All Economic Pain, No Environmental Gain

COMMENTARY Environment

All Economic Pain, No Environmental Gain

Jun 5th, 2014 3 min read
Nicolas Loris

Fellow in Energy and Environmental Policy

Nick is an economist who focuses on energy, environmental, and regulatory issues as the Herbert and Joyce Morgan fellow.

Interested in paying a massive new energy tax? Especially one that would bring no environmental benefit? Probably not, but that's what you can expect in the wake of draft regulations just released by the Environmental Protection Agency - ones that could cut carbon dioxide emissions from existing power plants by 30 percent.

President Barack Obama warned us it was coming. In 2008, he said that electricity prices would "necessarily skyrocket" under his cap-and-trade proposal. And when our elected officials rejected that, he said there was more than one way to skin the cat.

But now he's singing a different tune. Promoting the new regulations, Obama said, "Your electricity bills will shrink as these standards spur investment in energy efficiency, cutting waste, and ultimately, we're going to be saving money for homes and for businesses."

Electricity bills will shrink? Is that a "if you like your insurance, you can keep it" type of promise?

To attract state buy-in, the agency's regulation has different targets for different states and would allow states flexibility in implementation plans. But flexibility would merely shift the costs around, not prevent them from happening.

If anything, state and regional implementation plans would protect special interests, which could then pass the costs on to American families. The president stressed that the regulation "provides a huge incentives for states and consumers to become more energy efficient."

Families and businesses don't need a federal regulation or mandate to save money on energy. That incentive already exists: It's called saving money.

Businesses and families make energy-saving investments when it makes sense to do so. The myopic view from the feds is that efficiency upgrades always make sense if they save money. And that's not always the case. When the government forces efficiency choices on people, it takes away choices or overrides them.

It's difficult to imagine a scenario where these regulations drive down electricity bills. More than 80 percent of America's energy needs are met through carbon-emitting conventional fuels. Last year, coal and natural gas provided 66 percent of U.S. electricity generation.

Whether it is by cap-and-trade, regulation or a straightforward tax, restricting carbon emissions would inflict higher energy costs on American families and businesses. Families would pay more to use less electricity. The costs would reverberate throughout the economy, as affected industries pass higher costs onto consumers. Simply put, consumers would consume less and producers would produce less, resulting in income cuts, jobs destroyed and lost economic output.

The economic pain stemming from the EPA's regulation would spread throughout the country, but some would be harmed more than others. A tax that increases energy prices would hit America's poorest families the hardest. The median family spends about 5 cents out of every dollar on energy costs, but low-income families spend about 20 cents.

Further, some industries are more energy-intensive and thus hit harder by higher energy prices. Particularly alarming is the damage the EPA regulations would inflict on America's manufacturing base.

What about the benefit? After all, aren't we doing this for our grandchildren and great children to prevent Manhattan from becoming Venice, where we need to travel by gondola? What should concern you even more about the economic pain is that it comes with no environmental gain.

President Barack Obama is right to say climate change is a fact. A near-universal consensus does exist that man-made emissions have some warming effect. However, the controversy is about whether human activity is the primary driver of climate change and the magnitude of climate change induced by emissions. Most importantly, no matter what one believes regarding climate change, one thing is clear: The regulations would not have any noticeable impact on global temperatures.

That is largely because future carbon emissions will come overwhelmingly from developing nations such as China and India. Proponents of the regulation often argue that if the U.S. leads, other countries will follow. But if we play follow the leader, we're going to turn around and find no one there.

There's a reason we place the word "developing" in front of developing economies. Their citizens are living in poverty, and affordable and reliable energy is a critical component of lifting them to a better standard of living. Forcing carbon caps on developing nations is immoral. They need access to affordable energy and the economic means to address real environmental concerns, such as gaining access to breathable air and drinkable water.

Wealth creation - for which affordable, reliable energy is a critical input - has provided Americans with the capacity and wherewithal to care for the environment. Free economies better equip people to tackle environmental challenges and address climate-related events, whether human-induced or not.

But the results of these regulations will be fewer jobs and less income for American families. And all for a negligible benefit.

 - Nicolas Loris is The Heritage Foundation's Herbert and Joyce Morgan Fellow specializing in energy and environmental issues.

Originally distributed by the McClatchy-Tribune News Service