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The president endorsed a proposal by the Energy Security Leadership Council, a group of corporate CEOs and retired generals and admirals, to establish an Energy Security Trust. Funded by oil, gas, and coal royalties derived from leases on federal lands, the Trust would "be strictly limited to supporting R&D programs related to oil displacement in the transportation sector." The Trust proposal may have some bipartisan credibility, since Sen. Lisa Murkowski (R-Alaska) outlined a similar scheme in her Energy 20/20 plan.
So far billions in federal subsidies have failed to jumpstart an electric car industry, much less produce batteries that are ten times more powerful. Billions in federal subsidies have conjured the bioethanol industry into existence, but scientists still debate whether corn bioethanol actually reduces greenhouse gas emissions. A recent life-cycle analysis of corn ethanol production found that its greenhouse gas emissions could be "roughly 25 percent more than the entire lifecycle emissions of petrol." And that's on top of the questionable morality of turning half of America's corn crop into vehicle fuel.
The president proudly told the assembled members of Congress, "Last year, wind energy added nearly half of all new power capacity in America." One reason for that: Wind power producers rushed to complete projects before the end of the year because they feared that the federal production tax credit (PTC) of 2.2 cents per kilowatt-hour was about to expire. Not to worry. Buried among the tax increases Congress adopted to avoid going over the "fiscal cliff" at the turn of the year was an extension of the wind PTC. To get some idea of just how important this subsidy is, experts estimated that without it wind power installations would have fallen from 12 gigawatts in 2012 to 1.5 gigawatts in 2013.
Thanks to federal wind and solar subsidies, the amount of power produced by wind turbines has increased from 52,000 gigawatt-hours in 2009 to 139,000 gigawatt-hours in the past year. Solar power net generation rose to 2,400 gigawatt-hours in the past year from 900 gigawatt-hours in 2009. To provide some perspective, Americans consumed 4,000,000 gigawatt-hours of electricity in 2010, which means that wind power contributed 3.5 percent and solar power less than one-thousandth of the electricity consumed by Americans.
Finally, President Obama announced, "I'm also issuing a new goal for America: Let's cut in half the energy wasted by our homes and businesses over the next 20 years." Hold on. If energy in our homes and business is actually being "wasted" why not cut all of the waste, not just half? I suspect what the president really means is that he would like us to double the energy efficiency of our houses and businesses. The president is basically adopting the goal set in the Energy 2030 report issued last week by the Alliance to Save Energy. This plan proposes a slew of tax breaks, direct subsidies, and other inducements to encourage Americans to use less energy.
Do Americans need to be lured by subsidy carrots and beaten with tax sticks to convince them use energy more efficiently? Perhaps not. Broadly speaking, Americans have been doing that all along. The Energy Information Administration's (EIA) 2013 Annual Energy Outlook report notes that between 1990 to 2011, energy use per dollar of GDP declined on average by 1.7 percent per year. It also projects that energy use per 2005 dollar of GDP will decline by 46 percent from 2011 to 2040. Part of that decline will result from government energy efficiency policies, but most will occur because of the market-driven efforts of consumers and businesses to save themselves money.
President Obama's ambitious energy efficiency goals will have to cope with the phenomenon of energy rebound. Energy and money saved in one place often gets spent elsewhere. For example, the EIA notes that houses built between 2000 and 2009 were 30 percent bigger than before 2000, but use 2 percent more energy. Residential energy efficiency improvements have been more than offset by consumer desires for larger houses. Similarly, an MIT study last year found that if Americans today were driving cars with the same average size and power of vehicles in 1980 that "the country's fleet of autos would have jumped from an average of about 23 miles per gallon (mpg) to roughly 37 mpg." Instead, gas mileage increased to only an average of 27 mpg. Americans chose to channel 60 percent the fuel efficiency savings into bigger and more powerful cars. In any case, a new analysis of energy efficiency engineering estimates suggests that the "energy efficiency gap" is much smaller than the president thinks it is.
Let's Make A Deal?
The president is right about this: The balance of current scientific evidence shows that the increasing concentration of greenhouse gases in the atmosphere, chiefly by burning fossil fuels, is likely boosting average global temperatures. The U.N. Intergovernmental Panel on Climate Change estimates that doubling the carbon dioxide in the atmosphere over its pre-industrial level of 280 parts per million is likely to raise the global average temperature by around 3 degrees Celsius (5.4 degrees Fahrenheit). It's now at more than 390 parts per million. To the extent that Obama has accurately identified some deleterious trends, most researchers also agree that rising temperatures will, toward the end of this century, significantly exacerbate them. So if man-made global warming is going to become a big problem, how much would the president's proposals do to fix it? Not much.
One problem is that global warming is, well, global. Assuming the projected trajectory of overall global emissions by all countries, climatologist Chip Knappenberger of the Cato Institute, calculates that if the U.S. were somehow to entirely eliminate all of its greenhouse gas emissions right now that would reduce future warming by only 0.2 degree Celsius by 2100. In other words, the globe would warm by 2.8 degrees instead of 3.
Another problem with Obama's proposals is that many of them have already been tried and have failed. Carbon cap-and-trade in Europe, for example, has cost consumers $277 billion for "almost zero impact" on cutting carbon dioxide emissions. Scores of billions in federal energy subsidies and tax breaks squandered over the past several decades have produced similarly dismal results.
Assuming that the federal government is going to do something about climate change, it oddly turns out that something like the Boxer and Sanders carbon tax and rebate scheme is the least economically damaging proposition. Barack Obama is always urging a "balanced approach" to solving problems. So in that spirit, here's an idea: Remove all regulations on carbon dioxide emissions and eliminate all energy subsidies and tax breaks in exchange for a revenue-neutral, fully rebated carbon tax. Deal?