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The White House seems to believe that passing an energy bill—any energy bill—will help GOP candidates win in 2004. Because of this, Republicans on Capitol Hill are likely to face increasing pressure over the coming year to accept “energy” policies that are, in fact, anti-energy. That would be a colossal blunder. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Energy, as the late Julian Simon observed, is the “master resource”—it enables mankind to transform all other resources into goods and services. Make energy scarcer and dearer, and you stifle enterprise, job creation, and growth. Rising energy prices caused or contributed to every recession of the past 25 years. If the 108th Congress enacts anti-energy policies—under the guise of “climate” or “global warming” policy—Republicans will take the heat in 2004 for the economy’s poor performance.
Global warming policy typically aims to restrict emissions of carbon dioxide (CO2). But CO2 is the inescapable byproduct of the hydrocarbon fuels that supply 70 percent of <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />U.S. electricity and 84 percent of all U.S. energy. The Kyoto global warming treaty, which would limit U.S. CO2 emissions to 7 percent below 1990 levels, is a gigantic energy rationing scheme—the regulatory equivalent of regressive, growth-chilling energy taxes.
The Senate Energy and Natural Resources Committee has drafted “energy” legislation that will, if enacted, lead inexorably to Kyoto-style energy rationing. The draft bill directs the Department of Energy to award companies “transferable credits” for “voluntary” CO2 emission reductions. Under this scheme, companies that take steps now to reduce their CO2 emissions will earn regulatory credits they can later use to comply with Kyoto or a similar compulsory regime. This is fatal to sound energy policy because transferable credits will: (a) create the institutional framework for future Kyoto-type emissions cap-and-trade programs, and (b) grow the “greenhouse lobby” of Enron-like companies seeking to profit from energy suppression policies.
Here are nine reasons why all right thinking policymakers should deem any transferable credit provisions as an energy legislation deal breaker:
Why did Republican staff include transferable credits in its draft energy legislation? Surprisingly, the big push for credits these days comes not from the Green Left but from the Bush Administration.
The administration seeks to replace Kyoto’s mandatory emissions tonnage reduction targets, which are inimical to growth, with voluntary emissions intensity reduction goals, which can accommodate growth. The Administration views credits as a way to motivate companies to reduce emissions per dollar of output, and the draft Senate energy bill reflects this thinking.
However, credits would be awarded only for “real” (i.e. tonnage) reductions, so the scheme would ratify rather than replace the Kyoto framework. More critically, an emissions intensity goal provides no alternative to Kyoto if it is coupled with a crediting plan that fuels pro-Kyoto lobbying.
There is a better way to encourage emission intensity reductions. Expensing (accelerated capital cost recovery) would help companies reduce their emissions per dollar of output—without picking winners and losers, setting the stage for cap-and-trade, or building political support for energy rationing.
By reducing the tax penalty on capital investment, expensing would speed up turnover of plant and equipment. In general, newer, more modern facilities are cleaner and more productive than older units, delivering more output per unit of input, including energy inputs. Expensing would accelerate carbon intensity decline while boosting productivity and wages. Expensing is, thus, a true “no regrets” policy—desirable whether global warming ultimately proves to be a serious, minor, or imaginary problem. This is the path pro-energy policymakers should pursue.