October 26, 2010 | Backgrounder on Energy and Environment
Abstract: The only consensus over the threat of climate change that seems to exist these days is that there is no consensus. The much-heralded 2007 United Nations report on greenhouse gas emissions has served as a catalyst for lawmakers to burden traditional energy sources with regulations in favor of so-called clean energy. The private sector has begun to “chase” these policies, shaping business decisions to align with policies preferred by politicians, not the market or the public. Recent revelations of erroneous and misleading data in the report have led many to question the wisdom of government-mandated emissions caps and costly energy-efficiency regulations. Instead of basing policy on a “scientific consensus” that is neither scientific nor agreed-upon, Congress should eliminate subsidies and reduce regulatory red tape—and let all energy technologies succeed or fail on their own merits. Artificially propping up a select few distorts the market and hurts American businesses—which means that the final bearers of the costs are, as usual, the taxpayers.
For years businesses and the general public have been told by mainstream climatologists that the planet is warming due to human activity and that immediate action is necessary to avoid a global catastrophe. The U.S. government relied heavily on a 2007 report by the United Nations’ Intergovernmental Panel on Climate Change (IPCC) to justify the need to reduce emissions of carbon dioxide (CO2) and other greenhouse gases (GHGs) created anthropogenically. Over time, Congress enacted numerous policies to increase clean energy production, such as mandates for renewable fuels, expanded tax credits for renewable energy, and new energy efficiency targets for vehicles and appliances. All of these policies had the goal of reducing America’s carbon footprint. Congress is now seeking to expand and create new policies aimed at further reducing emissions by placing a national cap on carbon emissions and enforcing a federal mandate for renewable energy production. Meanwhile, the Environmental Protection Agency is on its own regulatory path to decrease CO2.
The business landscape consequently changed, and not for the better. Energy producers became vested stakeholders and lobbied for handouts to produce what Congress determined to be cleaner energy from cleaner sources, such as windmills, solar panels, and ethanol. Major oil companies invested in renewable energy technology to capitalize on subsidies and tax breaks while enhancing their image. Most businesses factored the threat of global warming into their daily operations and became cognizant of the threat of higher energy prices caused by government policies.
Despite vigorous dissention among the scientific community concerning the effects of anthropogenic warming, the climatologists who believe the warming to be a serious problem controlled the message for years. Simply put, they convinced the general public that global warming posed an imminent threat and drastic cuts in greenhouse gas emissions were necessary to prevent a catastrophe. Recent flaws discovered in the scientific assessment of climate change have shown that the scientific consensus is not as settled as the public had been led to believe. Leaked e-mails from the University of East Anglia’s Climate Research Unit in the U.K. revealed conspiracy, exaggerated warming data, possibly illegal destruction and manipulation of data, and attempts to freeze out dissenting scientists from publishing their work in reputable journals. Furthermore, gaffes exposed in the IPCC report have only increased skepticism among businesses and the public, and raised serious questions about sacrificing economic activity to reduce CO2 emissions.
Policy should never rest on a shaky set of assumptions, particularly when it can have far-reaching implications for American businesses and everyday Americans, and could therefore fundamentally alter decisions in ways that harm America’s productive system of free enterprise. While the government can pick winners and prop them up with subsidies, every winner comes at the expense of the taxpayer and discourages the innovation necessary to discover new and economically competitive sources of energy. Moreover, business uncertainty created by the government’s wavering on more climate change policy is stunting America’s economic recovery. With such inconclusive scientific evidence, Congress should not implement any new GHG-reduction policies, and it should prohibit the EPA from doing the same.
The Shifting Consensus
The alleged scientific consensus on climate change holds that the planet is warming at a dramatic rate. But not long ago, scientists thought that global cooling was a threat to the planet. As recently as 1975, The New York Times ran an article titled, “A Major Cooling Widely Considered to Be Inevitable.” Some proposals even included covering the polar ice caps with black soot to melt them. Only six years later, climatologists predicted that global warming was inevitable, and the issue gained more traction throughout the 1980s and 1990s. The IPCC published multiple reports, the first in 1990, pronouncing that human activities, predominately fossil fuel use, were warming the planet. A supplementary report followed in 1992, the second report appeared in 1995, and the third in 2001—all presenting “newer and stronger” evidence that the planet’s surface was heating due to human activity.
The message that warming was incontrovertible continually gained momentum and exploded in 2006 when former Vice President Al Gore released his book and documentary film An Inconvenient Truth, claiming that the planet would witness more Hurricane Katrina-like disasters and rising sea levels if humans do not drastically reduce man-made greenhouse gas emissions. The 2007 IPCC report became Al Gore’s magnum opus on climate change and the main source for the “evidence” he relentlessly pitched to Congress. The 2007 report declared that global warming is “unequivocal,” and the frequency and intensity of natural disasters is likely to increase. The report’s “Summary for Policymakers” warned that carbon emissions from fossil fuel production and nitrous oxide, and methane emissions from agricultural production, are significantly contributing to global warming. Government officials in the U.S. and around the world continually use and exaggerate the IPCC report to justify the need for carbon reduction policies, creating a large disparity between hype and reality. For instance, even the IPCC projection of sea level rising over the next century is a modest 7 to 23 inches, with the lower end of that projection occurring over the past two centuries.
Is There a Scientific Consensus? Several recent events, including revelations that forced the IPCC to retract parts of its 2007 report, have called the scientific consensus into question. Although the study puts the probability of Himalayan glaciers melting by 2035 at “very high,” the authors acknowledged that they based this and other claims on speculation. Further, the IPCC’s assessment of reductions in mountain ice in the Andes, Alps, and Africa came from two dubious sources. One was from a magazine that discussed anecdotal evidence from mountain climbers; the other came from a student dissertation. The IPCC also acknowledged overstating crop loss in Africa, depletion of the Amazon rain forest, sea level increases in the Netherlands, and damage from weather catastrophes.
Climate data sets are also raising questions. Hackers leaked thousands of e-mails and other documents from the University of East Anglia’s Climate Research Unit that detailed how these climatologists, many with important roles in promulgating the official U.N. science, refused to share data, plotted to keep dissenting scientists from being published in leading journals, and discarded original data. Some have resigned and others have been investigated for breaching data laws under the Freedom of Information Act. Russian climatologists blamed the scandal-laden Climate Research Unit (CRU) for omitting cooler data points from its data set. In the U.S., computer programmer E. Michael Smith and meteorologist Joseph D’Aleo detailed how the National Climatic Data Center (NCDC) dropped thousands of data points from its climate data set—data points that were in cooler regions around the globe.
A few errors in the three-volume, almost 1,000-page IPCC report may not warrant dismissal of the entire study, but climatologists questioned the IPCC’s findings before these gaffes. University of Virginia professor Fred Singer recently published an 800-page report titled, “Climate Change Reconsidered,” which questions and debunks many of the IPCC conclusions and emphasizes that there is no scientific consensus on climate change. Richard Lindzen, professor of meteorology at the Massachusetts Institute of Technology, notes that the IPCC’s models fail to take into account naturally occurring cycles such as El Niño, the Pacific decadal oscillation, or the Atlantic multidecadal oscillation. Other prominent scientists called political action “irresponsible and immoral” because of the lack of credible evidence. When the IPCC released its report in 2007, 400 climate experts disputed the findings; that number has since grown to more than 700 scientists, including several current and former IPCC scientists.
The profusion of scientific dissent should have been sufficient evidence for policymakers to call the alleged consensus into question, and these recent events should raise even more red flags, especially in light of the economic costs that policies to mitigate greenhouse gases carry.
Government Plans to Reduce Greenhouse Gases
Despite these revelations about scientific research on global warming, the U.S. government has aggressively pursued climate change policies to reduce carbon dioxide emissions. During the past two decades, the federal government has spent more than $79 billion on climate change policies, “including science and technology research, administration, education campaigns, foreign aid, and tax breaks.” Legislation signed into law in 2005 and 2007 included more steps to transition from fossil fuels and improve energy efficiency to reduce CO2 emissions. More recently, the Obama Administration has attempted to tip the balance in favor of renewable energy by advocating a cap-and-trade system, CO2 regulations, renewable electricity mandates, and additional billions of dollars in government spending for government-picked “clean-energy” sources. Key legislative and regulatory steps are:
Business Responds to Government
Recognizing policymakers’ commitment to reducing greenhouse gases, businesses shaped their plans around government policies, despite the fact they are based on poor scientific evidence. Companies worldwide are taking climate change into consideration when making short-term and long-term business decisions. A June 2009 PricewaterhouseCoopers global survey asked 1,124 CEOs how their respective businesses were responding to climate change policies. In a series of yes or no questions, when asked about making changes to the products and services provided due to climate change policies, 46 percent said they were already making changes to day-to-day operations, and 40 percent are already changing how they manage risk.
Businesses are not just changing day-to-day operations and preparing for higher energy costs, but also how they invest for the future. Johnson & Johnson is investing in renewable energy and now uses the most hybrid vehicles of any company in America. Wal-Mart CEO Scott Lee made a pledge that each of his stores would eventually run on 100 percent renewable energy. Coca Cola’s environmental initiative focuses not only on water stewardship and sustainable packaging, but also climate protection. Goldman Sachs invested $1.5 billion in wind, solar, and ethanol projects in 2006.
There is nothing wrong with these business decisions if they are made voluntarily. But if they are made in response to government policies favoring renewable energy over other sources, especially on questionable scientific grounds, it misallocates private resources, crowds out innovation, and wastes taxpayer money. In Spain, solar companies enjoyed lucrative subsidies for years; when the global recession forced the Spanish government to cut back its handouts, the Spanish solar market crashed.
In a free market, the private sector should bear the risk and, therefore, reap the reward or suffer the consequences of an investment decision. If the government dictates these decisions by subsidizing a portion of the project, businesses receive all rewards with minimal risk. With start-up companies and large corporations alike receiving money from the government through stimulus funds or tax credits, firms will divert investments to clean-energy technology away from other—potentially more profitable and value-creating—investments.
As the government moves more actively toward funding renewable technology, investors are waiting to determine who the government winners will be before they spend more of their own money on innovative ideas, expanding their businesses, and hiring more employees. As Darryl Siry, former head of marketing at Tesla Motors, put it, “The existence of an 800-pound gorilla putting massive capital behind select start-ups is sucking the air away from the rest of the venture-capital ecosystem. Being anointed by DOE [U.S. Department of Energy] has become everything for companies looking to move ahead.”
Large corporations also flooded the halls of Congress with thousands of lobbyists to ask for preferential treatment on energy policy. In 2007, 10 of the largest companies in the U.S. formed the United States Climate Action Partnership (USCAP) urging the government to cut GHG emissions. USCAP has since grown to 28 businesses and environmental organizations. Businesses heavily ramped up lobbying efforts in the past decade. More than 1,700 firms and groups sent lobbyists to work in the area of energy in 2009, up from 1,300 the year before, and 900 in 2006.
Businesses rightfully have an interest in protecting their bottom lines. Many of them have calculated that some hodgepodge of green policies is inevitable and that their interests will be best served by trying to influence how Congress creates those policies. The best way to do that will be to position themselves as supporters of the legislation and then to provide helpful suggestions on how to “improve” it. Representatives from the oil, coal, gas, wind, and solar industries, among others, have a stake in the game one way or another—either to stave off harmful legislation or to ensure that legislation is favorable to their business.
This process, known as rent-seeking (because it causes businesses to lobby for rules in their favor at the expense of others), is bad economics and bad for the consumer. Not only is there an opportunity cost to lobbying (business resources spent on lobbying could be spent elsewhere); politics governed by special interests typically worsens conditions for the consumer. Consumers are the ones who bear the costs of these government policies; meanwhile, industry receives a seemingly free windfall. The more that government becomes involved in energy decisions, the more money will be used for special interest politicking. As founding father Ben Franklin said, “When the people find that they can vote themselves money, that will herald the end of the republic.”
Congressional Action Required
Congress has spent years and billions of dollars building policy around an alleged scientific consensus, and is on a path to spend billions more as well as implement policies that would significantly reduce this country’s economic potential. Congress should instead focus on the following measures to prevent more unnecessary economic damage and promote sound energy policy that would create jobs and increase energy supply:
Uncertain Science, Certain Cost
If the scientific consensus behind global warming is crumbling, so, too, should the economically harmful policies that stem from it. When asked about the scientific consensus on climate change, Phil Jones, former climate-research director at the University of East Anglia, said, “I don’t believe the vast majority of climate scientists think this. This is not my view. There is still much that needs to be undertaken to reduce uncertainties, not just for the future, but for the instrumental (and especially the paleoclimatic) past as well.” If the vast majority of climatologists do not believe that the debate on climate change is over, politicians should not be pushing for greenhouse gas reduction policies that not only have significant economic costs, but will also deeply alter the business landscape of the United States.
—Nicolas D. Loris is a Research Associate in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
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This mandate comes on top of other pro-ethanol provisions, most notably a 51 cent per gallon tax credit.
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