The central planners in communist governments were notorious for issuing massively detailed top-down five-year plans to manage every facet of their economies. The accumulating inefficiency and waste produced by this sort of rigid planning led eventually to the demise of those regimes.
Speaking at Georgetown University on Tuesday, President Barack Obama outlined his "new national climate action plan," which amounts to a federal top-down five-year plan—although he has only four years to implement it. Obama's plan ambitiously seeks to control nearly every aspect of how Americans produce and consume energy. The goal is to cut the emissions of greenhouse gases and thus stop boosting the temperature of the earth. The actual result will be to infect the economy with the same sort of sclerosis seen in other centrally planned nations.
Let's take a look at four aspects of the Obama five-year plan: rationing carbon, boosting renewable energy and energy efficiency, subsidizing climate resilience, and negotiating international limits on emissions.
Way back in January 2008, when he was just a senator running for the presidency, Obama told the San Francisco Chronicle that he "was the first to call for a 100 percent auction on the cap and trade system, which means that every unit of carbon or greenhouse gases emitted would be charged to the polluter." That way, he explained, "if somebody wants to build a [conventional] coal-powered plant, they can; it's just that it will bankrupt them because they're going to be charged a huge sum for all that greenhouse gas that's being emitted."
Five years later, Obama is doing what he said he'd do. His plan directs the Environmental Protection Agency (EPA) "to work expeditiously to complete carbon pollution standards for both new and existing power plants." The EPA is still formulating those standards, but in their current draft form they would limit new power plants to emitting 1,000 pounds of carbon dioxide per megawatt-hour of electricity generated. Since conventional coal-fired plants typically emit around 1,800 pounds of carbon dioxide per megawatt-hour generated, the new rule would essentially be a ban on building new coal-fired power plants.
If the EPA were to establish a uniform 1,000 pounds of carbon dioxide per megawatt-hour standard, that would eliminate nearly all coal-fired plants in the United States, which generated about 37 percent of the country's electricity last year. In comparison, natural gas plants generated 30 percent, nuclear 19 percent, hydropower 7 percent, wind 3.5 percent, biomass 1.4 percent, petroleum 1 percent, geothermal 0.4 percent, and solar 0.1 percent.
Renewable Energy and Energy Efficiency
Obama did say in 2008 that he supported the development of clean coal technologies. The president's new national climate plan includes $8 billion in loan guarantees for "advanced fossil energy projects," presumably including clean coal technologies involving carbon capture and sequestration (CCS). The Department of Energy is currently supplying $1 billion in a stimulus grant to the FutureGen CCS project in Illinois.
The FutureGen project proposes to capture 90 percent of the carbon dioxide emitted by its 200-megawatt plant and inject about a million tons annually underground. If it works, the overall emissions from a coal-fired plant using CCS would certainly meet a 1,000 pounds per megawatt-hour standard. However, the Energy Information Administration's 2013 analysis of the levelized costs (including capital, fuel, and operation and maintenance) of new power generation sources reports that in 2018 CCS would boost the cost of coal-fired electricity by about 35 percent over conventional generation. Assuming coal still accounted for 37 percent of generation, a quick calculation implies that monthly household electricity bills could jump from an average of $110 to more than $124.
The president's national climate plan also sets "a goal to double renewable electricity generation once again by 2020." That would mean that wind power would produce 7 percent and solar power 0.2 percent of America's energy by then. For what it's worth, the Energy Information Administrtion estimates the levelized costs in 2018 for conventional coal would be $100 per megawatt-hour; conventional natural gas $67; nuclear $108; wind $87; and solar photovoltaic $144.
In his Georgetown speech, President Obama declared, "Countries like China and Germany are going all out in the race for clean energy." The president did not note that German electricity prices have soared as the country subsidized the installation of solar and wind power. German households in 2012 paid an average of 35 cents per kilowatt-hour, compared the U.S. average of 12 cents per kilowatt-hour. If Americans were paying for power at German rates, our households' monthly power bills (at 940 kilowatt-hours) would average $330 instead of $110, or an additional $2,640 per year for household electricity. The president also neglected to mention that China's much-lauded and much-subsidized solar panel industry is going through a bit of a financial rough patch.
The president plans to mandate improvements in the energy efficiency of appliances and buildings. This makes a kind of central-planning sense. Since his new regulations will raise the cost of electric power to consumers, he wants to lower the amount they use so that their monthly bills don't go up. The hope is that consumers won't notice that they are paying more for less energy.
In any case, thanks to market incentives, American consumers and businesses are already engaged in continually improving their energy efficiency. The amount of energy it takes to produce a dollar of GDP has fallen by more than 50 percent over the past 40 years, mostly without the help of central planners. That's not enough for the president, who wants to double energy productivity between now and 2030.
Despite the spectacular flameouts of numerous federally subsidized "green energy" companies—Solyndra, Ener1, Abound Solar, Beacon Power, Fisker Automobile, Range Fuels, and others—the president still thinks that wise federal bureaucrats can profitably invest about $8 billion annually in "clean energy research, development, and deployment." He also reiterated his support for the "renewable fuels standard" that requires refiners to add billions of gallons of bioethanol made from corn to gasoline. Due largely to the mandate, 43 percent of America's corn crop ended up in our gas tanks last year. Surely, plowing up the extra farmland to grow corn for fuel ethanol can't be good for the natural environment.
And the president commended Republicans in Congress for supporting $12 billion in tax credits for wind energy manufacturers and producers. If bioethanol and wind power really could compete with conventional power sources, they wouldn't need mandates and subsidies.
The president's plan proposes to aid communities to get ready for the deleterious effects of future global warming. Planners, businesses, and citizens should indeed take into account the increased possibility of floods, droughts, and rising sea levels. But it is questionable that they need a proliferation of federal rules and bureaucrats to help them.
Interestingly, the national climate action plan failed to mention two proposals that wouldn't cost the taxpayers a dime and yet would strongly encourage people to take account of how the weather might affect them. One is to eliminate federal flood insurance. The program encourages people to destroy natural flood defenses such as swamps and dunes and to build in places that are prone to inundation; we'd be far better off without it. Second, in order to help communities cope better with droughts, cut all federal irrigation water and irrigation efficiency subsidies and establish water markets.
The president did offer two good ideas on the international front. One is for the countries of the world to eliminate $500 billion in annual subsidies to fossil fuels. Another is to begin World Trade Organization negotiations toward free trade in environmental goods, such as products used for managing pollution or harvesting renewable energy. He should take the second idea further, and eliminate trade barriers for all goods. Not only would that likely increase gobal GDBP by as much as $1 trillion per year, but the added wealth would enhance community resilience to whatever climate change occurs.
His other international ideas are less inspiring. As Obama noted approvingly, United Nations negotiations are supposed to result in some kind of legally binding global treaty by 2015 to cut greenhouse emissions, a kind of global 50-year climate and energy plan. Given the utter failure of the Kyoto Protocol, the predecessor accord, there is little reason to believe that most of the rest of the world will agree to pay substantially more for energy.
At Georgetown, the president warned that "the special interests and their allies in Congress" will say his plan "will kill jobs and crush the economy, and basically end American free enterprise as we know it." I don't think Obama's national climate action plan is going to kill American free enterprise. But its costly patchwork of programs, directives, regulations, grants, and initiatives will surely wound it.