A Role of the Dice

In January 2009 The Manhattan Institute’s Center for Energy and Environment , with the help of survey research conducted by [...]

April 27 2009 by JP Donlon

In January 2009 The Manhattan Institute’s Center for Energy and Environment , with the help of survey research conducted by Zogby Associates, sought to determine what Americans believe about energy and environmental issues. It was built on a similar study conducted in 2006 in which 1,000 Americans, chosen to be representative of public opinion generally, were tapped about their knowledge and perceptions on matters such as the sources of U.S. energy supply, the extent of the oil supply, the rate of global warming, and trends in atmospheric pollution.

Here are five findings taken directly from the executive summary of the report:

  • Forty-nine percent of respondents believe Saudi Arabia exports the most oil to the U.S., while just 13% correctly identified Canada as our top foreign supplier. According to the Energy Information Administration (EIA), the U.S. imported 58.2% of its petroleum (including crude oil) in 2007, but only 16.1% of all imports came from Persian Gulf countries.
  • More than 67% believe we can meet future energy demand through conservation and efficiency. Historically, in contrast, energy demand actually increases alongside efficiency gains. And because energy use is not static, conservation leads to only marginal reductions in demand. The EIA projects global energy consumption to increase 50% from 2005 to 2030 and U.S. energy use to increase 11.2% from 2007 to 2030.
  • Just 37% correctly answered that no one has ever died from the actual generation of nuclear power in the U.S. Though the U.S. has not built a nuclear-power reactor since the nuclear meltdown at Three Mile Island in 1979, 104 active reactors safely generate roughly one-fifth of our nation’s electricity.
  • Sixty-three percent of those surveyed believe that human activity is the greatest source of greenhouse gases. In fact, such emissions are significantly smaller than natural emissions. The burning of fossil fuels is responsible for just 3.27% of the carbon dioxide that enters the atmosphere each year, while the biosphere and oceans account for 55.28% and 41.46%, respectively.
  • Less than 28% correctly believe that U.S. air quality has improved since 1970. According to the Environmental Protection Agency, the six most common air pollutants have decreased by more than 50%; air toxins from large industrial sources have fallen nearly 70%; new cars are more than 90% cleaner, in terms of their emissions; and production of most ozone-depleting chemicals has ceased. These reductions have occurred despite the fact that during the same period, gross domestic product tripled, energy consumption increased 50%, and motor vehicle use increased almost 200%.

As the nation’s policy makers and its business leaders wrestle with adapting an energy policy that will fuel economic growth and at the same time maintain and improve the quality of the air and water in our environment, it’s important to know what the public understands and what it will tolerate in terms of economic privation to reach certain environmental goals.  Sometimes the true cost of being green isn’t made clear.  Given the momentum behind renewable energy sources,(solar, wind, biofuels, hydro, etc.) a remarkable number of citizens recognize that such sources are unlikely to replace fossil fuels anytime soon. The Center’s report affirms that 91 percent of our electricity is generated by fossil fuels and uranium and the EIA projects that 85 percent of our electricity in 2030 will be generated by such fuels. A plurality (49%) of those surveyed do not think reducing carbon emissions will be simple or inexpensive.  Amidst calls for energy independence 64 percent are in favor of using domestic sources including expanding offshore oil drilling and believe that such efforts can be conducted in an environmentally safe manner.

But here’s the rub. What will the  impact be on jobs and the economy if limits on greenhouse gas emissions are imposed using the cap and trade scheme the Obama administrations advocates?  According to the President’s goal, the plan would seek to reduce greenhouse emissions approximately 14 percent below 2005 levels by 2020 and by about 83 percent below 2005 levels by 2050.

Given our dependence on coal for almost half (48.5 percent) the country’s electricity this would require a nationwide transformation that would make reform of the financial system seem trivial by comparison. The costs of a cap and trade scheme would be high and would fall primarily on middle and lower income consumers who would face higher prices for electricity and gasoline. According to the Congressional Budget Office a 15 percent cut in CO2  emissions would cost the average household in the lowest quintile of income distribution about 3.3 percent of average income compared to 2.8 percent for the middle income households and 1.7 percent for the highest income earners.

The American Council for Capital Formation estimates that in the end  such a system  would reduce GDP by $151 to $210 billion in 2020 and would result in job losses of 1.2 million to 1.8 million by the same year. Of course the Obama administration sees things differently. The Wall Street Journal reports that White House economic advisor Jason Furman anticipates that cap and trade would yield revenues two to three times larger than the $646 billion the administration officially estimates.

So far business leaders have remained mum on the impacts on the economy of cap and trade. One who has not is James Hackett, CEO of Houston-based Anadarko, one of the country’s largest independent oil and gas companies, who recently told the FT that such a plan could send “the US into an economic tailspin” that could  turn the country in Hackett’s words, into “the worlds’s cleanest third world country.”  Hackett, who also serves as chairman of the Dallas Federal Reserve, further told the FT that a cap and trade system would represent an indirect tax on individuals that would be open to manipulation as is the European model now in place.

Given that any cap and trade system however cleverly designed by definition harms the economy by making energy more expensive, why are we considering it? It is not clear that reducing emissions at these miniscule levels will have any discernable effect in the atmosphere particular since China turns out a coal-fired plant on average about once a week and has no interest in signing onto any Kyoto-like treaty.  Such a scheme would hand a competitive advantage to nations that have no interest in imposing an energy tax on themselves. Jobs would necessarily flow overseas to countries that would avoid a de facto energy tax. Worse, if as Energy Secretary Steven Chu hints that the Obama administration slaps tariffs on carbon-intensive imports from nations that don’t price CO2  emissions, the U.S. could face a protectionist trade war on the order of Smoot-Hawley.

Maybe it’s time to look a bit deeper into costs and benefits. 

A former television meteorologist who operates Intelliweather, a weather technology company in California was recently asked about the  public’s biggest misconception of climate change. Watts who drives an electric car, installed a 10 Kw solar array on his home, and considers himself a true “green,” told former L.A. Times editor Bill Steigerwald, “As we go back into history, into past millennia, we can see that our atmosphere has in fact had much more CO2 – up to 6,000 parts per million, compared to the 380 parts per million that we have now – and it has responded and it has settled. Earth didn’t destroy itself. It didn’t burn up and boil off the oceans. So the comparison that we see with runaway global warming and the turning of Earth into Venus, things of that nature, are probably the most dangerous and wrong ideas that are being pushed.”