Cooler Heads Digest

Issue #5

1. The Week in Global Warming News 2. CEI’s Insider Information 3. Issue of the Week: A Federal Renewable Portfolio Standard4. Action Item: Join the Anti-Corn Law League!5. Cooler Heads Digest Calls for Content 


1. The Week in Global Warming News


2. CEI’s Insider Information


Inside the BeltwayCEI’s Myron Ebell analyzes the state of global warming policy in the nation’s capitol.


Last week the Senate passed its anti-energy bill with a few changes and a couple big pieces missing. The final vote was an astonishing 65 to 27 . A number of Senators who know better voted for it. The final bill includes a 36 billion gallons per year alternative fuels mandate for vehicular fuels, sharply higher CAFÉ standards for new vehicles, higher efficiency standards on a wide array of appliances, and criminal and civil penalties for those found charging “unconscionably excessive” prices for gasoline. Left out were $28 billion in new taxes on the oil industry and the 15% renewable portfolio standard for electric utilities.


The action now moves to the House. The Natural Resources, Science, and Transportation Committees have already marked up their pieces of an anti-energy package, but the big pieces will be considered this week in the Energy and Commerce Committee. As far as I can tell, every bad idea from the disastrous energy policies of the 1970s has now been resurrected in some form. Majorities in the House and Senate seem determined to bring back the massive government regulation and intervention in the energy sector of the Nixon-Ford-Carter era, which resulted in sharply higher prices, gas shortages, and economic stagflation (inflation plus stagnation for those too young to remember that crazy decade). Will the failed 70’s policies have different results in the 21 st century? I’d rather not find out.


In the States ALEC’s Daniel Simmons summarizes global warming and energy policy in state capitols across the US.


New Jersey is the latest state to establish the goal of reducing greenhouse gas levels to 1990 levels by 2020, and then to 80 percent of 2006’s levels by 2050. Like California’s inappropriately named, “Global Warming Solutions Act,” the New Jersey plan is long on ambition and short any actual solutions; the New Jersey Department of Environmental Protection will conduct an inventory of greenhouse gas emission levels and then devise a “plan” to reach the goals.


This week Maine formally joined the Regional Greenhouse Gas Initiative—a coalition of states in the Northeast that are instituting a cap and trade system among themselves in an effort to reduce greenhouse gas emissions from power plants by 10 percent over the next decade. Europe ‘s experience so far with its cap-and-trade program should be instructive to the Northeastern states. Since instituting ETS, German electricity prices are up 25 percent and their utilities are making tons of money, but emissions are climbing. Northeastern electricity consumers are likely to face a similar fate—high electricity prices and no impact on the environment.


Lastly, Massachusetts is attempting to suppress electricity demand in an attempt to forestall the necessity to build new electrical generation plants or reduce greenhouse gas emissions. The state government and the utilities want to engage in “demand side management,” where utilities take part in programs that are supposed to induce people to conserve electricity. But demand side management is nothing new. Between 1989 and 1999, ratepayers paid $23.1 billion on demand side management programs, $14.7 billion of which went to programs to promote energy efficiency. Despite this expenditure, they reduced electricity sales by only 0.4 percent. However, Massachusetts seems undeterred by past failures, ready to waste electrical consumer’s dollars again.


Around the World

CEI’s Iain Murray analyzes global warming and energy policy at the international level


The war of words between the major emitters of the developing world and the developed world intensified this week as Malaysia accused the West of “Green Imperialism” in demanding that China , India and the rest do something about their rapidly-growing emissions. Finance Minister Nor Mohamed Yakcop pointed out that western companies often own the major emitting plants and Western consumers buy the goods they produce. While this is true up to a point (much of the world’s steel industry is now in Indian ownership, for example, and the developing economies provide an increasingly large market for consumer goods) it misses the main point about green imperialism – that Western governments are trying to impose their green sensitivities on the rest of the world whether or not the activities involve trade with the West.


The argument also dances round the question of how emissions reduction and economic development can be made compatible. If the West imposes some form of carbon tax on goods from high-emissions countries to reduce demand, then both sides will be poorer and economic development will be curtailed. If the West demands the developing world use more expensive technologies, then their development will also be curtailed as the new technologies impose an opportunity cost. The inconvenient truth is that emissions reduction in the developing world will keep people in poverty longer. That is not a price the developing world is willing to pay. Once again, it appears that adaptation will provide the more cost-efficient answer to any problems imposed by a warming world.


3. Issue of the Week

A Federal Renewable Portfolio Standard


As part of comprehensive legislation to raise energy prices, Congress is once again considering proposals to set a renewable portfolio standard (RPS) for electric utilities. Such a requirement would raise electricity prices for consumers and industry, but would negatively affect some regions of the country much more than others. As the Bush Administration Statement of Policy June 12, 2007 correctly states: ” A limited Federal RPS would result in higher electricity costs for consumers in areas where renewable resources are less available and could place new strains on electricity reliability needs.”


Although 21 states have already passed an RPS, this is not an argument in favor of a federal RPS. These RPS states tend to have a much higher potential for renewable energy and/or less energy-intensive manufacturing. In the RPS states that do have considerable manufacturing, the effect of adopting an RPS has been to raise electricity prices and push manufacturing into states or other countries with lower electricity prices. Therefore, the effect of a federal RPS would be to require states with low electricity prices and proportionately lower renewable energy potential, such as is found in our industrial heartland, to raise electricity prices to a level that would force their industries to migrate overseas to countries with cheaper energy rates and no renewable portfolio standards.


Depending on the current cost of electricity and renewable energy potential, the economic impact of a federal renewable portfolio standard is modest in some regions of the country and dire in others. State legislators have weighed the economic costs and benefits of an RPS in their states and acted accordingly. Congress should not ignore these states’ decisions that have been based on local factors and, instead, impose a federal renewable portfolio standard on those that have correctly judged that such a mandate on their states would be to raise consumer electricity prices and destroy jobs in energy-intensive industries. While Members of the Senate and House from some regions of the country may be tempted to engage in economic warfare against states in other parts of the country by voting for a federal RPS, they should understand that it is not in the national interest to destroy any of our remaining manufacturing industries


4. Action Item

Join the Anti-Corn Law League!


Increased ethanol mandates are a particularly egregious provision in the abominable energy bill that passed in the Senate on Friday evening. They raise the price of food and gasoline , harm the environment, and threaten to starve millions in the third world.


How could something this atrocious garner 65 votes in the Senate? The answer, unfortunately, is that the powerful corn lobby, anchored by huge multinational corporations, like Archer Daniels Midland, exerts a great deal of influence on Capitol Hill.


Ethanol mandates are a classic case of what economists call concentrated benefits and dispersed costs. American consumers and the poorest of the world share the costs of ethanol mandates broadly, whenever they shop for groceries or fill up their gas tank. Corn interests, however, reap billions, dispersed among the few.


Of course, this is unfair. Why should billion dollar companies get richer, while we pay more for groceries and gasoline?


Thankfully, history provides us with a blueprint to fight ethanol mandates . From 1815 to 1846, the people of Great Britain endured a similar instance of concentrated benefits and dispersed costs. Back then, Corn Laws were to blame. Parliament passed these tariffs in 1815 to shield British agriculture from foreign competition. In practice, the tariffs enriched aristocratic landowners at the expense of British consumers, who paid higher prices as the result of retaliatory tariffs. Sound familiar?


Outraged, free market activist Richard Cobden formed the Anti-Corn Law League to agitate against the tariffs. The Anti-Corn Law League became the best financed and most highly organized pressure group in Britain . Through lectures, debates, conferences and meetings, the Anti-Corn Law League made its case to, and eventually won over, the British polity. In what was a seminal event for free market principles, in 1846 Parliament repealed the Corn Laws, in large part because of the Anti-Corn Law League.


A modern day American Anti-Corn Law League could have the same effect. Free Marketeers around the nation should join together to expose this boondoggle for what it is – a return to a discredited economic system. If there is enough interest, CEI will be happy to organize this new league. Email William Yeatman, at [email protected] , to express your support and become a Charter Member of the American Anti-Corn Law League.

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 [email protected]