A Tax to Weaken America

President Obama said last Thursday that he would not cut spending
“on investments that will make America stronger.” He really meant that
he would pour money into alternative energy projects, paid and
incentivized by a cap-and-trade program on fossil fuel use. The fact is
that alternative energy cannot replace fossil fuels, and cap-and-trade
imposes a massively expensive tax. Obama’s “investments” will weaken
America, not make it stronger.

Let’s look at the so-called
promise of alternative energy first. A recent gaffe by Al Gore and
United Nations Secretary-General Ban Ki-Moon reveals the inefficiency
of alternative energy in stark relief. In a joint Financial Times op
ed, they claim that the wind energy industry today employs more
Americans than the coal industry, 85,000 people compared to 81,000.
This is just not true, even counting everyone employed by the wind
industry both directly and indirectly with the number of coal miners
alone. The coal industry employs over 1.4 million Americans in all
(extrapolating from a Clinton-era Department of Energy source). What
this figure actually demonstrates is how inefficient wind energy is
compared with coal. The wind industry generated 1.3 million
megawatt-hours (MWh) of electricity, while the coal industry generated
155 million MWh. In other words, coal jobs are seven times more
efficient and productive than wind jobs.

Thus, it’s easy to
see how shifting from coal-fired power to wind will impose a
significant cost on America. One of wind power’s biggest shortcomings
is the simple fact that the wind does not blow all the time, especially
on hot days when electricity is needed for air conditioning. The wind
industry unspoken secret is that to make up for this inbuilt shortfall,
it needs backup power generation facilities, which use fossil fuels,
mostly natural gas. So the supposed benefit of wind – carbon-free
electricity – is an illusion. Solar has the same problem, as the sun
doesn’t shine all day. The only reliable carbon-free source of energy
is nuclear power, which is not in the President’s plans.

How
this can make America stronger is hard to see. If America pays more for
energy while its main competitors – most notably China – press forward
with using the most cost-effective energy forms, America’s comparative
advantage will shrink significantly. This is not mere speculation.
China is building at least one coal-fired power plant a week as to
bring affordable energy to its people.

And we should not
overlook the huge opportunity costs, as we pay more for the same amount
of energy, diverting funds from more productive projects.

Now
what about the cap-and-trade scheme? According to the Congressional
Budget Office, the President’s budget includes revenues from the
auctioning of carbon permits by 2012, probably reaching $300 billion by
2020. Of this, only $15 billion would be invested in alternative energy
in the form of spending and tax incentives. The rest would be rebated
back to consumers who have been forced to pay more for energy as a
result of the program. In other words, the government will put us all
on energy welfare. And as rebate schemes involve overhead costs such as
employing bureaucrats to administer the schemes, the rebates will never
cover the full amount of our increased costs.

At this point,
alternative energy supporters may object that this is all worthwhile
because it will avoid the “external” costs of carbon dioxide –
specifically the future costs of global warming. The fact is that, even
if you accept the idea that carbon dioxide is causing inexorable global
warming, most economists agree that the costs amount to only a small
additional cost on fossil fuel energy. Therefore, if we are paying more
than 2.5c extra per kilowatt-hour of electricity, or 25c extra per
gallon of gas, we are overpaying for the cost of avoiding global
warming. To raise the sort of money Obama is talking about, emissions
permits will have to sell for far more than that.

Obama’s
energy plan will not make us stronger, it will weaken us. It will not
make us richer, it will impoverish us. If the President is looking for
cuts in spending, his expensive and wasteful energy plan is the first
place he should look.

Iain Murray is a Director of Projects
and Analysis and Senior Fellow in Energy, Science and Technology at the
Competitive Enterprise Institute.