Consumer Preferences Versus Energy Efficiency Regulations

by Brian McGraw on July 17, 2012

in Blog

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The Mercatus Center released a paper (PDF) this month co-authored by Ted Gayer (an economist at the Brooking Institution) and W. Kip Viscusi (an economics professor at Vanderbilt), titled “Overriding Consumer Preferences with Energy Regulations” which questions the economic justification for various government schemes implemented to force energy efficiency improvements in consumer household products, automobiles, lightbulbs, etc. The abstract is below:

This paper examines the economic justification for recent U.S. energy regulations proposed or enacted by the U.S. Department of Energy, the U.S. Department of Transportation, and the U.S. Environmental Protection Agency. The case studies include mileage requirements for motor vehicles and energy-efficiency standards for clothes dryers, room air conditioners, and light bulbs. The main findings are that the standards have a negligible effect on greenhouse gases and the preponderance of the estimated benefits stems from private benefits to consumers, based on the regulators’ presumption of consumer irrationality.

The paper walks through the basic economic understanding of consumer rationality, and explains why behavioral critiques of consumer rationality fail to undermine the general conclusion that consumers are overwhelmingly rational and tend to act in their own best interest, and that “in most contexts consumers are better equipped than analysts or policymakers to make market decisions that affect themselves.” [click to continue…]

Tom Vilsack Doesn’t Believe in Supply and Demand

by Brian McGraw on July 16, 2012

in Blog

From the Sunday talk show circuit, summary courtesy of Politico:

High energy costs, not the drought gripping more than half the country, may take a bite out of Americans’ grocery bills, Agriculture Secretary Tom Vilsack said Sunday.

With 26 states in drought conditions, CNN’s Candy Crowley repeatedly pressed Vilsack on “State of the Union: over a connection to jumps in the prices of some food items, but Vilsack resisted the connection.

“If [people] are using this drought to inappropriately raise prices, shame on them,” Vilsack said.

Typically, when it is discovered that in the future there will be much less of a certain commodity than previously expected, the price rises. While some energy prices have risen, they haven’t changed enough to warrant such a dramatic rise in the price of corn. The primary cause is lowered yields resulting from drought:

U.S. feed grain supplies for 2012/13 are projected sharply lower this month with lower production for corn on lower yields. Extremely hot weather and drought result in a 20- bushel-per-acre decline in the projected corn yield to 146 bushels per acre reducing projected production to 13.0 billion bushels, compared with 14.8 billion bushels last month. The June Acreage report increased planted acreage relative to March intentions but harvested acreage was reduced 249,000 acres. Corn supplies for 2012/13 are projected1.8 billion bushels lower. Forecast 2012/13 prices are increased for corn, sorghum, and barley and oats. With tighter supplies and higher price prospects, domestic corn use is projected down 755 million bushels as feed and residual and ethanol use prospects are lowered. [click to continue…]

George Shultz Endorses Carbon Tax – You Were Surprised?

by Marlo Lewis on July 13, 2012

in Features

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Yes, that George Shultz, President Ronald Reagan’s Secretary of State. But not everyone who served with Reagan was a Reaganite. Reagan’s VP, G.H.W. Bush, famously campaigned on a platform of “Read my lips: No New Taxes.” Not two years later he raised taxes in a 1990 budget deal that torpedoed the economy and sank his presidency.

Yesterday, in an interview puff piece penned by two associates, Shultz, a distinguished fellow at Stanford University’s Hoover Institution, called for a ‘revenue-neutral’ carbon tax. This is unsurprising. As the article reminds us, in 2010, Shulz, partnering with Tom Steyer, a Democrat, “led the successful campaign to defeat Proposition 23, a California ballot initiative to suspend the state’s ambitious law to curb greenhouse gases.”

Nothing in the article indicates that Shultz thinks a carbon tax should replace California’s cap-and-trade regime established by AB 32. Nor is there any hint that Shultz would condition the enactment of carbon taxes on repeal of the EPA’s court-awarded power to regulate greenhouse gases via the Clean Air Act.

This pattern is becoming boringly familiar. [click to continue…]

Carbon Tax Supporters Multiplying Like Flies

by Myron Ebell on July 13, 2012

in Blog

Supporters of a carbon tax were very visible in Washington this week.  Ben Geman of the Hill newspaper reported that former Representative Bob Inglis (R-SC) has launched an “Energy and Enterprise Initiative” to promote global warming alarmism and a carbon tax among political conservatives.  His operations are being sponsored by George Mason University, a Virginia state university in Fairfax, an outer suburb of Washington, DC.

Inglis has taken on an odd project.  He was defeated for re-election in 2010 in the Republican primary by a Tea Party-backed candidate, Trey Gowdy.  One of the main issues that contributed to Gowdy’s 71 to 29% margin of victory was Inglis’s continual attacks on fellow House Republicans for not getting on board the global warming bandwagon.  Inglis was never a conservative while serving as a Republican Member of the House and has no credibility within the conservative movement.

The American Enterprise Institute, on the other hand, has earned a lot of credibility over many decades within the conservative movement for its principled and intellectual defense of free enterprise and business.  Thus it came as a surprise when Greenwire reported on 11th July that AEI was that day hosting the fifth meeting of a group plotting to enact a carbon tax.

I was sent a copy of the group’s agenda the same morning that Greenwire reporter Jean Chemnick was sent a copy.  The one-page agenda is headlined “Price Carbon Campaign / Lame Duck Initiative: A Carbon Pollution Tax in Fiscal and Tax Reform.”  The 12:45-6:00 meeting included presentations and discussions on “Congressional Republicans, Romney, and Business Leaders: Detoxifying climate policy for conservatives,” “Framing and selling a carbon pollution tax,” and “Building bipartisan support and navigating Ways and Means.”  The full agenda was attached to an article by Sean Higgins for the Washington Examiner.

A list of attendees at the AEI meeting has not been released, but the discussants include leading environmental and leftwing political operatives.  For example, Alden Meyer, strategy and policy director of the Union of Concerned Scientists (a far-left pressure group) who previously served as executive director of the League of Conservation Voters; Kevin Curtis, program director of Al Gore’s Climate Reality Project; and Tom Downey, prominent DC lobbyist, former Member of the House (D-NY), and since 2007 husband of Carol Browner, who served as EPA administrator for eight years in the Clinton Administration and for two years as President Obama’s White House global warming and energy czar.

AEI’s participant in this ongoing effort to enact a carbon tax is Dr. Kevin Hassett, director of economic studies at AEI.  An indication that his position is not popular at AEI was provided by Dr. Kenneth Green, an environmental scientist at AEI who specializes in climate policy and energy issues.  Energy Wire (a sister publication of Greenwire) published an article on 13th July on another senior establishment Republican coming forward to support a carbon tax—George Shultz, secretary of State in the Reagan Administration.  Here are Green’s comments to Energy Wire:

“There seems to be an eruption of conservatives—very moderate-seeming conservatives, non-tea party, old country club-style conservatives—who are suddenly enamored of carbon tax,” said Kenneth Green, a resident scholar at the American Enterprise Institute.

“I think this is mostly vanity and egotism on the part of these people who are coming forward, to try and reassert the Republican establishment over the tea party revolution,” he added.

More on the Carbon Tax Cabal

by Marlo Lewis on July 12, 2012

in Features

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Concerning the “Price Carbon Campaign/Lame Duck Initiative” meeting of center-right and ‘progressive’ pols, wonks, and activists yesterday at the American Enterprise Institute (AEI), herewith a few additional thoughts.

Today’s Greenwire quotes AEI economic policy director Kevin Hassett saying that AEI was just playing host and the meeting was just information sharing. Well, okay, let’s assume he experienced it that way, but what about the ‘progressives’ who set the agenda? They must really be into sharing, because this was their fifth meeting. Whatever the AEI folks thought the event was about, the agenda clearly outlines a strategy meeting to develop the PR/legislative campaign to promote and enact carbon taxes.

During the cap-and-trade debate in the last Congress, there was something of a consensus among economists that EPA regulation of greenhouse gases (GHGs) is the worst option, a ‘comprehensive legislative solution’ (i.e. cap-and-trade) has less economic risk, and a carbon tax is the most efficient option. But the ‘progressives’ in the “Price Carbon Campaign” are pushing for carbon taxes on top of EPA regulation.

Because the meeting was non-public and hush-hush, we may never know who said what. Here are some points the ‘conservative’ economists  should have made: [click to continue…]

AEI Hosts Fifth Secret Meeting to Promote Carbon Tax

by Marlo Lewis on July 11, 2012

in Features

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Today, the American Enterprise Institute (AEI), a prominent conservative think tank, hosted a secret, four-and-a-half hour meeting of pols, wonks, and activists, including several self-identified ’progressives,’ to develop a PR/legislative strategy to promote and enact a carbon tax. This was the fifth such meeting to advance the ”Price Carbon Campaign/Lame Duck Initiative: A Carbon Pollution Tax in Fiscal and Tax Reform.” An annoted copy of the meeting agenda appears at the bottom of this post.

Perhaps not coincidentally, earlier this week former GOP Congressman Bob Inglis of South Carolina launched the Energy and Enterprise Initiative, an organization promoting carbon taxes. Inglis obtained funding for the project from the Rockefeller Family Fund and the Energy Foundation, both left-leaning foundations.

Left-right coalitions can be principled and desirable. For example, I worked with environmental groups to help end the ethanol tax credit, and I work with them now to develop the case for eliminating the ethanol mandate. We collaborate because we share the same policy objective, even if not always for the same reasons. The free marketers want to end political meddling in the motor fuel market and the environmentalists want to end federal support for a fuel they regard as more polluting than gasoline. The common objective is consistent with each partner’s core principles.

But such cases are the exception rather than the rule. In general, when left and right join forces, the appropriate question is: Who is duping whom?

My colleague Myron Ebell sent out an alert about the AEI-hosted carbon tax cabal earlier today. It appears immediately below: [click to continue…]

Sen. Lamar Alexander’s Payoff

by William Yeatman on July 9, 2012

in Blog

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In mid-June, Sen. Lamar Alexander (R-Tenn.) led the opposition against S. J. Res. 37, legislation that would have blocked EPA’s all pain, no gain Utility Maximum Achievable Control Technology (MACT) regulation. On the floor of the Senate, he explained that the Utility MACT would prevent out-of-state pollution from hurting business in Tennessee, but this claim is false. According to EPA data, Tennessee’s compliance with Clean Air Act regulations is not adversely affected by air pollution from neighboring States. In light of the evident falsity of his avowed rationale for protecting the Utility MACT, Sen. Alexander’s true motivations for opposing S. J. Res. 37 were inexplicable.

Last week, however, the mystery of Sen. Alexander’s support for the Utility MACT appears to have been solved. The Environmental Defense Action Fund announced on Tuesday that it will spend $200,000 on television advertisements in Tennessee thanking Senator Lamar Alexander for “protecting the children.”

Stop Whining about Pepco (because it’s your fault)

by William Yeatman on July 9, 2012

in Blog, Features

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Pepco has been getting a bum rap for its supposedly poor response to recent power outages. To be sure, I sympathize with anyone bereft of climate control for prolonged periods during a Mid-Atlantic summer, but this sticky situation is not the utility’s fault. If Pepco customers seek someone to blame, they should look in the mirror.

The cause of the controversial power outages was a rare “land hurricane” storm, which felled trees into power lines. Pepco’s critics claim that those trees shouldn’t have been there to begin with. In particular, they allege that Pepco for years has neglected its responsibilities to manage tree growth adjacent to its electricity distribution system. Pepco’s motive, according to the scapegoat-seekers, was to minimize costs, and thereby fatten its bottom line.

There are two big problems with this tidy narrative.

First, while it’s true that Pepco had every incentive to suppress expenditures on tree clearing, this is precisely what Maryland’s elected officials intended.

Allow me to explain. About 100 years ago, Progressive Party local politicians convinced themselves that electric utilities invariably consolidate into predatory “natural” monopolies. These progressives came to this conclusion despite the fact that electric utilities were competing furiously at the time in many municipalities. The ironic progressive solution to natural monopolies was…(wait for it)….a government-granted monopoly. In exchange for a state-certified monopoly “franchise” over a given service territory, utilities allowed state officials to set electricity rates. Thus, the electric industry for a century has operated under the thumb of the state. Not coincidentally, the electric industry hasn’t advanced technologically since the Progressive Era.

All 50 States eventually adopted this progressive arrangement. Moreover, they all adopted identical rate-setting mechanisms. Here’s how it works: For capital expenditures, like power plants or electric transformers, utilities are awarded a rate of return (i.e., a state-dictated profit), in addition to reimbursement of the original investment. For operations and maintenance (O&M) costs, however, state officials have taken a more jaundiced eye. Invariably, rate-setting for O&M costs are contentious—much more so than rate-setting procedures for capital costs. This is because O&M costs are much more ambiguous than large capital outlays, so there is more grey area over which to dispute. It’s easier for state regulators to object to O&M costs, and thereby “save” ratepayers money (and appease political masters), then it is for them to dispute capital costs.

So what does any rational utility do? It skimps on O&M costs, like tree clearing. Pepco shouldn’t be blamed for acting rationally in the face of Maryland’s backwards compensation system. To put it another way, don’t hate the player, hate the game. Or, better yet, change the game, by freeing the electricity market from the chains of socialism.

[click to continue…]

Sixteen House GOP Freshmen Forget Principles in Support of Wind Subsidies

by Myron Ebell on July 8, 2012

in Blog

Eighteen freshmen Members of the House of Representatives sent a letter last week to House Republican leaders urging them to “take up an extension of the Production Tax Credit (PTC) for wind energy as soon as possible.”  Sixteen of the eighteen signers are Republicans. House Majority Whip Kevin McCarthy (R-Calif.) also recently announced his support for extending the wind PTC, which is set to expire at the end of the year.

The signers of the letter were: Representatives Kristi Noem (R-SD), Rick Berg (R-ND), Tim Griffin (R-Ark.), David Rivera (R-Fla.), Rick Crawford (R-Ark.), Steve Womack (R-Ark.), Chris Gibson (R-NY), Robert Dold (R- Ill.), Jim Renacci (R-Ohio), Michael Fitzpatrick (R-Penna.), Cory Gardner (R-Colo.), Charles Bass (R-NH), Scott Tipton (R-Colo.), Jon Runyan (R-NJ), John Carney (D-Del.), Ann Marie Buerkle (R-NY), David Ciciline (D-RI), and Mark Amodei (R-Nev.).

House Republicans have made a great show of voting to reduce federal spending and of attacking programs that benefit crony capitalists.  The letter, which Rep. Noem circulated for signatures, shows how quickly Members of Congress can park their avowed principles at the door when the pork-barrel spending benefits their districts or an industry that provides significant campaign contributions.

This is especially true of the eight Republican signers who are members of the Republican Study Committee, a caucus of conservative Republicans that focuses on reducing federal spending and balancing the budget.  The RSC members signing the letter are Noem, Berg, Buerkle, Crawford, Griffin, Gardner, Rivera, and Tipton.

[click to continue…]

When Scientists Talk Like Lawyers . . .We Should Be Skeptical

by Marlo Lewis on July 6, 2012

in Features

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“I’m not saying it is global warming, but it’s what global warming would look like. It’s consistent with the kind of weather climate scientists predict will become more frequent and severe as greenhouse gas concentrations in the atmosphere increase.”

“It,” in the preceding, refers to the persistent heat wave affecting the Mid-Atlantic region and the derecho that uprooted trees, downed power lines, and deprived nearly a million households in the D.C. metro area of electricity and air conditioning. Warmists, or most of them, know they cannot actually link a particular weather event to global warming, but they’d like you to make the connection anyway.

This is standard rhetorical fare whenever extreme weather strikes somebody, somewhere on the planet. A commenter on Georgia Institute of Technology Prof. Judith Curry’s blog notes the resemblance to an old court-room trick:

Kind of like a lawyer asking a improper question and then withdrawing it, because all s/he really wanted was to put the idea in the jury’s mind.   [click to continue…]

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