February 2009

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The Energy Tax Budget

by Iain Murray on February 26, 2009

in Blog

“Not one dime,” said President Obama in his address to Congress, referring to how much extra tax people earning under $250,000 a year will have to pay in his budget. Unfortunately, even if you don’t have to pay extra tax, you will have to pay extra fees for your energy, which are passed on to the government via energy companies. That’s the effect of the President’s cap-and-trade scheme for carbon emissions, an important part of his new budget. Energy companies will have to pay the government for permits for each ton of carbon dioxide or equivalent they emit in the generation of power. They will pass on these costs to the consumer, as has happened everywhere a cap-and-trade scheme has been tried. The Administration will split the revenues between $15bn for alternative energy pork and about $52 billion per year to help pay for the Making Work Pay tax cut/welfare check of $800 for “95 percent of all American workers.” By raising the price of fossil fuel energy and thereby making expensive alternative energy more competitive, the program is also aimed at reducing the amount of greenhouse gases emitted.

How much will cap and trade cost households in increased energy costs? Well, we know from a CBO study last year that a 15 percent reduction in emissions from 1998 levels would cost each household at least $660. That target is about 25 percent more stringent than the budget target, which is simply a return to 1990 emission levels by 2020 (far less than environmentalists demand). So we can apply simple arithmetic to estimate that the current budget cap and trade program will cost each income quintile $510, $660, $870, $1125 and $1635 (in 2006 dollars, slightly more in nominal values) respectively. This is a significant offset to the $800 “tax cut” per worker.

To those who might object that most households have two income earners these days, that’s not true. While the “traditional” family model of a husband supporting his family only accounts for 7 percent of householders now, dual-income families actually account for just 29 percent of households. Moreover, it is the bottom three quintiles that have on average just one earner, meaning that they suffer proportionally more from this energy tax increase.

Finally, for the highest quintile, the lower income limit is just $88,000. If you earn that amount, even if you have two income earners in the household, you will likely lose money from these stealth energy taxes. So will the average household earning between $35,000 and $55,000. So much for “not one dime.”

A cap-and-trade scheme is a lobbyist’s dream. For those of you unacquainted with how these boondoggles work, it goes something like this: (1) regulators assign an emissions quota to tens of thousands of individual industrial suppliers and users of energy (because emissions are synonymous with conventional energy use, an emissions “cap” is the same as energy rationing); (2) these businesses then purchase the right to emit their allotment in the form of permits disbursed by a government-run auction; (3) these businesses are allowed to trade permits among themselves (ie, a company that exceeds its emissions quota can buy permits from a company that emitted less than its quota); and (4) the government spends revenue raised in the auction of emissions permits-as much as $300 billion a year, according to the Congressional Budget Office-on green technologies and mitigation of the cap-and-trade’s adverse economic impact.

Lobbyists love cap-and-trade because of its complexity. At every step of the process, there are myriad nooks and crannies into which they can stuff special favors for their corporate clients. Industrial suppliers and users of energy will hire lobbyists to claim that they deserve free permits for some reason or another. And the auction-generated revenue would create a huge money trough coveted by every conceivable special interest and their pricey lobbyists.

Given that the President last night announced that legislation for “a market-based cap” on greenhouse gas emissions is a priority for his administration, it should come as no surprise that there has been an explosion in climate lobbying on Capitol Hill. According to an article in today’s Politico,

“A Center for Public Integrity analysis of Senate lobbying disclosure forms shows that more than 770 companies and interest groups hired an estimated 2,340 lobbyists to influence federal policy on climate change in the past year, as the issue gathered momentum and a bill came to a vote in Congress.

That’s an increase of more than 300 percent in the number of global warming lobbyists since 2003, when Congress previously voted on climate change legislation, and means that Washington can now boast more than four climate lobbyists for every member of Congress.”

Let that last line sink in: Four climate lobbyists for every member of Congress!

The House and the Senate held competing A-list hearings on global warming on Wednesday at 10AM. Testifying before the Senate Environment and Public Works Committee was Dr. Rajendra K. Pachauri, the Chairman of the Intergovernmental Panel on Climate Change. Testifying before the House Ways and Means Committee was Dr. James E. Hansen, whom the committee described as an Adjunct Professor at Columbia University’s Earth Institute. He is of course also Director of NASA’s Goddard Institute for Space Studies. I tried to watch both hearings on the internet and thereby undoubtedly missed a lot of good stuff as I switched back and forth. Interestingly, Pachauri, an economist and engineer, talked mostly about global warming science, while Hansen, an astronomer, talked mostly about economics. Pachauri was utterly dreary. Hansen was an interesting mix. He inveighed against cap-and-trade as an ineffective scam designed to pay off big business. He instead endorsed a stiff carbon tax with 100% of revenues rebated to consumers.

When asked by Rep. Earl Pomeroy (D-ND) about what would happen to North Dakota and its near-total reliance on brown coal for producing electricity, Hansen said that employment in the coal industry would go down, but that North Dakota had lots of potential for wind power and potentially for growing well-designed bio-fuels. He observed that these new industries might create more jobs than would be lost in the coal industry. That is true. One of the ways to create jobs is to make production and use of capital less efficient. For example, there would be tens of millions, probably even hundreds of millions, of new jobs in North Dakota and throughout rural America if mechanized agriculture were banned. Then the federal government could throw billions of dollars of taxpayer money into improving farming technology. Think of the breakthroughs that could be made with revolutionary new horse-drawn plows, etc.

The Republican witnesses—Professor William Happer at the Senate hearing and Professor John Christy at the House hearing—were articulate, intelligent, and scientifically accurate. Christy made a strong case against energy poverty. Naturally, most Senators and Representatives were unimpressed and unhappy with them.

Obama Scores Zero on Econ 101

by Myron Ebell on February 25, 2009

in Blog

In his first address to Congress, President Obama said that the “stimulus” legislation and other short-term economic policies were necessary to prevent a decade-long recession. He then went on to advocate energy and global warming policies that will foster a perpetual recession. First, he promised that federal funding and mandates will make the United States the world leader in renewable energy technologies. As an article that might have been published in the Onion but actually appeared in the Los Angeles Times last week noted, the only thing holding renewable energy technologies back is a number of necessary technological breakthroughs that will make them work. Apparently, our President is too young to have learnt that the federal government has been throwing taxpayer money at renewables since the 1970s.

The President then called on the Congress to send him cap-and-trade legislation that would make renewable energy profitable by raising the price of conventional energy produced from burning coal, oil, and natural gas. Yes, renewable energy will become profitable, many jobs will be created, and we’ll have to settle for a significantly lower standard of living as a result. The sad fact is that the new Administration has some highly-regarded establishment Democratic economists in it, but is for some reason pursuing economically illiterate and consequently disastrous policies.

While President Obama focuses on short-term economic recovery, he proposes long-term energy and global warming policies that will lead to economic decline. Federal subsidies for “green” jobs and mandates for renewable energy will raise energy prices and thereby suck money out of people’s pockets and jobs out of manufacturing.

But President Obama’s green jobs fantasy is only the beginning of the bad news he has in store for American consumers, workers, and taxpayers. He is also urging Congress to enact a cap-and-trade scheme to reduce greenhouse gas emissions. Cap-and-trade is another name for energy rationing. It is a sneaky tax that will benefit some big business special interests by raising people’s electricity, gasoline, and heating bills through the roof. It should not be a surprise that many big corporate CEOs support President Obama’s energy rationing policies. They stand to make huge profits, so why should they care what sharply higher energy prices will do to working American families struggling to pay their bills?

“A Matter of Fact,” a new report from the Center for American Progress Action Fund, challenges the Washington Post to correct George F. Will’s “Dark Green Doomsayers” column, published February 15th. The report, by CAP’s Brad Johnson, asserts that George Will made three factual errors:

  • Current “global sea ice levels” equals those of 1979
  • There hasn’t been warming in “more than a decade”
  • “Global cooling” joins a list of well publicized “planetary calamities that did not happen.”

Will’s column is not perfect, and Johnson raises some valid questions. For the sake of intellectual honesty, however, Johnson should broaden his fact-checking scope to incorporate misstatements on both sides of the global warming debate—including his own fudging of the truth.

But first, let’s address CAP’s critique of Will’s column.

Error 1. It seems that Will is guilty of delay. On the one hand, the University of Illinois Arctic Climate Research Center, the source of his assertion that global sea ice levels haven’t changed in 30 years, publically disavowed Will’s claims. On the other, ACRC reported on January 1, 2009 that global sea ice levels were “near or slightly lower than those observed in late 1979.” Will’s column appeared 45 days later, during which the discrepancy between current levels and 1979 levels grew by 8%.  If anything, this demonstrates the perils of reporting on an ever-changing global climate.

Error 2. CAP and George Will have it wrong. Will wrote that it hasn’t warmed in “more than a decade,” while Brad Johnson claims that “global warming is continuing.” According to data from the University of Alabama in Huntsville, compiled by NASA’s Dr. Roy Spenser, there has been no statistical warming of lower atmosphere temperatures over the past seven years, despite the fact that global greenhouse gas emissions have increased.

Error 3. Will is right and CAP is wrong. Johnson notes that there was never a “scientific consensus” on global cooling, but that’s not what Will claimed. He only wrote that some scientists and media outlets warned of global cooling, which is true.

I am an unabashed global warming “denier,” but I nonetheless applaud Brad Johnson’s efforts. On the topic of global warming, misrepresentations of the science abound, and we in the energy/global warming policy community should root them out and expose them with vigilance.

With that in mind, I have a “Matter of Fact” list of my own:

Fiction: Al Gore claims in his documentary, An Inconvenient Truth, that “there is one relationship that is more powerful than all the others and it is this. When there is more carbon dioxide, the temperature gets warmer ….”

Fact: It hasn’t warmed in 7 years, despite a steady increase in global greenhouse gas emissions. Where’s the Warming, Al?

Fiction: Dr. James Hansen, ultra-alarmist, has suggested that a 2-3 degree warming would cause sea levels to rise by 80 feet. Hansen then lowered his estimation to 20 feet. His most recent estimate is “at least” 3.2 to 6.4 feet.

Fact: The preeminent body of climate scientists, the Intergovernmental Panel on Climate Change, suggests that a 2-3 degree warming would cause sea levels to rise 7 to 23 inches.

Fiction: In 1986, Dr. John P Holdren, President Barack Obama’s choice to become White House Science Adviser, is quoted as having said that global warming could cause the deaths of 1 billion human beings by 2020. During his confirmation hearing two weeks ago, Holdren was questioned about this claim, and said that “it is still possible.”

Fact: To fulfill Holdren’s alarmist warning, climate change would have to kill twice as many people as died in World War Two, each year, for the next ten years.

Fiction: The Center for American Progress’s Brad Johnson last summer reported that the death of two Boy Scouts in Iowa was “evidence” of “the consequences” of global warming.

Fact: As recently noted on Roger Pielke Jr’s Prometheus, the Center for Research on the Epidemiology of Disasters cautions that “justifying the upward trend in hydro-meteorological disaster occurrence and impacts essentially through climate change would be misleading.”

SOTU Watch: Energy Claims

by Iain Murray on February 24, 2009

in Blog

The President might make various remarks relating to energy tonight. These are likely to center around grandiloquent claims as to the effectiveness of “green jobs” and alternative energy in saving the economy, not to mention the planet. Here are a few notes on the reality of these claims.

Green Jobs: The President will probably claim to be creating millions of “green jobs” to save the economy, fight global warming and end dependence on foreign oil together. In fact, “green jobs” have a number of problems, outlined in my Examiner piece from yesterday. To summarize:
• “Green jobs” come at the expense of traditional energy jobs. At the moment, the wind industry employs 85,000 people in all its facets (including support staff and suppliers). The coal industry employs 81,000 miners alone, and probably over 1.4 million in all, including support staff and suppliers.
• “Green jobs” are more expensive to society in general. Those 85,000 people in the wind industry contribute to the generation of just 1.3 million MegaWatt-hours of electricity, while the coal industry generates 155 million MWh, making each coal industry job seven times more productive than a wind industry job. The difference in cost is born by the rest of us.
• “Green jobs” are mostly low-paid and transitory, according to a recent report by, among others, The Sierra Club and the Teamsters union.
• A German government report found that “green jobs” are only beneficial to the economy as long as Germany remains a net exporter of green technology and power. As soon as other countries utilize their comparative advantages in manufacture and power generation, “green jobs” become a drain on an advanced economy.
• Most “green jobs” are related to the generation of electricity, which is not used to power cars yet, and so do nothing to lower our “dependence” on foreign oil (and most oil we use comes from the US and Canada in any event).

Alternative Energy: The President may repeat his promise to double the use of alternative energy, again claiming effects in terms of climate and energy independence. This claim is, in all probability, disingenuous.
• A doubling of alternative energy electricity production by 2011 would require the main alternatives – solar, wind, geothermal and biomass – together to generate 144 billion KiloWatt-hours of electricity by then. However, under the Energy Information Administration’s “business-as-usual” projections, these industries are expected to supply 150 billion KWh by then, with no additional policies needed. (Note the EIA includes hydropower and wood in its renewables calculations, for the solar/wind/geothermal/biomass figure, see here.)
• Reduction in greenhouse gases as a result of this policy is not likely to occur, as the EIA predicts a similar increase in the use of coal to generate electricity by 2011. In all probability, therefore, we will be emitting greater amounts of greenhouse gases by 2011, not less.
• A “smart grid” is probably a useful technology, but the President and the stimulus plan gold-plated it in order to boost their renewable energy rhetoric. William Tucker has a good summary of what is wrong with the President’s version of a “smart grid” here.
• If the President means that he will double the use of biofuels, this is likely to mean a significant increase in corn ethanol production, resulting in greater diversion of the corn supply into fuel production. This will likely increase already-inflated food costs (the recent price drop would have been significantly greater were it not for ethanol manufacture) and thereby increase food insecurity in a recession. Increased ethanol production is opposed by most major environmental groups as well as free-market groups. See Facts About Ethanol for more.

As you may have heard, there has been no net warming of the planet since 2001, and no subsequent year was a warm as 1998 (admittedly a year with a major El Nino). A recent study by Keenlyside et al. (2008) concludes that “global surface temperature may not increase over the next decade” due to natural oscillations in the Atlantic and Pacific Oceans.

As Patrick Michaels of the Cato Institute explained at a recent congressional hearing, the suite of 21 climate models used in the IPCC’s mid-range emissions scenario (A1B) are on the verge of failing to reproduce actual climate data.

During the past 5 to 20 years, the observed trend in the average global temperature has been so low that it is starting to push the lower bounds of the climate models’ range of temperature predictions for that period. If 2009 is as cool as 2008 (with a La Nina brewing in the Pacific Ocean, that is not unlikely), then even the least sensitive of these models will be overestimating the actual amount of warming. And if Keenlyside is correct, and another decade elapses without significant warming, the models will have clearly failed.

The most important point for policymakers and citizens, as Michaels notes, is that if the models predict too much warming, then all model-based assessments of global warming impacts on agriculture, human health, extreme weather, etc. will be similarly overestimated.

So what do you do if you’re a climate alarmist and the world isn’t warming up as much as you said it would? Why, you redefine “climate sensitivity.” You claim that agriculture, health, weather, etc. are more “sensitive” to increases in global temperature than scientists once believed. You say that less warming than the IPCC warned us about will lead to worse impacts than the IPCC warned us about. That’s the gist of a recent IPCC-sponsored study, as summarized here by AP/MSNBC.com.

Well, I’m skeptical! First, the IPCC study claims that a 21st century temperature increase of only 1.8 degrees Fahrenheit and 3.6 degrees could significantly increase the severity of extreme weather. But Knutson et al. (2008), a leading modeling study of global warming and Atlantic tropical cyclones, projects that the same amount of warming will increase the average intensity of Atlantic hurricanes by only 1.7% but decrease hurricane frequency by 18%, producing a cumulative 25% decrease in Atlantic hurricane power. That’s a significant net climate benefit!

The IPCC study reportedly warns that even a wee bit of warming will produce deadly heat waves, suggesting (but not bluntly saying) that the 2003 killer heat wave in Europe was due to the atmospheric buildup of greenhouse gases. Yet, as Pat Michaels and Robert Balling document in their new book, Climate of Extremes, the European heat wave of 2003 was an atmospheric circulation anomaly–a bubble of hot air trapped in Europe during a summer that was slightly cooler than average worldwide.

The IPCC study, at least as summarized, also ignores research showing that as hot weather becomes more frequent, heat-related mortality declines. Cities with the hottest summer temperatures–Phoenix, AZ and Tampa, FL, for example, which have substantial elderly populations–have almost no heat-related mortality.

AP/MSNBC.Com quotes the researchers as saying: “For example, events such as Hurricane Katrina and the 2003 European heat wave have shown that the capacity to adapt to climate-related extreme events is lower than expected and, as a result, their consequences and associated vulnerabilities are higher than previously thought.”

This is complete rubbish. In 2006, Europe experienced a heat wave of comparable magnitude to the 2003 heat wave, yet you probably read nothing about it, because this time far fewer people died. What’s more, fewer people died than heat-related mortality models predicted (see here and here). Contrary to the IPCC bunch, the capacity to adapt to climate-related extreme events is higher than expected.

As for Katrina, this bespeaks a fundamental confusion on the part of the IPCC researchers. They confuse climate-related risk with climate change risk. Climate-related risk is chiefly determined by where you live and the existing social infrastructure, not by gradual changes in the atmosphere’s CO2 content.

New Orleans has always been in a hurricane corridor, and has always been below sea level. That’s the reason people in New Orleans are at risk, not because of global warming.

For example, a recent study by J.C. Mock finds no trend since 1800 in the frequency of major hurricanes striking Louisiana. The most active hurricane years in the record–1812, 1830, 1860–long predate the modern era of anthropogenic global warming.

Katrina was the worst natural disaster in U.S. history not because of any extra oomph it allegedly got from global warming (it was a category 1 storm by the time it hit New Orleans), but because government officials at all levels failed to provide adequate flood defenses for city that was well known to be vulnerable to hurricane-driven storm surges.