Government by King Kanute and the Non-Elected

President Obama is scheduled to lay out his vision for what the US must do to “lay out my vision for where I believe we need to go: a national plan to reduce carbon pollution, prepare our country for the impacts of climate change, and lead global efforts to fight it,”

The steps that he plans to announce involve increasing energy efficiency, reduced emissions from power plants, new bio-fuels, and new sources of energy.

Like King Kanute who believed that he could command the seas, President Obama seems to believe that he can command new technologies and new fuel sources. To achieve his goals, he will command EPA to use it regulatory authority under the Clean Air Act. EPA has no history of simply nudging technologies or issuing regulations that are cost-effective.

The President and his apparatchiks simply believe that they are endowed with the power to command new technologies and they will magically be developed. The government has been trying this approach for 40 years and it has failed. Doing the same thing over and over and expecting a different result is one definition of insanity.

Congress a few years ago commanded that the nation produce 32 billion gallons of bio-fuel by 2022. According to this mandated schedule, around 13 should be being produced while the mandated goal is 15 billion. The short fall is being made up by charging refiners a penalty for not using something that does not exist. For two years, EPA has been promoting the idea of raising the ethanol limit from 10% to 15% even though doing so would cause numerous engine and distribution problems. Congress has also taken actions to promote wind, solar, and electric vehicles all of which have fallen short of government goals because of cost and technology limitations.

The lesson of the past is that technology mandates don’t work and their unintended consequences cause serious economic harm.

The boom in natural gas production, resulting from private capital and technology, is leading to an increase in its use and a reduction in emissions of CO2. The President’s idea to further restrict power plant emissions may force utilities to move faster in converting older plants and building new ones but in doing so there are two consequences that are beyond question. First, scarce capital will be misallocated from potentially higher valued uses, such as lowering the cost of nuclear power. Second, there will be higher prices to consumers. Higher electricity prices will be a regressive tax on the economically disadvantaged and will slow the growth of energy intensive industries. Anyone who doubts the economic impact only has to look at the EU experience.

Technology is a slow and uncertain process that involves a great deal of trial and error and serendipity. What the government should do is not mandate results but make greater R&D more attractive to the private sector and better focus its sponsored research.

The President’s latest initiative is nothing more that pandering to the zealots in the environmental community. The irony is that he is about to launch a major initiative at the time when the theory supporting the climate orthodoxy continues to unravel. But, actions based on science and understanding take a back seat to ideology.

While commentators may focus on the details of his speech tomorrow, it would be better to think strategically about his intent. By putting a focus on hammering coal fired power plants with emission limits that will probably go beyond any available, cost-effective technology, his real game plan may be to inflict enough pain that utility CEOs will run to Congress pleading for a carbon tax. Anyone who thinks that a carbon tax is a cost-effective way to reduce carbon emissions should read a recent George C Marshall Institute paper, A Skeptical Look at the Carbon Tax by James DeLong. It lays out in detail why a carbon tax will not be simple, easy to implement, or easy to limit.