Topic: Energy and Environment

EPA Witchdoctors Get No Peace

A coalition of unions representing U.S. EPA scientists and other specialists sent a letter to EPA chief Stephen Johnson on Wednesday asserting that agency managers and pesticide industry officials are exerting political pressure to allow the continued use of organophosphates and carbamates, which are used in many industrial pesticides. The letter complains that EPA scientists are being pushed to skip steps in their regulatory testing of the chemicals, arguing that ”the integrity of the science upon which agency decisions are based has been compromised.”

This is rich. The methodology being employed by the EPA to ascertain human health risks for these and other chemical substances has long been discredited by academics, who, at best, suggest that it holds promise but has a long way to go, or, at worst, suggest that it is akin to astrology or palm reading. If the environmental Left were serious about allowing scientific concensus to dictate federal policy (a proposition they ardently embrace when the topic turns to global warming), the tests at issue would have been junked long ago.

But by all means, let’s not disturb the witchdoctors!   

Fear Not, Tom Friedman

Yesterday’s New York Times op-ed page had a couple of rather interesting pieces on global warming that merit some thought. The first, by Thomas Friedman, discussed how American capitalists – motivated as much by the hunt for profit as they are by the quest so save the world – are undertaking a “distributed Manhattan project” to develop economically attractive alternatives to fossil fuels. No centralized government program is necessary, thank you very much. The second, by environmental writer Gregg Easterbrook, described why he has switched sides in warming debate, moving from skeptic to cautious activist. Both are far more sensible than the usual screeds on those subjects published by the Gray Lady.

The Friedman piece was spot-on. Thousands of rather brilliant minds and billions of private dollars are being devoted to ambitious alternative energy R&D. While government sprinkles money here and there, the real work is being done by venture capitalists and entrepreneurial visionaries. If anything emerges from that creative soup, it will be primarily due to the fact that capitalism is the most powerful engine of technological change and innovation ever created by man. Waiting for the Congress or the Department of Energy to come up with something would be a triumph of hope over experience.

Friedman worries, however, that it won’t be enough. “If we want to see these alternatives move from little start-ups to large-scale commercial ventures, ‘we need to get the price mechanism right.’ When you’re talking about oil, you can’t just say ‘Let the market work’ because there is no free market in oil: the producers have a cartel, and governments – like ours – subsidize oil so we don’t pay the full cost.” Friedman proposes a price floor for gasoline ($3.50-$4.00 per gallon) and green purchasing practices for the federal government.

Fear not, Tom Friedman. The alternative energy revolution (if one is to come) will indeed be televised. First of all, to say “there is no free market in oil” is to say “I don’t know a damn thing about oil markets.” One would be hard-pressed to find a freer market on this planet than the one that trades in oil. There are a multiplicity of buyers and sellers who are free to sign long term contracts or to buy and sell in futures markets and spot markets with little regulatory interference. Secondary markets are likewise robust. Prices in wholesale markets are established by supply and demand and the only reason they don’t translate directly to the consumer is because governments are fond of taxing the hell out of the product at the retail level.

To the extent that there is governmental interference in those markets, it has been to artificially raise oil prices above what the market would otherwise deliver. Were it not for OPEC price fixing through production quotas, world oil prices would normally float around $5.50 per barrel according to Francisco Parra, a former Secretary-General of OPEC.

Now, you may not buy that number, but the overall point is hard to argue. Production costs in the Persian Gulf are so low – and economically recoverable oil is so plentiful – that only government conspiracy prevents a torrent of this stuff from hitting the market. Subsidies to the oil sector do indeed exist, but they do not affect marginal production costs, which is to say they do not affect consumer prices.

In sum, the claim that oil prices would be higher were it not for governmental favoritism has it exactly backwards. Competitors need no further help.

Gregg Easterbrook’s piece makes the point that there are few credentialed scientists left who publish in the peer-reviewed literature who are willing to argue that industrial emissions aren’t warming the planet. Fair enough. But the bulk of the so-called “skeptics” (like MIT’s Richard Lindzen or UVA’s – and Cato’s – Pat Michaels) never argued that point in the first place. Instead, they have argued that warming will likely be modest and of no particular consequence. Easterbrook acknowledges that this might well be true, but that he would prefer to hedge his bets with some sort of emission control policy.

Again, fair enough. Particularly risk averse people are more inclined towards this sort of thing than those less worried about such things, and there is no “correct” answer to the question of how much one should hedge against risks given that our risk preferences are all different and risk preferences are subjective.

But bear in mind that, over the past several years, the market has essentially slapped a huge tax on hydrocarbons. If environmentalists were asked back in 2002 if they would declare victory and go home with the passage of a $50 per barrel tax on oil as a means to tackle global warming, I’m pretty sure the answer would have been “yes – hell yes!” Well, that’s essentially what has happened. It may well be that the market has already delivered Easterbrook’s greenhouse insurance policy.

Nuclear Welfare

At a Senate Energy & Natural Resources Committee hearing yesterday, outgoing Nuclear Regulatory Commission chairman Nils Diaz reported that 16 utility companies were busily planning to build 25 new nuclear power plants thanks to last year’s energy bill. Champagne corks were popped, backs were slapped, congratulations were offered, and all was right in the political world.

Just what did last year’s energy bill do to usher in this nuclear nirvana?  Well, our fair Senate–said by many to be in the grip of doctrinaire, free market Republican jihadis–passed a 20-year extension of the Price-Anderson Act (which protects the industry from liability if damages from an accident exceed a certain amount); adopted a 1.8 cent production tax credit for up to 6,000 megawatts of new nuclear generating capacity; provided risk insurance against the financial costs of litigation and other delays in building new nuclear power plants; and provided federal loans and guarantees for up to 80 percent of project construction costs.

Look, I’ve got nothing against nuclear power per se.  But if nuclear energy had economic merit, it wouldn’t need this avalanche of government help and hand-holding.  Neither party looks good in all of this.  Republicans have no business meddling in markets this way.  And Democrats should quit folding to business interests like a cheap suit.

Democrats Out of Power

The Washington Post reports today that the Ds are planning an onslaught of staged media events over the Memorial Day weekend to highlight their discontent over high gasoline prices. The Democrats are kicking off their campaign today in Ohio, where Senate Minority Leader Harry Reid is scheduled to appear in front of the cameras with Rep. Sherrod Brown, the Democratic Senate candidate there, in front of a giant wind turbine outside a Cleveland science center.

Presumably, the Democrats think that the windmill symbolizes their commitment to break America’s so-called addiction to oil. In reality, the windmill symbolizes the Democrats’ incoherence on energy policy. Unless they plan to strap those turbines onto the hoods of our cars, wind power cannot substitute for oil because windpower is used to generate electricity and only a trivial amount of oil is used for that purpose.

“Wherever you live, your gas prices are out of control, and you want to hold someone accountable for it,” Reid said. While Reid predictably blames “Big Oil,” he apparently missed the FTC report out today finding nothing underhanded about gasoline prices in the aftermath of Hurricane Katrina.

I’m sure you’ll hear all about on tonight’s O’Reilly Factor.

Global Warming Resolution Bites the Dust

Not that you’d know it from reading the newspapers this morning, but the much-ballyhooed House resolution that would have supposedly put the United States on a firm march to Kyoto-ville died with little more than a whimper yesterday. Apparently, VE (Victory for Earth) Day will have to wait another year.

Reporters love to write about how proposals to do something about global warming are gaining momentum. But they are less wild about stories that suggest trends might be running in the opposite direction. Believe me, had that resolution passed, it would have been on the front pages of most newspapers today. If passage would have been such big news, why not defeat?

I’ve got a theory about this. Having spoken at several conferences of the Society of Environmental Journalists, I can tell you without hesitation that enviro beat reporters are more often than not little more than PR vessels for organized environmental interest groups. Whether the bias is intentional or unintentional is irrelevent—critical thinking and healthy skepticism simply go out the window when your average enviro reporter talks to a credentialled Green lobbyist or activist. 

The environmental lobby has a lot at stake in presenting the appearance of inevitability with regards to greenhouse gas control. That’s because it’s rather clear to everyone that as long as American business is opposed to this stuff, it’s not going anywhere. 

The one thing that might undermine corporate opposition to ”doing something” about global warming is the idea that emissions controls are inevitable. After all, why waste time and money fighting for a hopeless cause? Why not “get a seat at the table” and try to minimize the damage that emissions controls might inflict on your business? Why risk becoming the legal equivalent of a tobacco company? In short, there’s a lot at stake regarding how the politics of this issue is spun.

Although few reporters seem to have figured this out, the environmentalists certainly have. And that’s why you probably didn’t know about yesterday’s events until I told you.

The Left vs. Conservation

I was on NPR’s “News & Notes with Ed Gordon” today to discuss gasoline prices with Julianne Malveaux. It was a rather bizarre experience. Apparently, the Left is of many, many minds when it comes to energy conservation—and all of those minds seem to coexist in the same head.

On the one hand, Dr. Malveaux was quite adamant that we need to “incentivize people” (her phrase) to use mass transit. But, on the other hand, she was equally adamant that gasoline prices were too high and had to be brought down by hook or crook.

Question 1: Wouldn’t increasing the marginal cost of driving provide the most powerful incentive for people to use mass transit?

Question 2: Wouldn’t decreases in marginal driving costs reduce the incentive people would have to use mass transit?

I tried to press her on those points but couldn’t get a straight or even understandable answer out of her.

When I tried to point out that how much people spend on gasoline is largely under their control and that high gasoline costs will do more to encourage conservation than anything government could do, I was treated to a rather loud rant about why most people had no option but to keep buying gas and that only ivory tower, doctrinaire Cato types would ever believe to the contrary.

Now, this is really something. Up until recently, environmentalists and conservationists have gone on at quite some length about how people can and should conserve energy. When I took a page from that book and suggested that people could sell their SUVs, pickups, and luxury sedans for more fuel efficient cars, I was told that this would be too expensive for working Americans to even consider (huh?). When I suggested that people could move closer to work or to mass transit hubs if they wanted to cut their commute costs, I was accused of crazy talk. When I suggested that car-pooling is always possible for those who don’t want to pick up stakes, I was informed that this is yet more crazy talk. When I suggested that people may want to rethink how often and how far they drive around town on errands or the nature of their summertime vacations, I was accused of peddling nonsense. When I argued that high gasoline prices are actually something that conservationists and environmentalists should embrace, I was dismissed as a nutcase.

Apparently, all that talk about conservation from the Left was smoke. It’s actually an impossible task, quite beyond the capabilities of mere mortals.

Republican Lunacy on Energy

My colleague Peter Van Doren and I wrote an op-ed that was published this morning at National Review Online that rips the GOP for their ideas regarding energy policy. Just when you think the Republicans can’t get any worse, they manage to surprise.

For those tired of all the populist hysteria surrounding gasoline prices, we’ve also got a piece in the Investor’s Business Daily today (subscription only) that presents data on what we term “the hardship price” of fuel. We looked at gasoline prices from 1949 to the present and adjusted for inflation and changes in per capita disposable income. In essence, we ask: How long would a person have to work to pay for a gallon of gasoline today compared to any other year over the past 57? Turns out that gasoline at the moment is less expensive by that metric than it has been during most years over that time. A very nice graphic is provided with the piece.
We’ll have the IBD piece on the Cato website soon.