Corporate Welfare

Energy Leninism

Is the Democratic Party's energy policy overreach setting up another 1994?


"The worse, the better," Vladimir Lenin is said to have observed. What Lenin meant was that the worse social conditions became in Russia, the more likely he and the Bolsheviks could foment a communist revolution. President Barack Obama's White House Chief of Staff Rahm Emanuel recently updated Lenin's maxim, saying, "Never allow a crisis to go to waste."

Last Friday, the Democratic leadership in the House of Representatives took those maxims to heart when they pushed through their 1,200-page American Clean Energy and Security (ACES) Act by a vote 219 to 212. The bill is supposed to address the twin crises of economic recession and climate change by creating millions of new "green" jobs. Instead of an old-fashioned Soviet-style five-year plan, ACES can be thought of as 50-year plan to radically transform how Americans produce and use energy.

The new climate and energy bill would create a convoluted cap-and-trade scheme that aims to curb the emissions of carbon dioxide by American consumers and businesses. Why? Because the extra carbon dioxide emitted into the air from burning fossil fuels like coal and oil to produce energy is heating up the atmosphere. That additional heat will melt glaciers, raise sea levels, change rainfall patterns, cause plants and animals to shift their habitats, and so forth. To avoid these consequences, argue congressional Democrats, it is necessary for Americans to shift from cheap fossil fuels to expensive renewable energy fuels.

So the 1,200-page House bill would set a declining cap on carbon dioxide emissions that, by 2020, reduces them by 17 percent below 2005 levels and by 83 percent below by 2050. Each year the Environmental Protection Agency would issue a lower number of carbon dioxide emissions permits. Under the House bill 85 percent of the permits would be given away for free to various energy producers and users while the remaining 15 percent would be auctioned off. A company must have a permit for each ton of carbon dioxide it emits. The idea is that some companies will be more efficient in reducing their emissions and so will have some permits left over that they can sell to other, less-efficent emitters.

Trading permits in the market will set a price on carbon dioxide emissions. This means that electricity and automobile fuels produced using coal and oil will become more expensive. Higher electricity and gasoline prices are intended to encourage consumers to buy more fuel-efficient automobiles and appliances and to cut back on home heating and cooling. These higher energy prices will also boost what Americans pay for most goods and services. Finally, higher prices are supposed to incentivize inventors and entrepreneurs to develop and deploy lower carbon energy sources like solar and wind power. Sounds simple, but ACES is anything but simple.

The bill is replete with tax breaks, subsidies, and mandates aimed at buying off various special interest groups and industries. For example, it authorizes $60 billion for carbon capture and sequestration projects, $15 billion in subsidies to small and medium sized businesses to finance the cost of clean energy manufacturing products, and $2.5 billion for residential energy efficiency block grant programs to states. The bill also puts $150 million in an Energy Efficiency and Renewable Energy Worker Training Fund, and so on.

The new 50-year energy plan leaves little to chance. Congress has issued a flood of mandates large and small. For example, utilities must purchase 20 percent of their energy from renewable sources by 2020, states and utilities are obliged to build regional infrastructures to support plug-in electric vehicles, new homes have to be 30 percent more energy efficient and—since no detail is too small to escape congressional notice—requires rising energy efficiency standards for outdoor lighting.

Will Americans tolerate such sweeping interventions into their lives and workplaces? Perhaps not. The American Clean Energy and Security Act is even bigger in scope and complexity than President Bill Clinton's 1993 Health Security Act. Clinton's 1,364-page bill would have created over 100 new federal bureaucracies, hundreds of new regulations, and massive changes in the tax code. At the same time, President Clinton in 1993 proposed a tax on the heat content of various fuels, known as the BTU (British Thermal Units) tax. This tax aimed to reduce pollution and encourage conservation. It was estimated that the BTU tax would increase energy costs for the typical household by 4.5 percent or about $105 in 1996. The price of gasoline would have risen by 7.5 cents per gallon. Public and business opposition effectively killed both the health care scheme and the BTU in 1994. Even supporters of ACES, who are eager to low-ball its costs, admit that it will eventually boost gasoline prices by 25 cents per gallon and household energy bills by $175 per year. Other estimates suggest that ACES will force energy prices far higher.

In 2009, a Democratic president and Democratic Congress are once again proposing costly and intrusive changes in both health care and energy supplies. The 1994 mid-term election became a referendum on big government and ushered in Republican control of both the Senate and House of Representatives for the first time since the early 1950s. Given the Republican Party's current disarray, it's unlikely that 2010 will see another "Republican Revolution." However, as the new energy policies slow economic growth and impose vast new costs on consumers, it will be the Republicans who are quietly saying, "The worse, the better."

Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.