As Barack Obama's signature health insurance program implodes, some observers are speculating that regulatory action on climate change could afford the beleaguered president a second chance at establishing an enduring policy legacy. Unfortunately, Obama's climate policies, like his health care policies, highlight his fondness for centralized economic planning.
The president unveiled his "new national climate action plan" at Georgetown University last June. The plan aims to cut U.S. greenhouse gas emissions by 2020 to 17 percent below their 2005 levels. In his speech, the president noted that he had urged Congress to adopt a "bipartisan, market-based solution to climate change." But he also said he wasn't going wait for Congress to act, so outlined what amounts to a kind of Climate Five-Year Plan, setting limits on greenhouse gas emissions at home while pursuing efforts abroad to reach "a new global agreement to reduce carbon pollution through concrete action."
To get some idea of the kind of climate change legacy President Obama might yearn for, let's take a look back at what his proposals were before the friction of actual governance stymied his plans. Back in 2008, then-candidate Obama offered up a "plan to combat climate change and create a green economy," the goal of which was to cut U.S. greenhouse gas emissions by 80 percent by 2050. At the center of his plan was a cap-and-trade system that would have required that 100 percent of permits covering all greenhouse emissions be auctioned off. What might the price for each ton of greenhouse gas have been, and how would it affect the way Americans live?
To get handle on this question, consider the calculations the administration did last May to compute the social cost of carbon—that is, the harms of climate change caused by the emissions of greenhouse gases, chiefly carbon dioxide produced by burning fossil fuels. The Interagency Working Group on the Social Cost of Carbon reported various values for the social cost of carbon in 2015, ranging from $12 to $109 per ton. To get a rough idea of the total cost to the U.S. economy, let's use the $58 per ton cost as a possible auction price.
According to the Environmental Protection Agency, the U.S. emitted the equivalent of 6.7 billion tons of carbon dioxide in 2011. Auctioning off permits for that amount of emissions would yield about $388 billion in revenues per year. For comparison, federal individual income tax revenues in 2012 amounted to $1.1 trillion. The original Obama Climate Plan did not swap the carbon taxes out for other taxes, such as individual or corporate income taxes, but would instead used them to fund clean-energy and energy-efficiency projects and to help lower income Americans to pay for the resulting higher energy costs. While such a tax would reduce carbon dioxide emissions, simply piling it onto existing taxes would further distort markets and reduce overall economic efficiency and competitiveness.
Using figures derived from a May 2013 Congressional Budget Office report on the economic effects of a carbon tax, an auction price of nearly $60 per ton would boost the price of a gallon of gasoline by 60 cents per gallon and the average price of electricity by about 48 percent. The average household consumes just over 1,000 gallons of gasoline annually. Increasing the price of a gallon of gas from the current average of $3.20 to $3.80 would raise household gasoline expenditures by $600 per year. Similarly, average annual household electric bills more rise by more than $600.
Auctioning off emissions permits was not enough. The original Obama Climate Plan would have required that the United States obtain 25 percent of its electricity from renewable energy sources—wind, solar, geothermal, and so on—by 2025. Nuclear and natural gas were not mentioned. As it happens, in 2012, solar, geothermal, and wind energy generated 0.11, 0.41, and 3.46 percent respectively of electric power in the United States. A recent Information Technology and Innovation Foundation study estimated that replacing all U.S. fossil fuel power by 2030 would cost each American household nearly $5,700 per year. Extrapolating from that, the earlier Obama electric power renewable fuel mandate would result in an increase in household electricity costs on the neighborhood of $570 per year.
In his Georgetown speech, the president scaled back his renewable energy mandate to doubling production by 2020, which would mean that solar, geothermal, and wind would produce 0.2, 0.8, and 7 percent respectively of America's electric power by then.
An analysis by the market-oriented Manhattan Institute compared the price trends of electricity between coal-dependent states that have adopted renewable fuel mandates of the sort that the president favors and those that did not. The study found that between 2001 and 2010, residential electricity rates had increased by an average of 54.2 percent in the states with mandates, more than twice the increase seen in comparable states without a renewable fuel requirement.
The Georgetown speech also included a reference to the EPA's new automobile fuel economy standards (CAFE): "We doubled the mileage our cars will get on a gallon of gas by the middle of the next decade." Estimates by the National Automobile Dealers Association found that the new CAFE standards will boost the average price of a car by $3,000. Proponents correctly counter that that additional cost will be offset in extra fuel savings. On the other hand, a 2012 analysis by scholars at Massachusetts Institute of Technology found that setting automobile fuel economy standards is at least six to 14 times as costly to the economy as a gasoline tax that achieves the same cumulative carbon dioxide reduction. Technology mandates are a very expensive way to cut carbon dioxide emissions.
I say all this not to suggest that we should do nothing to address the possibility of a climate catastrophe. I say it because the Obamacare fiasco should be a warning to the president and other policymakers that a comparable ClimateCare program of top-down centralized planning will miscarry just as spectacularly. Wrecking both the health care and the energy sectors is hardly the kind of legacy a president should want to leave.
*I have been made aware that there is a company called ClimateCare. The headline is in no way refers to the climate and development experts at ClimateCare. Sorry for any confusion.