Energy Mandates or Energy Taxes?

Congress thinks you should pay more for power

On its way out of town for summer vacation, the U.S. House of Representatives passed an energy bill that would require, among other things, that electric utility companies produce 15 percent of their energy from renewable sources by 2020. In addition, the House energy bill directs the Department of Energy to set new energy efficiency appliance standards, outlaws 100-watt incandescent light bulbs after 2012, and requires that all bulbs be 300 times more efficient than ordinary bulbs are today by 2020.

The measure also provides $3.5 billion in subsidies to install E-85 (fuel that is 85 percent ethanol and 15 percent gasoline) pumps at gasoline stations and expand production of cellulosic ethanol. The bill extends renewable energy production tax credits to 2012, costing around $6.6 billion over 10 years, and extends a 30% tax credit for solar energy and fuel cell investment for eight years to 2016, costing around $563 million. The legislation offers a new credit for plug-in hybrid vehicles of at least $4,000 per taxpayer, to a total of 60,000 vehicles a year, costing around $1.2 billion over a decade. The House also repealed $16 billion in tax breaks for the oil industry.

Why mandate things like energy efficient appliances? After all, the Environmental Protection Agency and the Department of Energy already run a voluntary energy efficiency testing and labeling program called EnergyStar. Appliances that meet the EnergyStar standards carry a label letting consumers know how much energy they will use per year.

But even with this information consumers are not flocking to energy efficient appliances. Why? Because EnergyStar appliances often cost more than their conventional counterparts. For example, a GE EnergyStar 6000 BTU window air conditioner costs $209 and uses $41 of electricity annually. A conventional GE window unit costs $179 and uses $46 of electricity per year. It would take six years of energy savings to make up the difference between the two. Since air conditioners typically last longer than six years, many consumers will think that's a good deal.

Making direct comparisons between EnergyStar-rated appliances and conventional ones is difficult because they often differ slightly from one another in certain details. For example, a GE EnergyStar top-freezer refrigerator has 21.7 cubic feet capacity and the closest conventional one offers 21.9 cubic feet. In this case, the EnergyStar fridge costs $1329 and uses $41 of electricity per year while the conventional one costs $1029 and uses $48 per year. It would take about 43 years of energy savings to make up for the difference in cost between these two refrigerators. Many consumers might not think that's such a good deal.

In any case, a voluntary energy efficiency testing and labeling program is pretty benign. So why go on about the costs of EnergyStar appliances? The point is to show that by making such appliance standards mandatory, they could result in higher consumer prices—essentially a backdoor energy "tax" on consumers.

Interestingly, the House, unlike the Senate, failed to impose higher mileage standards on automobiles. Why? House Democrats from automobile manufacturing districts had enough clout to derail those proposals. In contrast, the Senate passed energy legislation in June that would require that cars and light trucks to get 35 miles per gallon by 2020, up from 27.5 miles per gallon for cars and 22 miles per gallon for SUVs and light trucks today. When the House and Senate return from their summer break, this provision might be included in a joint energy bill. Of course, automakers already offer a number of models that get this kind of mileage, but many members of Congress evidently think that an insufficient number of Americans want to buy them.

Is all this meddling with energy standards and markets really necessary to achieve substantial increases in energy efficiency? Not at all. If Congress actually wants to increase energy efficiency there is a simple, elegant and cost-effective way to how to go about it. Just make energy more expensive. The easiest way to do that is a carbon tax. Such a tax would make fossil fuels which are contributing to man-made global warming more expensive, making low-carbon energy alternatives more relatively attractive.

In fact, Rep. John Dingell (D-Mich.) who heads up the House Energy and Commerce Committee threatened to propose a carbon tax last month. Dingell's proposal is an attempt to call the Democratic leaders bluff on energy policy. He hopes that such a tax will fail. As he told C-Span, "I sincerely doubt that the American people will be willing to pay what this is really going to cost them." The Democrats on Capitol Hill evidently agree with Dingell. So in an attempt to fool the public about their real goal—boosting energy prices—Congressional Democrats cobbled together 786 pages of energy mandates and subsidies.

Requiring utilities to produce 15 percent of their energy from renewable sources will likely boost consumers' energy bills. So will banning incandescent bulbs, imposing appliance standards, subsidizing hybrid automobiles, ethanol production, and so forth. All these mandates add up to the equivalent of an inefficient energy tax.

Assuming that energy conservation is really the policy that our Representatives and Senators believe that our country ought to pursue, it would be far better to tax energy rather than attempt to clumsily micromanage its production and use. Such a tax would encourage consumers to conserve and entrepreneurs to develop new energy efficient technologies, completely obviating any need for a surfeit of mandates and subsidies. But advocating such a tax takes political courage. It turns out that courage conservation is even more popular than energy conservation on Capitol Hill.

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