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OpenMarket: Energy

  • Yes, and Water Can Run Uphill!

    March 20, 2015 10:05 AM

    A recent Washington Post story by Joby Warrick says much about the credulity of the media. The story extols the great gains in wind power, noting that it “could provide more than a third of the country’s electricity by 2050 while yielding a net savings in energy costs paid by consumers.”

    Warrick, like many in the media, viewed this prediction by the Department of Energy as clear evidence of the gains by non-fossil fuel sources. Indeed, he quoted without comment the Department’s statement that there would a “net savings in energy costs paid by consumers” and later that this shift “would result in a net price increase of about 1 percent for consumers” even though “an overall savings of 2 percent.” The “savings” would include the imputed values of CO2 and other pollutant reductions. Consumers are going to pay more, but “society” will benefit—a story we’ve heard before. 

    But, although the article suggests that dramatic cost reductions in the wind power area have made this source more economically attractive, the report also “warned that consistent government policies were critical to avoiding boom and bust cycles,” and that “Congress must keep the wind-friendly tax policies in place.” So, an efficient technology option has to be subsidized to survive in the marketplace?  Does the media ever read its own stories?

    Of course, wind power can be attractive to some if it is heavily enough subsidized. But an energy alternative that’s been around since the Middle Ages and which the Department of Energy claims to be cost-competitive cannot survive without continued government subsidies? The media seems to like any energy source that requires government support.

  • There Are No “Neutral Taxes” in Politics

    February 25, 2015 10:24 AM

    Those favoring larger government are finding it harder to finance them by raising taxes. Proponents have sought to reduce opposition by claiming that they’re not really raising taxes at all—their taxes will be “neutral.” Sure, we’ll take $50 billion or so in taxes from the economy, but we’ll then put it back again in the form of tax reductions or rebates. From a macro-economic perspective, they argue, there will be no impact at all! Why bother, you might ask? 

    The prime candidate advanced by those seeking to better plan our economy is the carbon tax. We’ll tax carbon and use the revenues to offset its impact. People will use less energy but retain the same income. We’ll change prices without changing income—a highly targeted incentive package! To tax energy users is feasible, although complicated—simply tax all energy materials. But farmers have traditionally escaped gas and diesel taxes for on-farm use—will this exemption be repealed? 

    In many regions, people use natural gas, oil, and electricity (which in turn uses coal, natural gas, and some hydro and nuclear). The prices of some of these energy types is market driven, while others are regulated. The income impact on specific consumers is not easily ascertained nor is the appropriate rebate. The result is that the micro-impact of energy taxes is never neutral. Individuals in areas dependent on coal or oil will lose; individuals in areas where climate or policy has shifted to solar or other renewable energy will gain relatively. And this critique fails to note another problem: the tendency of politicians to use new tax revenues to gain support for the measure.  Since different groups have different priorities, the result is often to “spend” the new tax revenues many times over. Rebates, being complicated and having no strong political champion, are likely to receive low priority.

  • Results of "Cash for Appliances"

    October 7, 2014 9:26 AM

    Under the American Recovery and Reinvestment Act of 2009 (commonly called "the stimulus"), a $300 million program to subsidize consumer purchases of energy-efficient appliances called the State Energy Efficient Appliance Rebate Program was established. A recent working paper from the National Bureau of Economic Research analyzes the results of the "Cash for Appliances" subsidy scheme. It turns out that "Cash for Appliances" was an incredibly inefficient energy-efficiency program. From the conclusion:

    We estimate freeriding rates of 73% to 92% across our three appliance categories. As a result, our measures of cost-effectiveness, ranging from $0.44 to $1.46 per kWh saved, are an order of magnitude greater than the $0.06 per kWh average cost-effectiveness estimated for utility-sponsored energy efficiency programs. Even after generous assumptions about accelerated replacement, the cost per kWh saved of C4A remains 4 to 16 times greater than this average in the literature.

  • America's Energy Advantage Dodges the Question

    July 22, 2014 2:21 PM

    America’s Energy Advantage has responded to my July 1 post criticizing its stance on the Domestic Prosperity and Global Freedom Act. That bill would liberalize liquefied natural gas (LNG) exports, while AEA opposes such exports because they would supposedly raise the raise the price of the LNG used by AEA’s members. 

    As CEI has pointed out in the past, AEA is trying to use bureaucratic obstacles to restrict what companies can do with their products—an approach antithetical to free markets

    What’s ironic is that, in its response to my post, AEA relies on a study that actually demonstrates the broad beneficial effects of exports. This study is the NERA’s Macroeconomic Impacts of LNG Exports from the United States. AEA claims that, despite being a pro-export study, the NERA study actually enforces their view, that LNG exports should be limited. According to AEA, “Once one looks beyond the surface-level conclusion “exports provide net benefits to the U.S. economy,” at winners and losers…the NERA report shows that the “losers” in this scenario are ALL other sectors of the U.S. economy and consumers, while the “winners” are producers and exporters of LNG.”

  • AEA’s Unprincipled Stand

    July 1, 2014 3:51 PM

    Last Thursday the House of Representatives passed H.R. 6, the Domestic Prosperity and Global Freedom Act with a bipartisan vote of 266-150. The bill orders the Department of Energy to make a final decision on applications to export natural gas within 30 days of the bills enactment. This would greatly speed up the process, as the DOE has allowed some applications to languish for more than 2 years without a determination being made, effectively strangling exports of natural gas.

    The bill’s passage came despite the best efforts of America’s Energy Advantage, a business advocacy group that strongly opposes the bill. In a press release the day before the bill’s passage, AEA declared “exports of this scale will raise domestic natural gas and electricity prices for every American, undermine our manufacturing competiveness and cost the nation good-paying jobs”. Its argument is as follows: if we export natural gas, that will lower the supply sold in America, which will lead to an increase in natural gas prices. That, in turn, will “hurt manufacturing competiveness”(especially among companies who are part of the AEA) by making it more expensive to produce their goods. To protect America, then, we must limit natural gas exports.

    For that reason, the AEA called the bill “harmful to the public interest of American consumers, manufacturers and the economy” in a statement following passage.

  • Separation of Powers Survived Today by a One-Vote Margin

    June 23, 2014 3:50 PM

    My colleagues over at are already mulling over what today’s ruling in UARG v. EPA means for the future of American industry and energy production, but there’s a very important aspect to today’s ruling with constitutional implications.

    Part of the reason why EPA’s “tailoring rule” was challenged and struck down was because it was a blatant attempt to rewrite the plain wording of a law for its own convenience, a maneuver that my colleague Marlo Lewis called “breathtakingly lawless.”

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