On March 31, Chairman Henry Waxman (D-CA) of the House Energy
and Commerce Committee and Chairman Edward Markey (D-MA) of the
House Energy and Environment Subcommittee introduced draft
legislation that includes clean energy investment, energy
efficiency mandates, a cap-and-trade program, and protectionist
policies that will supposedly help the consumer cope with higher
Presented as a comprehensive energy bill, the American Clean
Energy and Security Act of 2009 (ACES) offers nothing more than
subsidies and mandates for unsuccessful, unproven energy sources
coupled with taxes on reliable energy sources that falsely claim to
stimulate the economy by investing in clean technology and creating
green jobs. This government-centric approach will destroy jobs and
drive up energy prices for years to come.
Title 1: Clean Energy
ACES includes a renewable electricity standard (RES) that
requires 6 percent of electricity to come from renewable energy by
2012. This requirement will increase to 25 percent in 2025.
A federally mandated RES is proposed only because renewables are
too expensive to compete otherwise. In effect, Washington is
forcing costlier energy options on the public. Since renewables are
lavished with substantial tax breaks, a national mandate will cost
Americans both as taxpayers and as ratepayers. Any incentive
proposed by government should in truth be read as a handout.
Moreover, subsidies are poor policies because they distort
normal market forces and encourage government dependence. By
subsidizing a portion of the actual cost of a non-competitive
project, the government is artificially making it cheaper and
distorting the allocation of resources by directing capital away
from more competitive projects.
Title 1 of ACES also includes incentives to develop cleaner
energy technologies and facilitate the transition to a smart grid,
as well as authorization for the Federal Energy Regulatory
Commission (FERC) to take control of building new transmission
While upgrading the nation's electric grid has merit, such a
project cannot be approached bureaucratically, nor can it be used
as a subsidy to advance renewable energy sources. More efficient
grid technology should be an investment made by the private sector,
and if upgrading the grid will save consumers money-as Congress
purports it will-consumers will respond to price signals and buy
Although a new grid could help store large amounts of
electricity for the first time, which would benefit intermittent
sources such as wind and solar power, smart grid investment is not
automatically coupled with transmission investment. If companies
believe the benefits to such an investment will outweigh the costs,
they will make the investment. Instead, any federal policy should
focus on removing regulatory barriers to upgrading the grid to
allow for more consumer choice and protect private property
Title 2: Energy Efficiency
ACES includes new energy efficiency standards for new buildings,
rebates to low-income families to buy Energy Star-rated
manufactured homes, appliances, and transportation.
Energyefficiency can be beneficial for consumers, but it rarely
does good when Washington tries to force it on them.
Energy-efficient appliances and mechanisms will not painlessly
lower electricity bills: These measures impose costs, and consumers
benefit only if the energy savings outweigh such expenses.
Mandatory improvements in efficiency usually raise the purchase
price of appliances; sometimes the increase is more than enough to
negate the energy savings. In addition, the forced reduction in
energy use can result in decreased product performance, features,
or reliability, which destroys value for the consumer.
The law of supply and demand is perfectly capable of determining
the proper balance between energy efficiency and other product
attributes. Rigid federal standards give efficiency priority over
all other concerns, often to the detriment of families and
Title 3: Global Warming Regulation
Although the rest of ACES is bad enough, the most alarming
section is the government's attempt to regulate carbon dioxide. The
third title of the bill introduces a "market-oriented"
cap-and-trade program that would reduce carbon dioxide by 20
percent below 2005 levels in 2020 and by 83 percent below 2005
levels in 2050. Furthermore, it calls for strict oversight by FERC
and calls on the Environmental Protection Agency to use the Clean
Air Act to reduce black carbon and hydroflurocarbons.
Despite Washington policymakers' best attempt to call
cap-and-trade a market-oriented approach, the reality is that any
carbon capping plan is a costly energy tax in disguise-raising
energy prices and unemployment with little, if any, environmental
benefit. A global warming tax could generate as much as $1.9
trillion in tax revenue over eight years, which amounts to an
annual tax of nearly $2,000 on every American household.
Since 85 percent of U.S. energy demand is met by fossil fuels,
taxing the lifeblood of the American economy would have disastrous
consequences. The Heritage Foundation's Center for Data Analysis's
study of the Lieberman-Warner cap-and-trade bill found that
legislation would result in aggregate real GDP losses of nearly $5
trillion and job losses of 400,000 and 800,000 jobs per year. The
targets and timetables in the ACES discussion draft are
considerably more stringent than those in Lieberman-Warner and thus
would be costlier.
Title 4: Transitioning to a Clean
Because ACES would put manufacturers at a disadvantage, the last
title of the bill attempts to lessen that burden by rebating money
to "sectors that use large amounts of energy, and produce
commodities that are traded globally" or by having "foreign
manufacturers and importers ... pay for and hold special allowances
to 'cover' the carbon contained in U.S.-bound products." The bill
also stipulates that if countries reach an international treaty on
global warming, the U.S. will provide aid assistance to developing
countries for clean technology.
In essence, raising the costs on foreign manufacturers and
importers is a carbon tariff. As a result, not only will energy
costs increase, but now everything Americans import will be more
expensive too. Furthermore, imposing a carbon tariff could lead to
a trade war among a number of countries on which the U.S. depends
for affordable goods. Protectionism begets more protectionism:
Other countries will view such measures as unfair and respond by
implementing more tariffs. Also, any international carbon reduction
plan would likely reverse progress made in the developing
world-even with the proposed U.S. aid for clean technology.
Developing countries' prosperity relies heavily on free trade.
Exporting goods in which countries hold a comparative advantage is
critical to their economic growth, just like it is to
Counting the number of green jobs created by a transition to a
clean energy economy while ignoring the jobs destroyed by any such
shift ignores the legislation's net effect on employment: Support
for renewable energy would likely cost more jobs than it creates.
For example, subsidies for wind and solar energy would, at least
from the narrow perspective of the wind and solar industries,
create new jobs as more of these systems are manufactured and
installed. But the tax dollars needed to help pay for them cost
jobs elsewhere, as would the pricey electricity they produce.
Proponents of renewable energy, however, argue that these energy
sources create more jobs per kilowatt hour and thus are a good
investment. But this logic should not be the measuring
stick for implementing new energy sources-it proves only that clean
energy sources are an inefficient use of human capital and these
resources could be more beneficial in other sectors of the
Not the Right Prescription for an
The architects of ACES argue that the bill will create millions
of clean energy jobs and help Americans save on energy costs, but
in reality it will do just the opposite. Using taxpayer dollars to
invest in inefficient energy sources while artificially driving up
the costs of reliable energy with a cap-and-trade program will only
cause more economic pain for the consumer-with no environmental
benefit to show for it.
Nicolas Loris is
a Research Assistant and Ben Lieberman is Senior
Policy Analyst in Energy and the Environment in the Thomas A. Roe
Institute for Economic Policy Studies at The Heritage