The Hot Air from the Bush Administration

Well, Bush didn’t sign the Kyoto Global Warming protocol.  It’s too bad he couldn’t leave well enough alone.  While continuing to insist that the science of global warming remained uncertain at best, the Bush administration plainly felt that something had to be done.<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />

That something is the administration’s Cleaner Skies Initiative—a “voluntary” program to reduce carbon dioxide.  Moreover, the administration sought to shift the debate from reducing CO2 emissions to reducing CO2 intensity.  Burning fossil fuels means converting as much of the carbon in the fuel as possible into CO2.  Thus, emission caps require using less carbon-based fuels.  In contrast, targets for CO2 emissions require only that one use less fuel per unit of output—that is, that one becomes more energy efficient over time.  An intensity target is stupid by somewhat less stupid than would have been a cap on carbon dioxide emissions.

Since firms pay for fuel, markets have become ever more efficient at using energy.  The result is that energy intensity has been declining steadily since the Industrial Revolution.  But still the intensity goal may make it harder for firms to modify their operations in response to changes in the marketplace.  For example, during downturns in the economy, one might see energy intensity numbers going up. That could occur because a firm will still have to light and warm the plant, even if production levels drop.  Also, if labor becomes more expensive, the firm might invest in more laborsaving technology.  Again, that would tend to make the intensity score go up (labor-saving technologies are energy-using technologies).

But these distortion problems are small in comparison to the major problem created by the “voluntary” approach.  A provision in the Clean Skies plan ensures that firms that “act early” (by reducing CO2 emissions) will benefit if the government later acts to restrict CO2 levels.  That provision will likely encourage firms to assess their CO2 emission levels and calculate what they might gain if the “voluntary” standard became mandatory.  Recall that Enron lobbied heavily for the administration to sign the Kyoto accord.  They believed that under Kyoto energy would be rationed and they would manage the market for energy ration coupons.  The Clean Skies plan is foolish, but by strengthening the forces seeking caps on energy use, the administration has created more problems for itself in the future.  And the last thing this administration needs is more Enrons.