Skinning the Cap-and-Trade Cat with Clean Energy Standards

Posted on Sat 01/29/2011 by

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By Nicolas Loris

Speaking before a new Congress in his State of the Union address, President Obama gave an alternative suggestion for Congress now that cap and trade is out of the picture. He pitched an aggressive clean energy standard, saying he wants 80 percent of our electricity to come from carbon-free sources of energy by 2035.

For reference, the Energy Information Administration shows that carbon-free sources generated 31 percent of our total electricity in 2009 (20 percent nuclear, 7 percent hydroelectric, and 4 percent other renewables). As Kim Strassel points out in today’s Wall Street Journal, a clean energy standard is cap and trade without the carbon revenue:

It’s also cap and trade by another name. Consider: The goal of cap and trade is to impose crushing taxes on fossil fuels—oil, coal, natural gas—thereby forcing utilities to switch to costly renewables. Under Mr. Obama’s new proposal, the government skips the tax part and outright requires the use of costly renewables. The result is the same: dramatically higher energy prices, from carbon-free sources. Now you know why even climate warrior John Kerry was so sanguine about the president’s failure to say “climate change” in his speech. “I’m very sympathetic,” said the Massachusetts senator, who clearly got the strategy memo.

A clean energy standard forces Americans to use more expensive energy sources. If these energy sources were cost-competitive, they would not need a government-guaranteed share of the electricity market.

A clean energy standard is less onerous than a renewable electricity standard—which mandates that a predetermined percentage of electricity must come from government-selected energy—but including nuclear and clean-coal lures increases the probability of passage and also increases the grab bag of special interests. Strassel explains that President Obama will “lure Republicans into negotiations, then cement their support with lavish energy pork for their home-state nuclear, clean-coal, wind, biofuels and solar projects. As a bonus, the plan gives cover to nervous coal state Democrats.”

President Obama’s contradictory remarks in his State of the Union demonstrate the economic impracticality of a clean energy standard. He first (correctly) said, “None of us can predict with certainty what the next big industry will be, or where the new jobs will come from.” This is the beauty of the market. The President pointed to the importance of innovation in creating cars, planes, the Internet, Facebook, and Google.

Minutes later, however, when discussing a clean energy standard, President Obama remarked, “Now, clean energy breakthroughs will only translate into clean energy jobs if businesses know there will be a market for what they’re selling.” Guaranteed shares in the marketplace remove the process of innovation the President praised earlier in his speech.

A clean energy standard may reward certain energy producers in the short term but will hurt both producers and consumers in the long run because it eliminates competition, reduces the incentives to lower costs, and encourages government dependence. Political winners are market losers, and it’s the consumer who suffers.

Nicolas Loris is a Research Assistant at The Heritage Foundation’s Roe Institute for Economic Policy Studies. Loris studies energy, environment and regulation issues such as the economic impacts of climate change legislation, a free market approach to nuclear energy and the effects of environmental policy on energy prices and the economy.

Read more informative articles at Heritage – The Foundry

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