January 2014

Rupert Darwall, author of The Age of Global Warming: A History, writes today in the Wall Street Journal about Europe’s infatuation with renewable energy mandates.

In 2007, the European Union adopted a package of legally binding targets known as “20-20-20.” The EU committed to achieve the following objectives by 2020:

• Reduce EU greenhouse gas emissions 20% below 1990 levels.
• Increase the share of EU energy consumption produced from renewable resources to 20%.
• Improve the EU’s energy efficiency by 20%.

Darwall comments on a recent European Commission analysis, which finds that the U.S. is reducing greenhouse gas emissions almost as fast as Europe but much less expensively, placing EU manufacturers at a competitive disadvantage:

In a clear-eyed analysis last week, the European Commission published its proposals for the follow-up period from 2020. The Commission notes that since 2005, the U.S. cut its CO2 emissions by more than 12% (a little less than the EU, which cut emissions by just under 14%), thanks largely to shale gas. EU firms and households, the commission says, are increasingly concerned by rising energy prices and widening cost differentials with the U.S. Between 2008 and 2012, the average electricity price paid by European industrial firms rose by 16.7% while American firms are paying 2.3% less, so prices paid by American firms are 45% lower than EU firms.

As the U.S. powers into an era of cheap, abundant energy, across the Atlantic the European Commission reckons electricity prices will rise 31% before inflation by 2030 from 2011, and will consume an increasing share of European GDP. Widening energy-price disparities may reduce production and investment and shift global trade patterns, the commission concedes. However, it adds, if other countries outside Europe agreed to cap their greenhouse-gas emissions, they would help Europe’s energy-intensive industries—hardly an inducement for them to do so. [click to continue…]

As discussed yesterday on this site, a new report by economist Roger Bezdek demonstrates that carbon energy has immense social benefits, and, consequently, carbon pricing schemes can have devastating social costs.

Today’s post takes a closer look at Bezdek’s discussion of the health risks of policies, such as carbon taxes, cap-and-trade, renewable energy quota, and carbon capture and storage (CCS) mandates, that raise household energy costs.

Although fuel poverty is typically discussed as a European problem, millions of Americans also face harsh tradeoffs between paying their utility bills and purchasing other necessities. The relevant concept here is energy burden, defined as the “percentage of gross annual household income that is used to pay annual residential energy bills” for electricity, heating, motor fuel, and cooking fuel. More simply, energy burden is the “ratio of energy expenditures to household income.”

For low-income households, small increases in energy bills translate into large increases in energy burden:

For example, consider the case where one household has an energy bill of $1,000 and an income of $10,000 and a second household has an energy bill of $1,200 and an income of $24,000. While the first household has a lower energy bill ($1,000 for the first household compared to $1,200 for the second), the first household has a much higher energy burden (10 percent of income for the first household compared to five percent of income for the second).

In other words, carbon taxes or their regulatory equivalent are regressive, because energy expenditures consume a larger portion of the budgets of low-income households than high-income households. The regressivity of high energy costs is greater than you might suspect. According to Bezdek:

• Families earning more than $50,000 per year spent only 4% of their income to pay energy-related expenses.
• Families earning between $10,000 and $25,000 per year (29% of the U.S. population) spent 13% of income on energy.
• Those earning less than $10,000 per year (13% of population) spent 29% of income on energy costs.

These percentages are higher still when energy expenditures are compared to after-tax income. For the 8.7 million Americans earning $10,000 a year and less, energy costs consume more than 69% of after tax income:

Even without carbon taxes, cap-and-trade, or national renewable energy quota, the energy burden of all U.S. households has increased significantly over the last decade, especially for low-income households: [click to continue…]

Although invented by academics curious about the economic implications of climate models, social cost of carbon analysis quickly became a form of computer-aided sophistry. Its political function is to hoodwink the gullible into believing that fossil fuels are unaffordable no matter how cheap and that so-called renewable energy technologies (chiefly wind and solar power) are a bargain at any price.

The social cost of carbon (SCC) is an estimate of the damage supposedly inflicted on society by the emission of a ton of carbon dioxide (CO2) in a given year. SCC estimates derive from a host of assumptions about highly speculative issues including: climate sensitivity (how much warming results from a given increase in CO2 concentrations); the impacts of warming on weather patterns, ice-sheet dynamics, and eco-system services; the economic impacts of the latter on agriculture and other climate-sensitive industries; and how human adaptive capabilities will evolve (how technology will develop) as the world warms. In addition, because the SCC is a guesstimate of cumulative damage over time, modelers can get big, scary-sounding numbers just by selecting low discount rates to calculate the present value of future projected damages.

But, as noted repeatedly on this blog, even if SCC analysis were an exact science, it would still tell only one side of the story. It would still tell us nothing about the social benefits of carbon energy, hence nothing about the social costs of carbon mitigation. Divorced from analysis of carbon’s social benefits, SCC estimation even at its theoretical best is partisan advocacy posing as objective research.

The Office of Management and Budget (OMB) requires federal agencies to estimate both the costs and benefits of proposed regulations and, to the extent permitted by law, ensure that the benefits of regulation justify the costs. In 2009, the Obama administration convened an interagency working group (IWG) on the social cost of carbon, which has so far produced two reports (2010 and 2013). Unsurprisingly the 2013 SCC estimates were about 50% higher than the 2010 estimates. The next report’s estimates will no doubt be higher still because warmism demands that its votaries always conclude that climate change is “worse than we thought.” That the administration would ever convene an IWG on the social benefits of carbon is unthinkable.

So where can citizens turn to for balance? I have good news. In The Historic, Present and Future Societal Benefits of Fossil Fuels, a report prepared for the American Council for Clean Coal Energy (ACCE), Dr. Roger Bezdek of Management Information Systems, Inc. (MISI) not only documents the manifold economic and health benefits of carbon energy, he also makes a powerful case that the evident societal benefits of carbon outweigh the conjectural costs by orders of magnitude — a range of 40-1 to 400-1. [click to continue…]