"Hi, I'm President Obama and I'm here in Alaska to help fix the climate."
Will government solutions to global warming be worse than global warming?
President Barack Obama toured Alaska this week to highlight his concerns about man-made global warming. "Arctic temperatures are rising about twice as fast as the global average," he declared in Anchorage. On that much, he's right. Satellite temperature measurements of the lower troposphere show that the global atmosphere has been warming at a rate of about +0.12 degrees Celsius per decade since 1980. The Arctic, meanwhile, has been warming at rate of about +0.32 degrees Celsius per decade.
When it came to how best to address those rising temperatures, the president was less persuasive.
Obama has pledged that the United States will reduce its greenhouse gas emissions 17 percent below 2005 levels by 2020, and 26 to 28 percent by 2025. In 2005, the U.S. emitted about 7,386 million metric tons of greenhouse gases. By 2013, that had dropped to 6,472 million metric tons, largely as a result of the economic contraction and of switching from coal to cheaper natural gas for electricity generation. Even as greenhouse gas emissions were falling, real U.S. gross domestic product rose from $14.4 trillion in 2005 to $16.3 trillion now, an increase of more than 13 percent.
In his Alaska speech, President Obama also argued: "Few things can have as negative an impact on our economy as climate change. On the other hand, technology has now advanced to the point where any economic disruption from transitioning to a cleaner, more efficient economy is shrinking by the day. Clean energy and energy efficiency aren't just proving cost-effective, but also cost-saving." But is switching to clean energy available now really cost-effective and cost-saving?
The cuts in greenhouse gas emissions that the president has promised are supposed to stem from various initiatives adopted by his administration. These policies include new higher corporate average fuel economy (CAFE) standards, tighter appliance energy efficiency standards, and the Clean Power Plan.
Since 2010, the Obama administration has raised CAFE standards for passenger vehicles from 27.5 to 54.5 miles per gallon by 2025. In 2011, the Environmental Protection Agency calculated that the new regulations would increase the average price of an automobile by $2,000 to $3,000 in 2025. The average vehicle burns 524 gallons per year now. Let's assume that the new fuel-efficient vehicles will use only half as much gasoline, about 262 gallons. At the current price of $2.48 per gallon, that would yield a fuel saving of around $650 per year. In other words, it would take four to five years for a driver to offset the costs of the new standards. The EPA estimates that new passenger car standards would result in annual carbon dioxide emissions reductions of 307 million metric tons by 2030.
What are the costs and benefits of Obama's new energy efficiency standards for home appliances? Sherzod Abdukadirov, a research fellow at the free-market Mercatus Center, recently noted that the Department of Energy estimated that purchasers of new dishwashers would pay an additional $44 and save $3 in energy costs over the 15-year lifetime of the appliance. For new clothes dryers, consumers would pay an extra $12 in order to save $14 over the dryer's lifetime and would hand over an extra $42 for a new small air conditioner that save consumers just $7 over 10 years. The total cumulative reductions in carbon dioxide emissions resulting from the new regulations for dishwashers, clothes dryers, and air conditioners amount to just over 40 million tons. Operating them for 15 years suggests that the annual reduction in carbon dioxide emissions amounts to 2.67 million tons annually, accounting for about 0.05 percent of the reduced emissions Obama promises for 2025.
Earlier this summer the EPA unveiled its new Clean Power Plan (CPP) regulations, which aim to cut U.S. electric power generation plants' carbon dioxide emissions in 2030 by 32 percent of the level they emitted in 2005. As I have earlier reported, the EPA's regulatory impact analysis of the new rule found that electric power generators emitted 2,433 million metric tons of carbon dioxide in 2005. The Energy Information Administration (EIA) reports that U.S. electric power plants emitted 2,043 metric tons of carbon dioxide in 2014. In other words, the U.S. power sector has already cut its carbon dioxide emissions by 390 million tons, about 16 percent below its 2005 emissions. This means that the agency aims to reduce power plant carbon dioxide emissions by an additional 390 million metric tons.
So how much will implementing the CPP cost? The EPA itself estimates that its new regulations will raise retail electricity prices by around 1 percent by 2030 and decrease employment by only 30,000 job-years. The agency also claims, however, that these costs will be outweighed by annual global climate benefits ($6.4 billion) and health benefits from cleaner air (between $13 and $34 billion). Most of the health benefits result from the fact that burning less carbon-dioxide-emitting coal for power production cuts the emissions of other pollutants, such as fine particulates and ozone. In any case, it bears noting that these offsets are based on highly questionable social cost of carbon and health benefit calculations.
More alarming economic outcomes are reported from a study commissioned by the U.S. Chamber of Commerce. It says the CPP will suppress our average annual gross domestic product by $51 billion and lead to an average of 224,000 fewer jobs every year through 2030. The Chamber analysts also believe that the CPP will boost consumer electricity bills by nearly $17 billion more per year. Meanwhile, an EIA study estimated that the CPP would lead to electricity prices that are 3 to 7 percent higher on average from 2020 to 2025. Yet another study, this one commissioned by the National Rural Electric Cooperative Association, found that a 10 percent increase in electricity prices would result in 1.2 million jobs lost in 2021.
The basic assumption in that study, derived from research done by the University of California, Santa Barbara, economist Olivier Deschênes, is that every 1 percent increase in the real price of electricity results in the loss of about 120,000 jobs. So if the moderate EIA estimates are correct, that suggests that implementing the CPP will reduce the number of jobs in the U.S. by between 360,000 and 840,000 from what they would otherwise have been.
So are the new energy efficiency regulations being imposed by the Obama administration really cost-effective and cost-saving? A 2014 study in the Journal of Environmental Economics and Management analyzed the effects of energy efficiency standards compared to pricing policies for reducing gasoline, electricity, and nationwide carbon emissions. By pricing policies, they essentially mean putting a tax on carbon dioxide emissions sufficient to equal the cuts mandated by the standards. They report that the "combination of energy efficiency and emissions standards is more than three times as costly as carbon pricing."
In other words, whatever benefits the administration's convoluted energy and emissions regulations may provide, they are costing American consumers and industry three times more than would a comparable carbon tax. Talk about negative impacts!
The key question always to consider is: Will government solutions to global warming be worse than global warming itself?