Greening America – At What Cost?

Greening America – At What Cost?

Op-ed in The DC Examiner
March 09, 2009
Originally published in The DC Examiner

The President’s budget aims at restructuring American energy production
to reduce greenhouse gas emissions to 1990 levels by 2020.  His primary
policy vehicle for achieving this is a “cap-and-trade” scheme that will
essentially tax greenhouse gas emissions, making energy that generates
them more expensive.  However, the program is so ambitious as to
stretch the bounds of plausibility.  If America is to reduce greenhouse
gas emissions substantially, prolonged recession may be the only way to
do it.

The amount of greenhouse gases an economy emits is determined by three
factors – population, gross domestic product and something called
carbon intensity.  All else being equal, a higher population emits more
than a smaller population.  Similarly, a bigger economy emits more than
a smaller economy.  This is because use of energy is at the root of
most economic activity, and the most cost-effective energy source is
fossil fuels.  However, if a large population, high GDP economy is able
to reduce the amount of greenhouse gases it emits per unit of energy
(reduce its carbon intensity, in other words), then it will reduce its
total greenhouse gas emissions.

This is what the President’s policy banks on – that an increase in
green energy will reduce the carbon intensity of the economy.  However,
there are problems with this approach.  Because we assume America’s
population and GDP will continue to grow (although there may be doubts
about the latter at present), the reduction in carbon intensity will
need to be significantly greater than it would need to be if population
and GDP remained steady.

America’s emissions intensity declined a massive 54 percent from 1960
to 2005.  Industry had cleaned up its act, homes became more efficient,
and cars poured less out through the exhaust pipe.  Yet overall
emissions doubled.  Why?  Because the US population grew substantially
and per capita GDP increased by a massive 169 percent. This means that
the rate of reduction in carbon intensity required is much greater than
the nation has ever achieved.

Even nations where there has been transformative change in energy
production, such as Britain and France, have been unable to sustain the
sort of reduction in emissions intensity required.  Britain moved from
coal to gas in the early 1990s, reducing its emissions intensity by
2.3% each year from 1992 to 1998.  Since then, its decarbonization rate
has decreased by a full percentage point.  France, which generates 80%
of its electricity from nuclear power, has only been able to achieve a
1 percent decrease in intensity over the past 15 years.

America, starting from a much higher base in terms of energy use, will
have to reduce its emissions intensity by about 2 percent each year for
an entire decade just to meet the President’s targets, which are in
turn much less stringent than those that would have been required by
the Kyoto treaty (and therefore significantly less stringent than
demanded by environmentalists).  This level of decarbonization is
unlikely to be achieved by the investments signified by the budget and
stimulus act, which will, if sustained, merely double alternative
energy generation to around 1 percent of all energy use over the next
few years.

We should also note that virtually every country that has agreed to
make emissions cuts under the Kyoto treaty (most did not) has failed to
do so.  The exceptions are the Eastern European countries, which did so
because their smokestack industries, inherited from Soviet days, have
collapsed, at great economic cost.

So how can we possibly meet the President’s target?  If the economy
continues to suffer, this will, perversely, make meeting the targets
easier, but it will take a sustained depression to get there. The only
alternative that allows for a realistic rate of carbon intensity
reduction and some economic growth is a reduction in the US
population.  This, however, is not likely to sit well with the
President’s allies in the immigration lobby.
Finally, it should be noted that the tax on energy use is to be used to
pay for the President’s Making Work Pay “tax cut.”  If emissions
intensity does reduce considerably, the effect will be to reduce
government revenues and create a funding gap for the tax cut.  There is
actually therefore a disincentive on government to encourage emissions,
just as there is a disincentive on state governments that receive money
from tobacco sales to seriously discourage smoking.

It is still possible that significant decarbonization can take place,
but it will require a much more transformative effort than has been
signaled in the President’s actual energy plans – as opposed to his
rhetoric – to date.  One thing is for sure, such a transformation will
come at a much higher cost than any economy has ever been prepared to
pay.  In a recession, that is an inconvenient truth no-one will want to
hear.

Iain Murray is Senior Fellow in Energy, Science and Technology at the
Competitive Enterprise Institute (http://www.cei.org) in Washington DC