June 26, 2013

By Matthew Roy

The President’s Climate Action Plan was released yesterday and, not surprisingly, President Obama is aiming to get government more and more involved in America’s economy in his response to climate change.  His proposed way forward is more billion-dollar spending projects, invasive regulations, and green energy favoritism.  But behind all that desire to reduce carbon emissions is the market, which has driven the biggest reductions in emissions, something the President claims to support.

The President thinks only government can drive change.  This is a predictable argument from the president, driven by ideology and consistent with his legacy of expanding government.  It also matches the desires of many environmental groups that cooperate with government regulators and use their power as a tool to achieve their goals.  The government’s power can be an attractive tool for environmentalists who want to force the country to adopt their vision.

The federal government has a long history of entangling itself in the energy market, with approval and support from environmental groups, to implement costly restrictions and controls. Clean Air Act regulations, renewable energy subsidies, and regional haze rules are just a few examples of environmental policies that hurt the economy, drive up energy costs for consumers and sap businesses of billions of dollars.  The Environmental Protection Agency (EPA) expects compliance costs for Clean Air Act rules alone will cost $65 billion in 2020.

New EPA carbon dioxide (CO2) standards for new electricity-producing power plants, referenced in the President’s Climate Action Plan, will all but prohibit the creation of any new coal plants.  If coal plant owners make any attempt to modernize their facilities to reduce CO2 output, but fail to meet the levels demanded by the EPA, they will be shut down.  Regulation of this kind is counterproductive because it discourages investment, modernization and site maintenance.  Coal power provides nearly half of America’s electricity, so hyper regulation not only stymies a productive industry, but keeps old, inefficient power plants outdated and emitting more greenhouse gases than they otherwise would.

On the other hand, the free market has—with no overt environmental concerns—promoted a market-based path to reducing carbon emissions.  By supporting exploration and innovation in the energy sector, specifically natural gas development from shale formations, the country has seen a voluntary transition toward the cleanest economically-viable fossil fuel yet discovered.

Technological advancements in horizontal and directional drilling have brought natural gas into the energy mainstream and made America the world’s leading producer of this clean resource.   From 2005 to 2012, total domestic electricity generated from natural gas increased to over 30% of the nation’s electricity supply, while wellhead prices dropped over 34%.  The U.S. Chamber of Commerce calculated that this shale energy development created $238 billion of investment in 2012 and 1.7 million jobs over the past few years alone.  Scientists, engineers, and entrepreneurs, working together without government directive, discovered a way to produce more power for less money with fewer emissions, while strengthening the economy.  That is the power of the market.

Compare the economic and environmental improvements from natural gas to the government-backed renewable sources.  For all the expensive subsidies, tax breaks, and regulations favoring renewable energy, production from these sources has barely increased at all over the past decade.  The Environmental Law Institute calculated that $29 billion worth of subsidies and tax expenditures were spent to encourage renewable energy development from 2002 to 2008.   Latest data from the Energy Information Agency shows that wind, solar, and other renewables, despite substantial federal aid, combined produce a mere 2% of America’s energy.  For the American taxpayer and energy consumer, these government funded green energy schemes are all pain, no gain.

In a way, it is understandable why someone might think more government is the answer.  It has the monopoly on force and with that power it can impose conformity.  What government lacks, however, is a monopoly on the mind.  It can force people to comply, but it cannot force people to think, invent, innovate, discover, initiate, or risk.  The great challenges we face in the future, both economic and scientific, will not be overcome by obedience to government rules.  Free thinking and cooperating individuals will find a way forward, as has always been the case in free society.  Ten years ago, no one could have predicted the economic and environmental successes natural gas has already reached.  Likewise, no one today can foresee what ingenious innovation will make some renewable source efficient enough to overtake the energy market.  This unpredictability is what makes the free market approach hard to argue, but that is no reason to embrace a path of less freedom that has proven time after time to fail.

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