downsizing, according to a 2002 study by the National Research Council.

 

Design and engineering changes to improve fuel economy can also add thousands of dollars to the cost of a new car. Title V is folly.

 

Title VI would prohibit “price gouging” on gasoline sales during a declared state of emergency. Because firms generally seek to charge whatever price the market will bear, prohibitions against “price gouging” inevitably function as price controls. And mandatory price ceilings always have the same effects: increase consumption and reduce supply. This is exactly the reverse of what consumers and firms should do when a disaster disrupts supplies of fuel and other necessities. “Price gouging” regulations are bound to deepen and prolong temporary gasoline shortages by discouraging conservation and deterring importers, refiners, distributors, and retailers from raising prices enough to attract additional supply into the disaster zone. In the long run, “price gouging” rules will diminish energy production and create chronic shortages, as investors shift capital out of oil and gas into less politically-threatened industries. Title VI is folly.

 

In addition to these titles, Sen. Jeff Bingaman (D-NM) plans to offer an amendment on the Senate floor to require that utilities produce 15 percent of their electricity from renewable sources. Some States already have so-called renewable portfolio standards. These States, mostly in the Northeast and on the West Coast, on average already have higher electricity prices than the Mid-American and Southern States that rely mostly on coal-fired power plants.

This provision would force up electricity rates in America 's industrial heartland, pushing manufacturing jobs overseas. This too is folly.

 

In conclusion, S. 1419 would gouge consumers of motor fuel, food, electricity, appliances, and autos; add to the annual highway death toll; weaken America 's ability to recover from Katrina-like supply disruptions; and make it harder for the world's poorest people to feed themselves. As a recent CBO study noted, higher energy prices hurt poor people more than the better off because the poor spend a higher proportion of their incomes on energy. The same is true of food, and this bill would raise food prices, too. We hope you will keep these concerns in mind as you deliberate on this legislation.

 

Sincerely,

 

[Name]

[Title]

[Non-profit organization]

 

5. Cooler Heads Digest Calls for Content

 

Have stories we may want to include in our weekly news roundup? Is your organization working on something other members of the Coalition might be interested in? Let us know by contacting Julie Walsh at jwalsh@cei.org.

 

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