The above title is the correct assessment of the new energy bill that President Bush just signed into law less than 24 hrs after the House approved it by a 314–100 margin. House Speaker Nancy Pelosi, speaking just prior to yesterday's vote, gave the politicians' assessment: "You are present at a moment of change, of real change."
Of course, it's not that much of a change for politicians to substitute their collective judgment for the private decisions of consumers who have strong incentives (stronger than politicians!) to make the most efficient choices. Still, the new energy bill — assuming Congress sticks to it — will make some changes:
- The incandescent light will be phased out of existence beginning in 2012.
- Average fuel economy for new vehicles will move from the current 25.0 MPG to 35.0 by 2020 — a standard that only the Toyota Prius and Honda Civic hybrids currently meet.
- New government mandates and subsidies will push the domestic ethanol industry to some 36 billion gallons in sales by 2020. (This will actually lessen fuel efficiency because ethanol gets considerably worse mileage than gasoline.)
- The move to more biofuels will continue to increase food prices as farmland is reallocated to the production of energy stocks.
All this leads to one question: Why are these mandates necessary? If the changes are as sensible as Congress and the White House claim, consumers would make them privately. Indeed, the data indicate that consumer preference for fuel-efficient cars is stronger than what the economics would justify.
So then, what is this energy bill really all about?
ADDENDUM: Beth Douglas Kelly, a mechanical engineer who specializes in energy R&D, emailed me about a bit of sloppiness in my parenthetical that ethanol gets worse gas mileage than gasoline. My statement is correct but, she points out, it's not that important — it simply means that a certain volume of gasoline gets you farther than the same volume of ethanol. That fact bypasses the important questions of gasoline's and ethanol's costs (understood in a broad sense).
Here are the important comparisons:
- What is the cost per mile for gasoline vs. ethanol? (Currently, gasoline still beats ethanol when you take into account the loss of gas mileage.)
- What are the environmental externalities of gasoline and ethanol? (Here, ethanol seems to be better but there's still some argument.)
- What are the other externalities of gasoline use vs. ethanol use?
- Will consumers ever be made to bear (and thus judge between) those costs, or will politicians continue to hide them?