News

In the Pipeline: 3/8/2013

March 8, 2013 by AEA Leave a Comment

It’s hard to believe how fast they grow up. One minute you’re dropping your subsidies off for their first day of kindergarten, and before you know it they’re taking victory laps in college. Politico (3/7/13) reports: “Just months after the wind power production tax credit won a last-minute renewal by Congress, opponents of the subsidy are circling the wagons to make sure it doesn’t happen again… The loose coalition of anti-PTC groups has just begun meeting to map out an advocacy and lobbying strategy. The credit will expire at the end of this year without congressional intervention… They’re seeking to attract like-minded members of Congress and the public, raise the issue’s profile and take aim at wind power jobs claims from the industry.”

Wait, what? I thought all insurance companies recognized that the science was settled and the world was in fact ending. Now it turns out . . . not so much. Bloomberg (3/7/13) reports: “Almost 90 percent of insurance companies lack a comprehensive plan to address climate change and fewer than half of them view it as a likely source of financial losses, according to a report released today.”

These people have perfected the art of making the selfish look selfless. MasterResource (3/7/13) reports: “Just a few years ago, environmental leaders were saying that we faced a climate emergency, that emissions must start declining rapidly, and that enemy number one was coal. Now the same leaders are saying we have to stop shale fracking even though it is crushing coal and driving down American carbon emissions… Of course, the fractivism isn’t really about the fracing. Matt Damon’s anti-natural gas movie was originally an attack on wind farms. In 2005, Bobby Kennedy Jr. helped lead a campaign to stop the Cape Wind farm from being built because it will be visible from the Kennedy compound. Meanwhile, he was championing the construction of a massive solar farm in the Mojave Desert, 3,000 miles away — itself opposed by local environmentalists.”

The following think tank chiefs are opposed to a carbon tax. Please contact us at [email protected] if you wish to join our growing ranks. We are thinking about starting a new list – trade association heads. We fear, however, it will be pretty small.

Tom Pyle, American Energy Alliance / Institute for Energy Research
Myron Ebell, Freedom Action
Phil Kerpen, American Commitment
William O’Keefe, George C. Marshall Institute
Lawson Bader, Competitive Enterprise Institute
Andrew Quinlan, Center for Freedom and Prosperity
Tim Phillips, Americans for Prosperity
Joe Bast, Heartland Institute
David Ridenour, National Center for Public Policy Research
Michael Needham, Heritage Action for America
Tom Schatz, Citizens Against Government Waste
Grover Norquist, Americans for Tax Reform
Sabrina Schaeffer, Independent Women’s Forum
Barrett E. Kidner, Caesar Rodney Institute
George Landrith, Frontiers of Freedom
Thomas A. Schatz, Citizens Against Government Waste
Bill Wilson, Americans for Limited Government

Filed Under: Blog Tagged With: Bobby Kennedy Jr., Cape Wind farm, carbon emissions, carbon tax, climate change, insurance companies, subsidies, wind energy, wind production tax credit, wind ptc

Inflated Numbers; Erroneous Conclusions

March 7, 2013 by AEA Leave a Comment

Claims by the wind industry that another year-long extension of the Production Tax Credit (PTC) would create American jobs are based on “self-serving industry interviews and unsupported wind capacity forecasts that have no credibility,” according to a study by the American Energy Alliance (AEA) and the National Center for Public Policy Research (NCPPR). Additionally, the report finds that the analysis conducted for the wind industry by Chicago-based Navigant Consulting significantly overestimated the number of jobs that would be lost as a result of scheduled expiration of the PTC on Dec. 31, 2012. Congress voted to extend the subsidy at a cost of over $12 billion during last year’s fiscal cliff negotiations.

The study, “Inflated Numbers; Erroneous Conclusions: The Navigant Wind Jobs Report,” was conducted by Charles Cicchetti, Ph.D, a senior advisor to the Pacific Economics Group and Navigant. The study lays bare the macroeconomic distortions and faulty modeling that the wind industry used to justify continued payments of its taxpayer-funded corporate welfare.

The study’s key findings include:

When calculating potential job losses, Navigant used the wind industry’s self-serving, inflated forecasts for wind capacity “lost” without the PTC, which exceeded the federal government’s non-biased forecasts by as much as 55%.

Navigant’s analysis also incorrectly applied one model to determine direct job losses in key states, inflating them by at least 100%. Incorrectly applying another model resulted in questionable multipliers that inflated job loss estimates by at least another 72%.

The Navigant report narrowly focuses on supposed jobs lost in the wind industry if the PTC isn’t extended but completely ignores the U.S. economy as a whole. If new generating capacity is needed and jobs are the measure, other sources of electricity, such as coal, nuclear power or atural gas, would create more direct jobs than wind power for an equal amount of new generating capacity. In a separate May 2010 report, Navigant actually acknowledged that wind power produces fewer jobs, direct and indirect, than other sources of electricity for an equivalent amount of capacity.

Subsidizing wind is very costly per job created. A one-year PTC extension could cost as much as a staggering $4.8 million for each direct wind manufacturing and construction job added.

The Navigant study claimed that the U.S. economy stood to lose 37,000 jobs in 2013 if the PTC were to have expired. Yet Dr. Cicchetti’s analysis demonstrates that Navigant misapplied models used to substantiate this claim, with the result that potential direct job losses were inflated by at least 100 percent in the key states that were reviewed. As a result, lawmakers and the general public were misled to believe that an extension of the PTC would strengthen the U.S. economy. Regarding the Navigant study, Dr. Cicchetti concludes, “The Report’s resulting job loss numbers are meaningless and should not be used to justify spending billions of dollars in taxpayer money to extend an unneeded subsidy for the wind industry.”

“This study confirms what we have known all along: the PTC is bad policy built on faulty economic analysis that results in a net loss for the U.S. economy,” said AEA President Thomas Pyle. “A sounder approach would be to let the free market determine winners and losers among energy sources, instead of Washington doling out billions of dollars to prop up Big Wind at great loss to the federal treasury and the U.S. jobs market.”

To read the entire study, click here.

To view the appendix to the study, click here.

Filed Under: Studies

REPORT: Big Wind’s Bogus Jobs Numbers

March 7, 2013 by Benjamin Cole 1 Comment

Industry’s ‘Inflated Numbers’ and ‘Erroneous Conclusions’ Misled Washington Lawmakers to Gain Extension of Production Tax Credit

WASHINGTON, D.C. – Claims by the wind industry that another year-long extension of the Production Tax Credit (PTC) would create American jobs are based on “self-serving industry interviews and unsupported wind capacity forecasts that have no credibility,” according to a study released today by the American Energy Alliance (AEA) and the National Center for Public Policy Research (NCPPR). Additionally, the report finds that the analysis conducted for the wind industry by Chicago-based Navigant Consulting significantly overestimated the number of jobs that would be lost as a result of scheduled expiration of the PTC on Dec. 31, 2012. Congress voted to extend the subsidy at a cost of over $12 billion during last year’s fiscal cliff negotiations.

According to the Navigant study, the U.S. economy stood to lose 37,000 jobs in 2013 if the PTC were to have expired. Yet Dr. Cicchetti’s analysis demonstrates that Navigant misapplied models used to substantiate this claim, with the result that potential direct job losses were inflated by at least 100 percent in the key states that were reviewed. As a result, lawmakers and the general public were misled to believe that an extension of the PTC would strengthen the U.S. economy. Regarding the Navigant study, Dr. Cicchetti concludes, “The Report’s resulting job loss numbers are meaningless and should not be used to justify spending billions of dollars in taxpayer money to extend an unneeded subsidy for the wind industry.”

“Congress blundered badly when, in the deal to avoid the so-called ‘fiscal cliff,’ it caved to special interests and pressure from the wind industry for another extension of the PTC,” noted NCPPR Senior Fellow Bonner Cohen. “No amount of subsidies over whatever period of time will every make wind power competitive against affordable, reliable, and plentiful sources of electricity generation. The PTC leads to a gross misallocation of resources in the public and private sectors. In the end, taxpayers lose. Workers lose. The economy as a whole loses.”

The study’s key findings include:

When calculating potential job losses, Navigant used the wind industry’s self-serving, inflated forecasts for wind capacity “lost” without the PTC, which exceeded the federal government’s non-biased forecasts by as much as 55%.

Navigant’s analysis also incorrectly applied one model to determine direct job losses in key states, inflating them by at least 100%. Incorrectly applying another model resulted in questionable multipliers that inflated job loss estimates by at least another 72%.

The Navigant report narrowly focuses on supposed jobs lost in the wind industry if the PTC isn’t extended but completely ignores the U.S. economy as a whole. If new generating capacity is needed and jobs are the measure, other sources of electricity, such as coal, nuclear power or natural gas, would create more direct jobs than wind power for an equal amount of new generating capacity. In a separate May 2010 report, Navigant actually acknowledged that wind power produces fewer jobs, direct and indirect, than other sources of electricity for an equivalent amount of capacity.

Subsidizing wind is very costly per job created. A one-year PTC extension could cost as much as a staggering $4.8 million for each direct wind manufacturing and construction job added.

To read the entire study, click here.

About the Wind Production Tax Credit:

The PTC was first enacted in 1992 to jumpstart a nascent wind industry and it currently provides wind producers a subsidy of $22 per megawatt-hour (MWh) of energy generated. It was temporarily extended early this year as part of the fiscal cliff deal with a new provision that allows wind energy projects that begin construction in 2013 to qualify for the credit. Extending the PTC cost American taxpayers more than $12 billion dollars, according to the Congressional Joint Committee on Taxation.

About The American Energy Alliance
Founded in May 2008, the American Energy Alliance is a not-for-profit organization that engages in grassroots public policy advocacy and debate concerning energy and environmental policies. AEA believes that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society. AEA believes that government policies should be predictable, simple and technology neutral.

About The National Center for Public Policy Research
The National Center for Public Policy Research is a not-for-profit communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s many public policy problems. Founded in 1982, NCPPR has provided top-flight research and communications operations for more than three decades, earning a solid reputation for its defense of private land ownership, sound energy and economic policies, and conservative approaches to regulatory reform. The National Center has never requested nor received funding from the federal government nor any state nor foreign government.

###

Filed Under: Studies Tagged With: AWEA, Big Wind, Charles Cicchetti, NCPPR, production tax credit, wind ptc

In the Pipeline: 3/6/13

March 6, 2013 by AEA Leave a Comment

Nooooooooooooo!!!!!!!!!

The wind crew is bitterly clinging to its tax credits. They probably don’t have religion or guns. Politico (3/5/13) reports: “Two months after Congress rescued it, the wind industry’s crucial tax credit is back on the countdown to extinction. The fiscal cliff deal revived the wind-production tax credit on New Year’s Day just hours after it legally expired. Industry leaders say the extension saved thousands of jobs and will support the installation of thousands of megawatts of power this year… But the credit is due to expire again Dec. 31, and opponents are just as eager as before to see it die. The industry wants a long-term extension, but that has near zero odds with the Capitol consumed with talk of budget pain.”

Obama taking credit for the increase in domestic oil and gas production in like Ike Turner taking credit for Tina’s success. Energy & Commerce (3/5/13) reports: “The nonpartisan Congressional Research Services has issued a new report showing the effects of the Obama administration’s “all-of-the-above but nothing-from-below” energy policy on oil and gas production on federal lands. While U.S oil production is at its highest levels in two decades, evidence suggests this increase is largely a result of production on state and private lands where the federal government plays little or no role. CRS found that ALL the increases in production since 2007 have taken place on non-federal lands. The report reveals a similar story for natural gas. Since 2007, natural gas production on federal lands fell by 33 percent while production on state and private lands grew by 40 percent.”

The energy debate isn’t just about science and engineering, it’s about who has the right to control your life. Commentary (3/5/13) reports: “It doesn’t matter whether you are in full agreement with the president on this issue or buy into only a part of it or none at all. The question before the nation here is whether the executive branch can or should give itself the power to run roughshod over Congress and unilaterally implement new regulations that will give the force of law to the president’s climate beliefs. If McCarthy and Moniz intend to use their regulating power to redraw the laws concerning fossil fuel emissions or the ability to explore or drill for new energy sources, then the result will be as much of a Constitutional crisis as anything else.”

Peak oil is so old, she knew Burger King when he was still a Prince. CNN (3/5/13) reports: “Predictions that the world would imminently ‘run out of oil’ have been worrying oil consumers since at least the 1920s. They always prove wrong, for reasons explained by the great oil economist M. A. Adelman after the last ‘oil shortage’ in the 1970s. Oil reserves, Adelman writes, ‘are no gift of nature. They (are) a growth of knowledge, paid for by heavy investment’.”

Filed Under: Blog Tagged With: Ernest Moniz, fossil fuels, Gina McCarthy, natural gas, oil, oil production, Regulation, tax credit, wind energy, wind production tax credit

Everybody Agrees that CAFE Standards Are Inefficient

March 6, 2013 by Robert P. Murphy Leave a Comment

Often in the policy debates on government regulations, you will have free-market people decrying inefficient impediments to business, while the other side will tout the (alleged) benefits to the environment or whatever the social goal happens to be. Yet a new MIT study—from a group that is very sympathetic to carbon regulatory policies—documents how inefficient vehicle fuel efficiency (CAFE) standards are. Even if one buys into the premise that the government should be forcing businesses and consumers to alter their behavior in the name of fighting climate change (or “oil dependency”), it is still an unavoidable conclusion that CAFE standards are absurd. There are far cheaper ways to achieve their alleged objective.

The MIT study is titled, “Should a vehicle fuel economy standard be combined with an economy-wide greenhouse gas emissions constraint? Implications for energy and climate policy in the United States.” It is part of the MIT Joint Program on the Science and Policy of Global Change, which is not exactly a bastion of rabid right-wingers. Even so, check out their paper’s abstract:

The United States has adopted fuel economy standards that require increases in the on-road efficiency of new passenger vehicles, with the goal of reducing petroleum use and (more recently) greenhouse gas (GHG) emissions. Understanding the cost and effectiveness of fuel economy standards, alone and in combination with economy-wide policies that constrain GHG emissions, is essential to inform coordinated design of future climate and energy policy. We use a computable general equilibrium model…to investigate the effect of combining a fuel economy standard with an economy-wide GHG emissions constraint in the United States. First, a fuel economy standard is shown to be at least six to fourteen times less cost effective than a price instrument (fuel tax) when targeting an identical reduction in cumulative gasoline use. Second, when combined with a cap-and-trade (CAT) policy, a binding fuel economy standard increases the cost of meeting the GHG emissions constraint by forcing expensive reductions in passenger vehicle gasoline use, displacing more cost-effective abatement opportunities. …This analysis underscores the potentially large costs of a fuel economy standard relative to alternative policies aimed at reducing petroleum use and GHG emissions. It further emphasizes the need to consider sensitivity to vehicle technology and alternative fuel availability and costs as well as economy-wide responses when forecasting the energy, environmental, and economic outcomes of policy combinations. [Bold added.]

Stripped of the jargon, the paper uses an MIT model, with all the bells and whistles, to conclude that vehicle fuel efficiency standards are an arbitrary, blunt instrument that harm consumers far more than is necessary to achieve a given environmental objective.

Now to be sure, the MIT authors aren’t recommending laissez-faire. They think they’ve got a different policy mix of nudges and sharp elbows from the federal government, to make the energy sector juuuuuust right.

Even so, it’s useful to point out that in the real world, the government implements incredibly inefficient and costly regulations, even according to the proponents of top-down regulation. Put in different words, CAFE regulations are so awful on a cost/benefit test, that not even the fans of anti-carbon policies are willing to defend them.

Filed Under: CAFE, Facts, News, Products and Power, Threats Tagged With: CAFE, carbon, efficiency, GHG emissions, laissez-faire, MIT

In the Pipeline: 3/5/13

March 5, 2013 by AEA Leave a Comment

I wonder if they are going to mention the years that she has spent not responding to document and other requests from Senators and Congressmen. Or the data that she promised to provide (but did not) on the utility MACT or CSAPR. Or her role in the creation of RGGI. Or her involvement in NESCAUM and the low carbon fuel standard. I bet not. But the quote from Jeff Holmstead is awesome all by itself. Standwithgina.com (3/13) reports: “‘[McCarthy] is willing to sit down and listen and understand the issues people have with EPA’s regulations.’ Jeffrey Holmstead, Former Bush-Appointed EPA Assistant Administrator”

Let’s review. For the carbon tax, pretty much everyone on the left side of the political spectrum along with some fellow traveling companies, a former free market think tank, and a handful of former Bush appointees. Against? The Institute for Energy Research and some of our very tough friends (whose names we publish every Friday. Unwilling to say (one way or the other)? API. AGA. The Chamber of Commerce. Washington Post (3/4/13) reports: “Instead of indulging in distractions, Mr. Obama and his friends in the environmental movement should push for policies that could make a significant difference by cutting demand for carbon-intensive fuels. As we argued Sunday, a carbon tax is a cause that really is worth fighting for.”

Darren is a solid reporter. Did he just acknowledge that Obama has centralized more power in the White House and taken away decision-making authority from the agencies? Wonder how that made it past the editors. Politico (3/5/13) reports: “Environmentalists had high hopes four years ago when President Barack Obama loaded his administration’s top ranks with Clinton-era energy experts, green-job gurus and even a Nobel laureate… But that ‘Green Dream Team’ — which struggled to sculpt new policies on air and water pollution, clean energy and climate change — has turned over the keys to what is more of a B team in the second term.”

Just sayin’: Each 10x increase in CO2 emissions correlates to 10-year increase in life expectancy. Coyote Blog (3/4/13) reports: “The ultimate argument I get to my climate talk, when all other opposition fails, is that the precautionary principle should rule for CO2. By their interpretation, this means that we should do everything possible to abate CO2 even if the risk of catastrophe is minor since the magnitude of the potential catastrophe is so great… The problem is that this presupposes there are no harms, or opportunity costs, on the other end of the scale. In fact, while CO2 may have only a small chance of catastrophe, Bill McKibben’s desire to reduce fossil fuel use by 95% has a near certain probability of gutting the world economy and locking billions into poverty. Here is one illustration I just crafted for my new presentation.”

They’ve been circling Kish in the ring for years, but when you’re cut from his kind of cloth, you don’t put up with no Tonya Harding funny business. Forbes (3/3/13) reports: “This interview with Dan Kish, Senior Vice President of the Institute for Energy Research in Washington, D.C., reveals that regardless of abundance and necessity, the Obama administration continues to justify new regulations that restrict access to America’s oil and gas reserves… ‘It’s very apparent that the real intent is to make oil and gas more expensive in order to make the heavily subsidized, unreliable and costly ”renewable” energy programs they are pushing more cost-competitive. This is the Tonya Harding approach to energy… break your opponent’s kneecap if you can’t win fair and square… This blatant playing-field-tipping strategy, where government picks winners and losers, permeates virtually all aspects of the Obama administration’s energy policy. We don’t have an energy problem, Larry. We have a government problem…’”

Speaking of no funny business, this is happening on NPR at 2pm ET today: To the Point with Warren Olney.

Filed Under: Blog Tagged With: carbon tax, CSAPR, Dan Kish, EPA, fuels, gas, oil, President Obama, Utility MACT

In the Pipeline: 3/4/13

March 4, 2013 by AEA Leave a Comment

Cronyism. Campaign finance. Prostitution. This story has it all. Politico (3/4/13) reports: “An Associated Press investigation has found that New Jersey’s Sen. Robert Menendez sponsored legislation with incentives for natural gas vehicle conversions that could benefit the biggest donor to his re-election… The CEO and a former consultant to GFS Corp. say that Dr. Salomon Melgen invested in the Florida company, which helps industries convert diesel fuel-fleets to natural gas, and joined its board of directors in early 2010.”

The bad guys ran Andy Revkin out because he was too calm and rational. Which should tell you a lot about the bad guys. NYTimes(3/1/13) reports: “The Times is discontinuing the Green blog, which was created to track environmental and energy news and to foster lively discussion of developments in both areas. This change will allow us to direct production resources to other online projects. But we will forge ahead with our aggressive reporting on environmental and energy topics, including climate change, land use, threatened ecosystems, government policy, the fossil fuel industries, the growing renewables sector and consumer choices.”

Don’t break out the champagne, but this could be the only sane thing that happens in Washington this year. GlobalWarming.org(2/28/13) reports: “U.S. EPA has altered its cellulosic biofuel requirements for 2012 — from 8.65 million gallons to zero,” today’s Climatewire reports. In January, the D.C. Circuit Court of Appeals vacated EPA’s 2012 cellulosic biofuels standard. “As a result,” Climatewire explains, ”obligated parties — oil companies required to show EPA that they blend biofuels in their fuel supply — won’t need to provide information on their compliance. The agency will submit refunds to companies that have submitted payments for 2012 cellulosic waiver credits.”

Did you know that EDF has offices in New York, and Boulder, and San Francisco, and Washington, and . . . Bentonville, Arkansas? Did you know that they “help” Wal-Mart think about how best to implement “green” initiatives? Tell me again why the Republicans like Wal-Mart? Politico (3/4/13) reports: “Statement by Mike Duke, president and CEO, Wal-Mart Stores, Inc.: ‘We congratulate Sylvia on her nomination … Sylvia is a strong leader who both masters the details and has a clear vision for making big things happen. She cares deeply about people and has natural personal warmth that enables her to build relationships and drive results that deliver impact. She understands business and the role that business, government and civil society must play to build a strong economy that provides opportunity and strengthens communities across the country.’”

At least we don’t have to report that they’ll stay open with a government handout, only to report again in a year or two that 265 jobs will be lost. Denver Post (3/1/13) reports: “Rentech Inc. will mothball a research- and-development facility in Commerce City and eliminate 65 positions after struggling to bring its alternative fuels into commercial production, the Los Angeles company said Thursday… ‘We believe the technology has value and we have demonstrated that it works,’ said company spokeswoman Julie Dawoodjee… Rentech doesn’t have the $1 billion or more it would take to ramp up its technology on a mass scale, and potential fuel buyers haven’t been willing to lock into long-term contracts that would make it easier to raise capital, she said.”

Filed Under: Blog Tagged With: alternative fuels, cellulosic biofuel, climate change, EPA, fossil fuel, natural gas, renewables, Rentech Inc., Senator Robert Menendez, Wal-Mart

In the Pipeline: 3/1/13

March 1, 2013 by AEA Leave a Comment

This is going to be fun. We’ll see you in Houston on the 9^th.

At every turn, the story behind wind energy gets more depressing. It’s like a kid who starts out in Mom and Dad’s basement after Harvard; it’s cute for a few months, and then you realize they may never leave. Green Tech Media (2/27/13) reports: “‘Capacity factor measures the power output from a generator as a percentage of its maximum capability. With most forms of generation, you would operate at whatever capacity factor is economic,’ Moland said. “With wind, it is dictated by however much wind is blowing.”…The best wind sites have about a 40 percent capacity factor, meaning they produce an average of 40 megawatts per 100 megawatts of nameplate capacity over ‘all the hours of a year.’…‘If you’re losing — curtailing — two percent of that generation,’ Moland said, ‘it really has a big impact.’ Capacity factor is reduced to 38 percent, perhaps five percent of a wind farm’s production. ‘All the cost of a wind plant is upfront,’ Moland explained. ‘All the financial models looking at rate of return on investment assume a certain level of wind availability.’”

It’s so obvious even the Obama Administration has to acknowledge it. Reuters (2/27/13) reports: “As U.S. oil and natural gas production booms, the Obama administration’s energy policy has been ‘fluid’ by necessity to adapt to the huge economic opportunities and climate challenges posed by growth, the top White House energy and climate adviser said on Wednesday… In a speech to a room packed with energy analysts and lobbyists, Obama adviser Heather Zichal acknowledged that U.S. energy policy “might not look perfectly pretty from the outside” as it evolves to shifting supply-and-demand scenarios… ‘It is a little bit fluid, but the landscape is changing,’ Zichal said at the Center for Strategic and International Studies, a Washington think-tank.”

Open up, big oil, and take your medicine. WSJ (2/28/13) reports: “Firearms manufacturers are well aware that if semiautomatic rifles are banned, bolt-action guns are next. It is a mistake to cede a millimeter on any issue, because it simply invites more demands. People in the gun culture know their opposition… Consider, by way of contrast, the foolish actions of Chesapeake Energy, a major producer of natural gas. Time magazine revealed last year that Chesapeake gave the Sierra Club $26 million. Presumably the Machiavellian reasoning was that the Sierra Club would use this money to attack Chesapeake’s competitor, the coal industry… Now the Sierra Club is trying to shut down hydraulic fracturing—the entire basis of Chesapeake’s natural-gas business. According to reports this week, the natural-gas boon from fracking could be a boon to the U.S. economy for 30 years, if the industry doesn’t fumble the opportunity… If Chesapeake’s managers had understood the environmental movement, they never would have subsidized Sierra Club.”

Boxer, Sanders, Harvard, Stanford, AEI, RFF, Duke, Exxon – this won’t even be a fair fight once the American people know who is pushing this monstrosity. E&ENews (2/28/13) reports: “So almost every day in Washington, D.C., one think tank or another is discussing the pros and cons of the carbon tax… Yesterday, it was the nonpartisan Resources for the Future’s turn. The think tank hosted a forum on carbon taxes that drew not only the usual assortment of policy analysts and environmentalists, but also Democratic and Republican Capitol Hill staff and industry representatives… ‘We think that the appeal of a carbon tax in the United States is only going to increase over time,’ said Ian Parry of the International Monetary Fund, who convened yesterday’s panel.”

Let’s review what IER has to say about this carbon tax thing. IER(2/28/13) reports: “A recent story in EnergyGuardian (sub. req’d) centered on Senator Sheldon Whitehouse’s (D-R.I.) support for the carbon “fee” bill introduced by his colleagues Sen. Barbara Boxer and Sen. Bernie Sanders. Fortunately, the newly-released NERA study gives us a quantitative estimate of how much their scheme would hurt the U.S. economy. The whole episode fulfills the warnings that many of us have been making during the carbon tax debate. Specifically, advocates of a carbon tax rely on a bait-and-switch, where they make wild promises about the alleged environmental benefits of a relatively modest tax rate. As the NERA study shows, however, if the tax rate is modest, the environmental impact is negligible, but if the rate is high enough to really reduce U.S. carbon dioxide emissions, the economic impacts are absolutely devastating.”

The following think tank chiefs are opposed to a carbon tax. Please contact us at [email protected] if you wish to join our growing ranks. We are thinking about starting a new list – trade association heads. We fear, however, it will be pretty small.

Filed Under: Blog Tagged With: Barbara Boxer, Bernie Sanders, carbon tax, Chesapeake Energy, coal industry, energy policy, Heather Zichal, hydraulic fracturing, natural gas, Neil Cavuto, oil and gas production, Sierra Club, wind energy

Boxer-Sanders Carbon “Fee” Relies on Huge Bait-and-Switch

February 28, 2013 by AEA 1 Comment

A recent story in EnergyGuardian (sub. req’d) centered on Senator Sheldon Whitehouse’s (D-R.I.) support for the carbon “fee” bill introduced by his colleagues Sen. Barbara Boxer and Sen. Bernie Sanders. Fortunately, the newly-released NERA study gives us a quantitative estimate of how much their scheme would hurt the U.S. economy. The whole episode fulfills the warnings that many of us have been making during the carbon tax debate. Specifically, advocates of a carbon tax rely on a bait-and-switch, where they make wild promises about the alleged environmental benefits of a relatively modest tax rate. As the NERA study shows, however, if the tax rate is modest, the environmental impact is negligible, but if the rate is high enough to really reduce U.S. carbon dioxide emissions, the economic impacts are absolutely devastating.

The Boxer-Sanders “Fee”: Bait-And-Switch

The specific legislation proposed by Boxer and Sanders describes itself in this way:

Price Carbon — While setting a long-term emissions reduction goal of 80 percent or more by 2050 as science calls for, the legislation would enact a carbon fee of $20 per ton of carbon or methane equivalent, rising at 5.6% a year over a ten-year period….The Congressional Budget Office estimates this step alone could raise $1.2 trillion in revenue over ten years and reduce greenhouse gas emissions approximately 20 percent from 2005 levels by 2025. Additional emissions reduction under this legislation would occur as a result of the energy investments, and ongoing efforts by the EPA and a number of states. [Bold added.]

Now the part I have put in bold is crucial, and it epitomizes exactly what I was saying in my post about the new NERA study. The proponents of a carbon tax (or “fee” as Boxers and Sanders are euphemistically calling it) want to have their cake and eat it too. On the one hand, they point to the “settled climate science” to show why a drastic and aggressive reduction in U.S. emissions is extremely important.

On the other hand, they know that most Americans would never support the policies necessary to actually achieve such aggressive reductions. Therefore, the proponents of a carbon tax do what Boxer and Sanders have done in the block quote above: They point to a relatively modest carbon tax level, which will only cause mild suffering for lower-income households and workers.

But since this level of the carbon tax won’t achieve the allegedly necessary emissions reductions, they then tell a magic-bullet story about using the proceeds of the carbon tax to fund all sorts of new technologies that will then render conventional energy production obsolete. That’s how they can sell the whole package to Americans as (a) achieving the drastic emission cuts by 2050 that they say are necessary, while (b) not imposing the carbon taxes upfront that the same models say are necessary to achieve part (a).

What Does NERA Say About an 80 Percent Reduction?

A new study by NERA Economic Consulting, prepared for the National Association of Manufacturers (NAM), perfectly describes the impacts on the US economy from the two “endpoints” of the Boxer/Sanders bait-and-switch. In other words, if the government really does stick to just a modest tax that rises gently over time, then the NERA study tells us the outcome. On the other hand, if the carbon tax gets its foot in the door, and then the hoped-for innovations in “clean energy” don’t materialize so that future policymakers jack up the carbon tax, then the NERA study shows how bad the economic hit would be in order to achieve an 80 percent emission reduction.

The following diagram from the NERA study shows the trajectory of the carbon tax over time, in the two scenarios:

In my earlier blog post, I walked through more of the NERA study’s details, but in this post let me just reiterate two of its most important tables. The first one below (Figure 3) shows the impact on workers from the two possible carbon tax scenarios:

Thus we see, for example, that the more aggressive carbon tax scenario implies a long-run average worker income loss of the equivalent of 1.26 million full-time jobs, while in year 2053 (when the carbon tax reaches its peak) the impact is a staggering hit to worker income of 20.67 million jobs. (In my earlier post I explain what the “job-equivalents” phrase means in this context.)

Finally, consider the effect of the two carbon tax scenarios on various energy prices:

In particular, the 80% reduction case shows drastic increases in electricity and gasoline prices in the coming decades, should the US government seriously try to meet the emission reduction targets that many groups are proposing as “sensible climate policy.” By 2053, the NERA study anticipates residential electricity prices having risen 42 percent relative to the baseline, and gasoline prices at a whopping $14.57 per gallon (compared with $5.51 in the no-tax baseline, because of rising crude market prices).

Note that this figure means there will be a tax of $9.06 cents per gallon, or $135 worth of tax for a 15-gallon fill up. Even if automakers can meet the new federal regulations that double fuel efficiency, the one-two punch of the economic dislocation of higher energy prices on businesses and families and the fact that such prices will price many out of personal transportation means there will be a huge number of feet pounding the pavement. (If there still is pavement, since asphalt is carbon based and cement uses enormous amounts of energy.) I can guarantee they will not be happy feet.

Conclusion

There are all sorts of proposals floating around on how many goodies the government could get, by taxing carbon. Recall the McDermott proposal from last summer, which would cause trillions of dollars of economic damage, over and above the theoretical benefits from reduced climate change, even according to the conventional models devised by people who support a carbon tax.

With the Boxer-Sander proposal, things are much more clever. First, they call it a “fee” because nobody likes the t-word. Secondly, they propose a relatively modest carbon tax rate, so that official analyses will show only modest energy price hikes and lost income. They assume that this modest nudge in the right direction will then kick off a wave of innovation in “clean energy” developments, because otherwise the US won’t come anywhere near the emissions reductions their own models say are absolutely critical.

Policymakers and the general public need to know all of the facts before making an informed decision on these weighty matters. When someone says the US needs 80 percent emissions reductions by 2050, and then touts a new “carbon fee” that will, according to their numbers, only achieve reduction of 20 percent in emissions by 2025, we should all be suspicious.

Proponents of a carbon tax should be straightforward with their presentation. If their plan is to tax the US into compliance with their emissions goals, then they should explain what their own models say will be necessary. (President Obama admitted as much in 2008.) Since they realize that the American public will never support such high tax rates, they should think of a different strategy, rather than using a bait-and-switch that won’t work, even on their own terms.

Filed Under: Emissions Standards, Facts, News, Products and Power, Threats Tagged With: carbon tax, co2, Emissions, National Association of Manufacturers, NERA, Senator Boxer, Senator Sanders

New NERA Study Shows Economic Dangers of a Carbon Tax

February 28, 2013 by AEA Leave a Comment

A new study by NERA Economic Consulting, prepared for the National Association of Manufacturers (NAM), documents the economic dangers of a federal carbon tax. The study is very conservative in its assumptions (as I’ll explain below), giving the benefit of the doubt to the proponents of a carbon tax. Even so, there study reaches two conclusions: Either the US government sets a carbon tax low enough so that its economic impacts are simply bad, but not awful, in which case there are few environmental benefits, or the US government sets a carbon tax aggressive enough to meet the emission goals that its proponents want, in which case it is economically devastating.

Either way, the average American household should be alarmed at the prospects of a U.S. carbon tax—and these numbers, to repeat, are very conservative in their estimates of its economic harms. Before implementing a carbon tax, policymakers should be very clear about what its objectives are. Up till now, proponents keep promising the moon: Extra revenues for tax cuts, deficit reduction, and “clean energy” investment, all while saving the earth from climate change! But the new NERA study shows that this is an illusion. By focusing on one or two of these goals, the carbon tax forfeits the others, and in no case does it pass any reasonable cost/benefit test.

The NERA Study’s Two Carbon Tax Scenarios

The NERA study looks at two scenarios for assessing the economic impacts of a carbon tax imposed at the federal level in the United States. In the first scenario, it assumes a $20 initial tax levied on each metric ton of carbon dioxide (CO₂) in the year 2013, which then increases in inflation-adjusted terms by 4% each year. This scenario lines up with some recent projections conducted by the Congressional Research Service and the Brookings Institution, so it’s a good ballpark of a “modest” carbon tax proposal. Notice that in this scenario, there is a gentle uptick in the carbon tax over time, with little attention being placed on emissions.

The second scenario looks at the carbon tax trajectory that would be necessary to reduce US emissions by 80% relative to 2005 levels, by the year 2053. In other words, the second NERA scenario asks what the carbon tax rates would need to be over the next forty years, in order to achieve an 80% cut in US emissions by the end of the four-decade phase-in period. They picked this specific goal because it too is a popular discussion point, and is often used in discussions of international agreements on climate change policy. The only constraint on the carbon tax rate is a cap placed at $1,000 per metric ton.

The following diagram from the NERA study shows the trajectory of the carbon tax over time, in the two scenarios:

At this point, we should pause and reflect on Figure 1 above. Proponents of a carbon tax like to argue that it will have a “modest” or “negligible” impact on US households, especially in the early years. If they want to argue this way, then they must have in mind the type of carbon tax schedule depicted in the first scenario (the blue line above).

But although the Scenario One approach will raise a lot of money for the government—and will thereby make American households that much poorer in terms of their personal finances—it is nowhere near what the carbon tax “needs” to be, in order to stave off the alleged environmental problems of unrestricted U.S. carbon emissions. The red line above shows the level necessary (in the NERA model) to achieve what the climate alarmists tell us is the barest minimum in cutbacks, to avoid catastrophe.

Thus we see, even at this stage, the rhetorical corner into which the carbon tax proponents have painted themselves. In order to drum up support from citizens for something that will obviously raise gasoline and electricity prices, as well as just about every other price, the carbon tax proponents stress the scientific research on climate change. But then when trying to pooh pooh the negative economic effects of their proposed “solution,” the proponents will talk about a very modest carbon tax that will barely put a dent in the alleged climate problem.

These observations thus far don’t prove whether a carbon tax is a good or a bad idea, but already we see that Americans have not been getting the full story in the standard discussions.

Economic Effects of the Carbon Tax

After explaining their two cases, the NERA study summarizes its findings in the following table, where the changes are measured relative to a no-carbon-tax baseline:

Let’s walk through the table above to be sure we understand it. The top line shows the baseline (no carbon tax) forecast of US GDP, in billions of inflation-adjusted dollars. For example, in the year 2033 the NERA study assumes baseline GDP would be $24.68 trillion.

As you move down the table, we see the impact of first the $20 Tax Case, and then the 80% Emission Reduction Tax Case. Since the latter is so much more punitive, it has bigger impacts.

Yet in both cases, we see that the annual impact rises drastically as we move forward in time. For example, the $20 tax case shows only a very modest $20 change in average household consumption in the first year, but this annual impact rises to $350 per household by the year 2033 (i.e. 20 years into the policy). Remember that the NERA study assumes—as do other studies and proposals—that the initially modest $20/metric ton CO₂ tax rises steadily over time, which is why the damages increase over time.

In contrast, the 80% Reduction case shows a far more devastating impact. By the final year of implementation (2053), when the carbon tax has hit the ceiling of $1,000 per metric ton, the annual impact on the average household will be a reduction of $2,680—in that year alone. Overall US GDP will be a full 3.6% below what it otherwise would have been, in the absence of a carbon tax.

This is an incredible hit to economic growth. Consider that since the official “recovery” began, there have only been two quarters where US real GDP has grown at more than a 3.6% rate. Thus, NERA’s projected impacts in the second scenario eventually have the carbon tax lopping off more than an entire year’s worth of what would otherwise be considered great economic growth.

Because the impacts ramp up over time, the way to summarize in a “snapshot” the full long-term effects is to compute the “present discounted value.” This involves summing up near-term and long-term outcomes, but discounting future values at a 5% annualized rate. (It’s the same procedure used to calculate the current market value of a bond offering a stream of payments over the years, for example.) With this approach, the NERA study summarizes the $20 Tax Scenario as reducing average household consumption by $310 per year, while the 80% Emission Reduction scenario involves a near-tripling of the damages to $920 per household in an “average” year under the tax.

In a similar vein, the NERA study forecasts the carbon tax scenarios on the labor market:

It is careful to note that the carbon tax will not permanently “destroy jobs” in the sense that these people will be unable to find work. So long as the government doesn’t tinker with price controls (as President Obama wants to do with low-skill workers with his minimum wage proposals), then after the dust settles from a new carbon tax, workers can find niches in the economy. But the point is, the carbon tax imposes artificial constraints and makes workers less productive. Therefore, even though they can eventually find jobs, they will earn a lower wage or salary than they would have, in the baseline (no carbon tax) case. The “job equivalent” numbers in the table above are quantifying this reduction in total labor income, in terms of how much a full-time worker earns.

Finally, consider the effect of the two carbon tax scenarios on various energy prices:

In particular, the 80% reduction case shows drastic increases in electricity and gasoline prices in the coming decades, should the US government seriously try to meet the emission reduction targets that many groups are proposing as “sensible climate policy.” By 2053, the NERA study anticipates residential electricity prices having risen 42 percent relative to the baseline, and gasoline pries at a whopping $14.57 per gallon (compared with $5.51 in the no-tax baseline, because of rising crude market prices).

And of course, if someone is interested in the coal industry—forget about it. The price of coal in the high-tax scenario eventually ends up being 54 times higher than it would be without the carbon tax. Such a punitive tax rate will obviously destroy the coal industry, which after all is one of the stated objectives for those who want to drastically reduce US emissions.

The NERA Study Is Very Conservative In Its Projections

The NERA study is very precise and clearly lays out its assumptions; its authors are good economists. However, I would argue that its results are too conservative in their projections of the harms of a carbon tax.

The most obvious reason is that the NERA study assumes the carbon tax receipts will be used to either (a) reduce the federal deficit from what it otherwise would have been, holding spending constant and/or (b) reduce other taxes. In terms of supply-side economic analysis, given that there is going to be a new carbon tax, then the very best things one could do with the revenues is use them to cut other tax rates and/or to make the deficit smaller, so that the government doesn’t siphon off as much from the capital markets away from private investment.

In other words, NERA’s projections of economic outcomes under the two carbon tax scenarios has the government behaving very responsibly, doing just what a free-market economist would want, given that it was imposing a carbon tax.

In reality, of course, the government won’t keep its spending trajectory the same, (for reasons I explain here) in the presence of hundreds of billions of new annual revenue in the modest scenario, and even trillions of dollars in new revenue in the aggressive case. Specifically, the NERA projections show that the 80% Emission Reduction scenario has the federal government taking in $1.8 trillion in inflation-adjusted revenues by the year 2053 from its carbon tax.

Does anybody seriously believe this flood of new revenue won’t lead to higher federal spending than would otherwise be the case? Note that such spending would include any “transition payments” to help poorer households or certain industries adjust to the new carbon tax, which will surely be part of any politically feasible deal.

Conclusion

The new NERA study is a precise work of solid economics that carefully spells out its assumptions and offers nuanced conclusions. It outlines two plausible carbon tax scenarios—one involving “modest” tax rates that won’t significantly alter U.S. carbon dioxide emissions, the other involving very large tax rates that will impose crippling impacts on economic growth, worker income, and energy prices. Yet as ominous as the NERA numbers are, they vastly understate the true economic damage from a carbon tax, because they assume the government will use trillions of dollars (over the years) in new revenue in the most efficient manner possible, which is hardly a plausible assumption.

Filed Under: Emissions Standards, Facts, News, Products and Power, Threats Tagged With: cap and trade, carbon dioxide, carbon emissions, carbon tax, National Association of Manufacturers, NERA

Nooooooooooooo!!!!!!!!!

This is going to be fun. We’ll see you in Houston on the 9th.

This is going to be fun. We’ll see you in Houston on the 9^th.