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The ‘Clean Energy’ Stalking Horse

A carbon tax by any other name . . .

Apr 2, 2012, Vol. 17, No. 28 • By ROBERT BRYCE
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They’re not calling it a carbon tax or cap and trade. But make no mistake, the national “clean energy” mandate introduced earlier this month by Senator Jeff Bingaman (D-N.M.) and eight cosponsors entails both a tax and a trading measure.

Bingaman

Tax? Cap? Trade? Perish the thought.

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Bingaman’s legislation has the apparent support of the White House. A day after the bill was introduced, Nat Keohane, a special assistant to the president for energy and the environment, called it “an important step towards the president’s goal of doubling clean energy by 2035.” He added, “we look forward to working with Congress as the bill moves forward.”

The bill is bad legislation in search of a problem. The United States doesn’t need a mandate in order to cut carbon dioxide emissions. Those emissions are already falling. Innovation and market forces, not regulation, are making that happen. Furthermore, pricing data and analysis from the Energy Information Administration show that a national mandate will saddle consumers with higher electricity bills. More on those issues in a moment.

First, a look at the heart of Bingaman’s bill, which requires the establishment of a “clean energy trading program” that will create a “national market for the sale or trade of clean energy credits.” Those credits will be based on the carbon intensity of each form of electricity generation. The legislation puts a limit on the amount of carbon dioxide that can be emitted per megawatt-hour of electricity generated: 0.82 metric tons. That limit spells doom for coal, which emits about 1 metric ton of carbon dioxide per megawatt-hour produced.

By 2035, the bill requires that at least 84 percent of all electricity in the United States be produced from “clean energy” sources. Put another way, coal will be limited to no more than 16 percent of domestic electricity generation. That’s a drastic reduction given that coal-fired generators now provide about 40 percent of our electricity.

Last year, Suedeen Kelly, a former commissioner of the Federal Energy Regulatory Commission, said that renewable energy mandates are a “back-end way to put a price on carbon.” Kelly’s point applies directly to Bingaman’s bill. By nearly outlawing coal, a fuel which continues to be among the cheapest options for many generators, Bingaman’s bill is a back end way to put a tax on coal.

To be clear, the definition of “clean energy” in Bingaman’s bill is capacious enough to include natural gas and nuclear, as well as renewables. But its point is to evade an honest debate about the merits—and drawbacks—of a carbon tax and a carbon-trading system, and how those measures would affect consumers. Instead, it would impose those regimes by stealth, under the “clean energy” label.

What makes the “clean energy” rhetoric even more deceptive is this: According to the International Energy Agency, the United States is reducing its carbon dioxide emissions more rapidly than Europe is, even though the European Union has, for years, been relying on a carbon-trading scheme. And that scheme isn’t working. Over the last nine months or so, the price of carbon allowances under the EU’s Emissions Trading Scheme has fallen by more than half. That price collapse was predicted last November in a report issued by Swiss banking giant UBS. The same report estimated that the EU’s trading scheme will cost about $275 billion while having “almost zero impact” on carbon emissions. Had the EU instead targeted the region’s dirtiest electricity plants for replacement, UBS said, emissions would likely have been reduced by 43 percent.

Nevertheless, Bingaman and the White House are touting—what else?—a trading scheme. And they are doing so despite the fact that between 2007 and 2011, U.S. carbon dioxide emissions fell by 7 percent. What’s driving carbon emissions downward? The struggling economy is certainly part of it. But the larger reason is an abundance of cheap natural gas.

The shale revolution, which began about four years ago, has resulted in a tsunami of natural gas production. And that gas is displacing lots of coal in the domestic electricity generation sector. Last year, the United States produced about 23 trillion cubic feet of gas, an amount that easily eclipsed the previous record of 21.7 trillion, back in 1973. And last year’s record production is likely to be surpassed this year. That surfeit of natural gas is making it the fuel of choice for electricity generation, so much so that coal’s share of the domestic electricity generation market is now at its lowest level since 1979.

By pushing legislation aimed at reduced carbon dioxide emissions, the Democrats and the president are clearly trying to appeal to the environmental lobby and the left. But for the vast majority of consumers, the key energy issue isn’t carbon content, it’s price. And the Energy Information Administration has made it clear that a national “clean energy” mandate will mean higher electricity costs.

Last October, the agency released a report on the likely impact of such a measure. The agency predicted that by 2035, the average price would exceed what it calls the “reference case average”—i.e., the status quo—by 29 percent. But the average numbers do not tell the entire story. The EIA analysis found that by 2035, the mandate would result in price hikes of at least 40 percent in 7 regions, with the biggest impact seen in coal-dependent areas. By 2035, electricity prices would rise by 42 percent in Texas, 46 percent in Oklahoma, 47 percent in Tennessee and Kentucky, 48 percent in Colorado, 50 percent in eastern Pennsylvania, Delaware, and New Jersey, 51 percent on Long Island, and by 61 percent in southern Illinois and eastern Missouri.

Furthermore, EIA pricing data show that renewable-electricity mandates—which are now in place in 29 states as well as the District of Columbia and Puerto Rico—are already driving electricity rates upward. I recently completed a study for the Manhattan Institute on these mandates. In 2010, residential electricity prices in states with renewable-electricity mandates were 31.9 percent higher than in nonmandate states. Commercial electricity rates were 27.4 percent higher, and industrial rates were 30.7 percent higher. Of the 10 states with the highest electricity prices, 8 have renewable mandates. Of the 10 states with the lowest electricity prices, only 2 have such mandates.

In an effort to compare states with similar profiles, I looked at seven coal-dependent states with renewable mandates and seven coal-dependent states without mandates. Between 2001 and 2010, electricity rates in the coal-dependent states with mandates increased by an average of 54.2 percent, more than twice the increase seen in the coal-dependent states that don’t have mandates.

Those numbers, along with the EIA’s analysis of the costs of a national mandate, should convince policy-makers that these types of regulations are bad policy. Indeed, they are particularly onerous now, when nearly 19 million American households are so financially strapped that they are relying on federal food stamps.

Nevertheless, the Democrats—who like to claim that they represent the poor and the working class—are pushing a tax-and-trade, anti-carbon-dioxide agenda that will inevitably hurt those very same people. If the Democrats (or the Republicans) were truly interested in pro-growth, pro-consumer energy policies, they would be promoting a simple agenda: Make energy cheap, abundant, and reliable.

Robert Bryce, a senior fellow at the Manhattan Institute, is the author of Power Hungry: The Myths of ‘Green’ Energy and the Real Fuels of the Future. His report on renewable mandates can be found at www.manhattan-institute.org/html/eper_10.htm.

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