Topic: Energy and Environment

Another $6.5 Billion in DOE Loan Guarantees

After Solyndra collapsed, the Department of Energy (DOE) should have learned its lesson. Guaranteeing loans for energy and industrial companies is a bad idea. The failures of Beacon Power and Fisker Automotive should have driven home the message. Now, we have further proof that the DOE isn’t paying attention.

Yesterday, DOE Secretary Ernest Moniz traveled to Georgia to announce $6.5 billion in loan guarantees for two new nuclear reactors already under construction. 

The loan, like so many others, has the markings of an incredible risky use of taxpayer dollars. According to the Washington Post, the project is already 21 months behind schedule. Additionally, Southern Company, the largest shareholder of the project, had its ratings’ outlook downgraded from “stable” to “negative” by Standard and Poor’s last year, in part because of “cost overruns” at the Georgia facility.

Even more frustrating, the company already had private loans in place to finance construction. Now we, the taxpayers, will save the company $250 million a year in interest costs by bearing the full burden of default.

The company also benefits from $2 billion in other federal tax credits, according to its CEO.

Some deal.

Water in the West: It’s Complicated

In the media, one hears two different stories regarding the drought in California and Western water problems in general. Liberals say that droughts are being made worse by climate change. Conservatives say that water shortages are being perpetrated by the EPA in a misguided effort to sacrifice farmers for some tiny fish. The Washington Times editorial today is of the latter genre.

The real story is more complicated. It’s not just Mother Nature, and it’s not just farmer vs. fish.

The fundamental problem is that the federal government has been heavily subsidizing Western water for decades, particularly for crop irrigation. Artificially low water prices have encouraged overconsumption and the planting of very dry areas where farming is inefficient and environmentally unsound. Subsidized irrigation farming has created major environmental problems in the San Joaquin Valley, for example.

To make matters worse, federal farm subsidies have boosted demand for irrigation water, which has further encouraged farmers to bring marginal lands into production.

So don’t blame the Delta smelt. Instead, blame antimarket policies going back eight decades in the case of farm subsidies and a century in the case of subsidized water from the federal Bureau of Reclamation.

The long-term solution to the West’s growing water problems is free-market economics. Policymakers should end the farm subsidies, reform water property rights, transfer federal dams and aqueducts to state ownership, and move toward market pricing of water.

For more, see my essay with Peter Hill and check out the great work from the free-market environmentalists at PERC.

Fuel Efficiency Standards for New Trucks—Can’t We Decide These for Ourselves?

Rather than wait on the market to demand more fuel efficient trucks, President Obama, bypassing Congress, has directed the Environmental Protection Agency to draw up a new round of regulations raising the fuel efficiency standards on heavy-duty trucks. He promises that this will save billions of dollars in fuel costs, lower prices and reduce greenhouse gas emissions—or, as he describes it, a “win-win-win” situation.

Thank you, Mr. President for taking such good care of us.

Apparently, we are too stupid to have realized the manifold benefits of this chain of events ourselves.

Or is it that we realize these actions will have no impact of climate change and will probably result in higher prices for new trucks and everything that they transport?

You can use our “Handy-Dandy Temperature Change Calculator” to see that, using the EPA’s own computer model, if Americans cut all of our carbon dioxide emissions to zero, today, the amount of warming that would be prevented (assuming a warming forecast that is itself probably too high) by 2100 is around two-tenths of a degree—an amount that would be virtually impossible to measure against natural climate variability.  Increasing the fuel efficiency of heavy trucks would have considerably less of an effect than cutting all carbon dioxide emissions and would simply not be discernible in climate data.

And the President’s claim that increasing the fuel efficiency will lower the price of all things neglects the fact that we simply do not know what technology would accomplish this end.

Perhaps he should have said—”if you like your truck, you can keep your truck,” that is, until you have to replace it with something that will cost much more than you would have otherwise purchased and not do what it is supposed to do.

Again, thank you, Mr. President.

Venezuela’s Plunging Petroleum Production

A hallmark of socialism and interventionism is failure. Venezuela is compelling proof of this, having spent the past half century going down the tubes. Indeed, in the 1950’s, it was one of Latin America’s most well off countries. No more. Now it is a basket case – a failed state that’s descending into chaos.

How could this be? After all, Venezuela’s combined reserves of oil and gas are second only to Iran’s. Well, it might have reserves, but thanks to the wrongheaded policies of President Hugo Chavez, Venezuela is the only major energy producer that has seen its production fall over the past quarter of a century. The following chart tells that dismal tale:

Saving Rustbelt Cities

What should be done about the nation’s rustbelt cities–or, as they are being repackaged by marketers, “Legacy Cities”? The populations of at least a dozen major cities declined by more than 10 percent between 2000 and 2010, including Buffalo, Cincinnati, Cleveland, and of course Detroit and New Orleans (whose population decline has little to do with the rest of them). In many cases, such as Pittsburgh and St. Louis (which declined between 8 and 9 percent in the 2000s), recent declines are merely a continuation of trends since 1950.

Click image to download the report (7.6 MB)

A new report from the Lincoln Land Institute offers a set of prescriptions for these cities. While they may sound good at first glance, close scrutiny reveals that they are the same tired policies that have been trotted out by urban planners for decades.

These policies include:

  1. Urban renewal, funded with tax-increment financing and other subsidies, to “leverage assets” in the city;
  2. Regional government “to better distribute the burdens of urban infrastructure and other costs,” i.e., make the suburbs pay for the central cities’ mismanagement;
  3. “New urban forms,” meaning high-density, mixed-use developments;
  4. “Re-establishing the central role of the city,” meaning demands that employers move to cities rather than suburbs; and
  5. “New governance structures,” meaning “economic development corporations” that can “leverage assets” (use tax dollars) to benefit selected developers in selected neighborhoods with little public scrutiny.

The report gives examples of cities that are doing some of these things, but fails to show that any of them have actually succeeded at attracting new people and jobs. In fact, the higher taxes and increased regulation called for by this report is more likely a recipe for accelerated disaster.

Here’s a completely different set of recommendations that I suggest is more likely to succeed:

  1. Improve schools, probably by using a voucher system to create a competitive environment for both public and private schools;
  2. If the city has a large African-American underclass, make absolutely sure that all elementary students have caught up to their middle-class peers by the time they reach high school, and gather private funding to insure that all high-school students who graduate with decent grades know they will get scholarships to a major university, thus giving them an economic path out of poverty;
  3. Eliminate cronyism and corruption in city government, problems never mentioned in the Lincoln Land Institute report but which could actually be exacerbated by the report’s recommendations. Cities are the creation of state legislatures, and if cities can’t reform themselves, the legislatures should take action by rechartering the city governments;
  4. Reduce crime by doing things like changing the gridded city streets that planners love into cul de sacs so that criminals have fewer escape routes;
  5. Reduce taxes by eliminating all but the most essential urban services–this means no government-funded convention centers, sports stadiums, hotels, streetcar lines, or other things that ought to be privately funded, if they are needed at all;
  6. Reduce regulation, including zoning rules, so property owners can engage in urban renewal without government subsidies or top-down planning. Historic preservation ordinances may sound cool, but they are one of the biggest obstructions to private redevelopment;
  7. Fix city pension and health care funds, even if it means going bankrupt to allow cities to renegotiate unsustainable contracts with public employee unions;
  8. If it hasn’t been done already, legalize the sale of beer from the same premises in which it is made. As I’ve argued elsewhere (see page 6), the micro brewpub revolution has done more to revitalize cities than rail transit, urban renewal, and the other expensive programs planners and city officials love.

In short, rather than adding to the layers of taxes and regulation that already hinder city growth, government should get out of the way.

Hyping Billions in Taxpayer Spending

In today’s issue of Nature, scientists from the National Ignition Facility (NIF) in California are trumpeting their advance in achieving fusion ignition. However, the National Ignition Facility is just like so many other projects from the Department of Energy. It’s behind schedule and over budget.

Approved by Congress in 1993, the lab did not officially open until 2009 after numerous delays. According to a report in 2000 by the Government Accountability Office, “NIF’s cost increases and schedule delays were caused by poor Lawrence Livermore management and inadequate DOE oversight.”

The completed lab has cost taxpayers $5 billion, up from the initial estimates of $2.1 billion. It costs an additional $330 million to operate annually.

In 2009, scientists proclaimed that the NIF would achieve fusion within three years. Unsurprisingly for a government-funded project, NIF announced in 2012 that it failed to meet its goal. The New York Times said “the output of the experiments consistently fell short of what was predicted, suggesting that the scientists’ understanding of fusion was incomplete.”

NIF announced that it would spend the next three years trying to evaluate why it hadn’t achieved it. But in a moment of honesty in its report to Congress, NIF conceded “it is too early to assess whether or not ignition can be achieved at the National Ignition Facility.”

So while some news reports herald the advance at NIF as bringing it closer to achieving a sun-like power source, the project is still years away from its goal and billions over budget. 

Say What!?

While the social cost of carbon (SCC) is still being mulled over by the Office of Management and Budget, other federal agencies continue to push ahead with using the SCC to help justify their many regulations.

The way this works is that for every ton of carbon dioxide (CO2) that any new regulation is supposed to keep from being emitted into the atmosphere, the proposing agency gets about $32 credit to use to offset the costs that the new regulation will generate. This way, new regulations seem less costly—an attractive quality when trying to gain acceptance.

The idea is that the damage resulting from future climate changes will be decreased by $32 for every ton of carbon dioxide that is not emitted.

There is so much wrong with the way the government arrives at this number that we have argued that the SCC should be tossed out and barred from use in all federal rulemaking. It is far better not to include any value for the SCC cost/benefit analyses, than to include one which is knowingly improper, inaccurate and misleading.

Further, that the federal regulations limiting carbon dioxide emission will have any detectable impact on future climate change is highly debatable. To see for yourself, try out our global warming calculator that lets you select the magnitude of future carbon dioxide emissions reductions as well as which countries participate in your plan. The best that the U.S. can do—even if it were to halt all CO2 emissions now and forever—is to knock off about 0.1°C from the total climate model-projected global temperature rise by the year 2100.  In other words, U.S. actions are not very effective in limiting future climate change.

Apparently, the feds, too, agree that their plethora of proposed regulations will have little impact on carbon dioxide emissions and future climate change. But that doesn’t stop them from issuing them.

The passage below is from the proposed rulemaking from the Department of Energy to alter the Energy Conservation Standards for Commercial and Industrial Electric Motors  (this is only one of many proposed regulations making this claim):

The purpose of the SCC estimates presented here is to allow agencies to incorporate the monetized social benefits of reducing CO2 emissions into cost-benefit analyses of regulatory actions that have small, or “marginal,” impacts on cumulative global emissions.

In other words, DoE’s regulations won’t have any real impact on global CO2 emissions (and, in that manner, climate change), but nevertheless they’ll take a monetary credit for reduced damages that supposedly will result from the non-effective regulations.

(I wonder if can try that on my taxes)

It seems a bit, uh, cheeky, to take credit for something that you admit won’t happen.

But that’s the logic of the federal government for you!