Global Warming Fantasies Meet Financial Contraction

October 9, 2008 • Commentary
This article appeared on Cato​.org on October 28, 2008.

Whoever is elected president, global warming legislation is going to be passed in Washington next year.

Legislation proposed by both John McCain and Barack Obama will require that the cost of energy to become so high that people will avoid using it. The serious question is: why would we do this in the current economic environment? Why would we take away capital that people would otherwise use to invest in companies that produce efficient things when that capital is already being destroyed at an alarming rate?

Other nations that embraced the abject environmental failure known as the Kyoto Protocol and imposed higher energy costs are fleeing from climate change policies as their economies implode. Only the U.S. seems eager to commit economic suicide over global warming.

Kyoto did nothing measureable about climate change. Global carbon dioxide emissions rose by the same amount they were supposed to fall because of it. All it cost was money. Germany ‘s Chancellor Angela Merkel, who is probably the woman most responsible for the Protocol itself, now calls drastic cuts in carbon dioxide emissions, “ill‐​advised climate policy”. Her foreign minister, Frank‐​Walter Steinmeier, who last year trotted the globe pronouncing global warming a grave threat to world peace, now says that “this crisis changes priorities” and that “interest in protecting the climate will change because of such a crisis”.

A trip around the world (or around the country, or, for that matter, around your city) will demonstrate that economic vitality and environmental protection are highly correlated. The ritzy part of town is neat as a pin, where residents smugly buy (unverifiable) “carbon offsets” to assuage guilt about the four‐​wheel‐​drive behemoth, while bathed in compact‐​fluorescent light. In the poor neighborhoods of the world? Well, they’re cooking indoors with wood or dung, they don’t have a clue what a “carbon offset” or a compact‐​fluorescent is, and the power is out.

As economies suffer increasingly from global warming taxes and regulation, nations can descend from first‐​world energy infrastructure and supply to banana‐​republic like conditions, even without the current economic contraction.

The first place where this hell is likely to freeze over is going to be in Great Britain this winter. Residential energy costs average $600 per year over where they were a year ago. Britain’s National Housing Administration estimates that 5.7 million British households will spend more than 10% of their income on fuel and energy next year.

Right now, wholesale power prices in Britain are four times what they are in France. Older coal and nuclear power plants have to be taken out of production for repair and refit. How do energy‐​intensive industries, such as cement, steel, and brickmaking compete in such an environment? They don’t.

Green policies are sure to make this much, much worse. In large part because of European Union environmental directives, a full 37% of the U.K.‘s electrical generation capacity will be lost by 2015, most of that from mandatory reduction of coal‐​fired plants. Imagine what percent of households will be spending 10% or more of their income on energy 2015.

Nor will the shortfall to be taken up by solar energy and windmills. Britain is a pretty cloudy place, it isn’t all that big, and windmills produce no power when there is no wind. Last month, Cambridge Econometrics projected that less than 5% of Britain’s total energy will come from these so‐​called “renewables” in 2020.

Before the current financial uncertainty, European governments and the EU environmental bureaucracy thought they could get away with all of this expensive unreality. But, as Angela Merkel and her Foreign Minister now admit, this is beginning to seem “ill advised.”

All of this flags a much larger problem. The only way to reduce emissions enough to have a significant effect on our modest warming trend is to make energy so expensive that people can’t afford it. But, as the current economic situation shows, when people can’t afford it, these policies become “ill advised”. Among other reasons, they are not advisable because they take away capital that is necessary for environmental protection.

The solution is obvious. Only when technologies are available that produce lower carbon dioxide emissions at a competitive price, will people and politicians really buy in. This requires investment—by individuals—of real money that is currently being confiscated and tilted at windmills. Expensive energy and a financial contraction can only delay this investment, perhaps forever. The United States and the United Kingdom would do well to pay attention to Germany’s newly‐​found realism about global warming policy.

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