CBO CLIMATE CHANGE CONSUMER COST ESTIMATES: JUST WRONG

CBO: Climate Change Consumer Cost Estimates: Just Wrong

After all these years of carefully observing government data and its continuous revisions, now we are being told by the Congressional Budget Office (CBO) that the climate change legislation before Congress for a vote today, championed by Congressman Henry Waxman of California, will cost consumers pennies a day. Common sense says changing an economy from a carbon dependent economy to a "renewable energy" economy will save Americans money in the "long-term." The old common sense quip my grandmother used to say was "in the long-term we are all dead." Who will be around in the long-term to hold the politicians and environmentalists accountable if they are wrong?

Leaving the conflicting analytics on both sides of the debate out for our purposes, I would like you to consider how such a sea change in energy will occur without totally rupturing our already tenuous economy. I am not talking in the abstract but rather about whether there will be "green" fuel to power our cars, boats, snowmobiles, four wheelers, etc.; energy to cool us in summer and keep us cozy in winter with less oil and coal use at virtually no change in price from our current circumstance. Wow, that is a mouthful.

For myself, I do not trust the politicians and special interests any more than I trust the large private sector banks or the same politicians who promised "affordable housing" for all. The difference is, of course, in the private sector businesses fail, greedy people go to jail, there are lawsuits. Where is the accountability in the public sector? With the uninformed and easily manipulated voter?

Affordable housing, affordable energy, affordable health care...government has never demonstrated taxpayer affordable anything when compared to the ability of uncontrolled market competition. Sure, markets have weaknesses but they also have "creative destruction" to purify themselves when they go awry. What does government have to hold it accountable? Uninformed voters who are easily manipulated by hollow political promises driven by special interests. Remember, I am the guy who supports taking away all business subsidies provided by government. In order for free markets to work, they have to be free of all government attachments.

The cost to consumers and the macro-economy of this Waxman Climate Change legislation will be enormous, beyond the comprehension of most people to adapt to. If not, why did Congressman Peterson demand that agriculture, a major emitter of greenhouse gasses, be exempted from the bill by having the fox guard the chicken coop rather than EPA? Our hope is that the Senate sees the coal/nuclear-provided light before unemployment hits 12-15%!!!

According to the EPA, the cap and trade policy has a relatively modest impact on U.S. consumers assuming the bulk of revenues from the program are returned to households.
– Average household consumption is reduced by 0.03-0.08% in 2015 and 0.10-0.11% in 2020 and 0.31-0.30% in 2030, relative to the no policy case.
– Average household consumption will increase by 8-10% between 2010 and 2015 and 15-19% between 2010 and 2020 in the H.R. 2454 scenario.
– In comparison to the baseline, the 5 and 10 year average household consumption growth under the policy is only 0.1 percentage points lower for 2015 and 2020.
– Average annual household consumption is estimated to decline by $80 to $111 per year* relative to the no policy case. This represents 0.1 to 0.2 percent of household consumption.
– These costs include the effects of higher energy prices, price changes for other goods and services, impacts on wages and returns to capital. Cost estimates also reflect the value of some of the emissions allowances returned to households, which offsets much of the cap and trade program’s effect on household consumption. The cost estimates do not account for the benefits of avoiding the effects of climate change.
– A policy that failed to return revenues from the program to consumers would lead to substantially larger losses in consumption.

Think about this last sentence for a minute. If the climate change legislation (Waxman-Markey) "failed to return revenues from the program to consumers would lead to substantially larger losses to consumption." In common sense speak, this is consumer cost increase. So, please ask yourself, if this program generates billions in revenue, what are its costs to implement? Your job? Your family's economic security?

Do you trust the politicians to continue to return the revenue to you to offset the costs for the next 20-30 years? I do not. All of this ignores the fact that if consumers do not feel the cost of the transition from a carbon-intense economy to a less carbon-intense economy what will force them to change their behavior to a more conservationist mode.

Finally, remember, when Medicare was awaiting Congressional vote in 1965, President Lyndon Johnson and most Congressional leaders promised long-term savings by insuring senior citizens. At that time they used the Social Security surplus to pay for the program. Since then, of course, in the "long-term" the medicare tax was imposed at 3% of income. Now Medicare is on the verge of bankruptcy and rather than fixing it, our leaders are inventing another "critical program" that, we are told will create millions of green jobs in the future and save Americans billions of dollars while "saving the planet." Steelworkers, oil drillers will retrain to become farmers, environmental scientists, and entrepreneurs! You betcha. That will happen shortly after I catch the state record crappie!

Remember the old adage, "Fool me once, shame on you. Fool me twice shame on me."

Cap and Trade: YOU, not someone else, are going to pay more, period.

Here is what this Common Sense Curmudgeon has been thinking about this weekend:

Let's think about cap and trade. Start at the bottom - the oil companies get hit with higher costs, so who do they pass that onto? Fuel companies get hit with higher costs on top of that and put the excess onto whom? Trucking companies who bring goods to stores charge more because their fuels are costing more, and that goes onto whom? Stores pay more for their goods to be delivered so the cost increases to protect their profits. Who is going to pay for that? YOU are.

It's pretty simple and easy to think through once you open your mind and think about everything that is going to increase in price for the consumer. Is every company going to absorb their own increases and take lower profits and/or pay their workers less, cut their benefits? Highly doubtful, don't you think? Who would want to do that? Would you want that to happen to you? Are you willing to pay this price for less carbon dioxide in the air?

So YOU are going to pay for it and if you can't figure that out yourself, take a look at the issue yourself and see if you see things differently. Even if you are the most dedicated environmentalist, friend of the earth and all of its creatures, cap and trade will not work because, in the end, most Congresspeople will not vote for something that will damage their state's economy or raise voter costs even if some believe that they can pin the increases on the old tried and true "business did it," it was someone other than us. So, while the politicians may pass something by the end of summer (50-50 chance), it will do nothing for the environment but it will cost most of us thousands in increased consumer costs per year. But I don't think you need someone else to tell you what is going to be happening over the next few years and beyond...but I will...prices are going to rise and rise and rise with little or no reduction in greenhouse gases.

Oh, and I have mentioned this ad nauseum: Wall Street, big business, and some environmentalists will all get rich on this post-mortgage, environmental-ponzi scheme. Remember, my friends on this blog have been telling you these things for months. Soon we will know, unless we tell our Congresspeople to kill this stupid idea while there is till time and the majority of Americans still have jobs and can afford groceries!

Goldilocks, Climate Legislation and Republican Engagement

In the story of Goldilocks and the Three Bears, Goldilocks, lost in the woods, comes across a cabin. In that cabin are three bowls of porridge, three rocking chairs, and three beds. She tests each of them and concludes that two of each is unacceptable; they are either too hot or too cold, too big or too small, too hard or too soft…but one bed, one bowl of porridge, and one rocking chair was “just right” and she enjoyed them.

I thought of this story as I read reports that the House Republicans were finally offering a climate bill of their own last week. From what I have heard, their proposal is no more “just right” than the Waxman-Markey bill, appearing to be too little, too late, (as opposed to the Waxman-Markey bill’s too much, too soon). Nonetheless, I am very glad that the Republicans are finally engaging on the climate issue.

Under the guise of addressing GHGs, the two bills do different things. The Democratic bill wrongly tries to re-engineer the economy through energy policy; while the Republican bill fittingly tries to achieve energy independence. Unfortunately, neither bill is likely to reduce GHGs.

But, just as Goldilocks had to pursue a trial-and-error process, so does Congress in its search for that “just right” climate bill that will set in motion GHG reductions at the lowest cost. They obviously haven’t found it yet but having the Republicans constructively engaged in this testing is heartening.

Republican engagement on climate is important for five reasons. First, I believe that climate change is real and this is not whether we do something but that the nations of the world do that “something” in a thoughtful, economic and deliberative way. I believe that Republicans can craft such a plan better than Democrats. Second, barring some dramatic change in the political landscape, eventually there will be legislation addressing GHGs and Republicans would be better off being a part of that parade then run over by it. Third, legislating, and politics in general, is a contact blood sport, and while it appears that victory stems more from numerically superior coalitions of disparate special interest constituencies, victory ultimately comes from superior ideas. So, if Republicans stay in the Uecker seats booing and not fielding a team of climate ideas, there’s no way to win either politically or legislatively.

Another reason for Republican engagement is that key constituency groups, especially businesses with national and international scope, need us. Whether we like it our not, in the absence of national climate legislation, states are undertaking their own climate initiatives - can you say “California?” This trend puts businesses in a growing box of mixed, competing and potentially very costly state-by-state regulation. Preemptive national legislation is their only pathway to rationality and if Republicans aren’t there to help them, then out of desperation they’ll turn to Democrats. That’s not good for them, the nation, or Republicans.

Finally, there are some very important, constructive ideas (like encouraging nuclear power) that will be orphaned if not championed by Republicans.

In sum, constructive Republican engagement and even leadership on the climate issue with our superior ideas, traditional skepticism of governmental solutions, and cautious fiscal sensibilities is what America needs on the climate issue. Hopefully, the recent proposal by House Republicans signals my team’s entrance onto the playing field to bravely test the options…but only settling for the yet-to-be-developed “just right” one.

The consumer deserves the whole truth on corn ethanol

Billy DeFrain’s outrageously inaccurate press release on behalf of the Nebraska Ethanol Board released June 10 is just another example of the corn-lobby-governmental disinformation campaign regarding the consumer costs of ethanol-diluted gasoline.

The corn ethanol advocates argue that the two most important points in favor of corn ethanol production are (1) energy independence and (2) fuel switching. Supply and demand microeconomics tell us that adding a new energy supply should reduce prices consumers pay at the pump. A look at the facts reveals something else.

First, it is imperative to understand that if we use corn to produce ethanol, less of it is available to feed the animals that we like to eat which increases pork, beef and chicken prices. Consumers do not win, farmers and ethanol producers do. While that may play in some parts of mid-America, it doesn’t reduce consumer cost, net. And net is what matters to those of us who buy food for our families and gasoline to get them.

Second, the North Carolina Cooperative Extension Service periodical AG-687, hardly the bastion of “big oil”, states, “A gallon of ethanol does not contain as much energy as a gallon of gasoline.” This means that ethanol is not as energy productive as unleaded gasoline (76,000 BTUs per gallon versus 114,000 BTUs).

According to Mr.DeFrain, public information officer for the Nebraska Ethanol Board, in the aforementioned press release, June 10, “If all the fuel sold in Nebraska in the past five years was E-85, Nebraskans would have saved $2.6 billion.” This outrageous, fantasy proclamation, flies in the face of scientific fact: E-85 causes a noticeable drop in fuel economy, meaning that the consumer’s vehicles must use more of it to travel the same distance than when burning 100% unleaded gasoline. The North Carolina Cooperative Extension Service estimates this drop to be in the 20-30% range, “depending upon the vehicle make and model.” Again, this is the result of the fact that E-85 contains 28% less energy than a gallon of regular gasoline.

A comparison of unleaded gasoline versus E-85 fuel economy values for all flex-fueled vehicles can be found at: http://www.fueleconomy.gov/. Check my argument out for yourself. I suspect that you will find the data enlightening.

In conclusion, our economy is suffering because too many of us trusted what we were told about mortgages for our homes from the vested interests who financially benefited from the hype and the government officials, at all levels, touting “affordable housing for all.” Now, the Nebraska Corn Ethanol Board and others would have us believe that corn ethanol will provide affordable energy for all. I, for one, will not be fooled twice!!!

The (Long) Road to Copenhagen

All negotiations begin with some positioning at the outset as parties try to gain early leverage to ultimately get as much of what they want as possible. There is positioning and then there is absurdity, which is the only word to describe China’s opening position in the run-up to Copenhagen where a new international climate treaty will be negotiated in December.

China believes “developed” countries should reduce emissions by 40 percent from 1990 levels by 2020. As for “developing” countries, they would be allowed to balance efforts to combat climate change with the need to develop. On top of that, China thinks “developed” countries should fork over 0.5 to 1 percent of their annual gross domestic product to help other nations cope with global warming and reduce greenhouse gas emissions.

First, let’s realistically deal with the idea of “developed” and “developing” countries. China is not Ethiopia. They are flush with cash and buying major foreign assets like oil and mining companies around the globe. They have accumulated over $1.5 trillion in U.S. currency reserves. This is not your father’s “developing” country.

Testimony before the Senate Foreign Relations Committee on June 4 makes it clear that not including China will render any international agreement meaningless because it won’t make a dent in global greenhouse gas emissions. These two snippets of testimony say it all.

“In 2006, China added 90 gigawatts of coal fired power capacity—enough to emit over 500 million tons of CO2 per year for 40 years; by comparison, the European Union’s entire Kyoto reduction commitment is 300 million tons of CO2.”

- Elizabeth Economy, Director for Asia Studies, Council on Foreign Relations

“[T]he current pace of migration of about 15 million people per year moving into cities is likely to continue for another 15-20 years. The resulting requirements for new power generation, building construction, transportation, education, health services, etc., means that, effectively, China has to build urban infrastructure and create urban jobs for a new, relatively poor city of 1.25 million people every month, and that will likely continue for the better part of the next two decades.”

- Kenneth Lieberthal, Visiting Fellow in Foreign Policy, Brookings Institution

I hope the Obama Administration does not appease China and holds a firm line in making sure everyone is accountable for making emission reductions. Otherwise, Copenhagen will simply be Kyoto II.

Prediction--No Climate Bill in 2009: Blame Game Obscures Lessons

It may be premature to predict the demise of federal climate legislation for the year, but I’ll take the risk and do so anyway: the overwhelmingly Democratic Congress will not pass climate legislation this year. This prediction seems to fly in the face of President Obama’s desires, words of congressional leaders, the deceptive “progress” in the U.S. House of Representatives, and candidly, my personal desires.

This makes the blame game for the defeat the next big thing.

Obviously, the Democratic leaders will blame Republicans, business interests who didn’t agree with them, and conservative anti-climate naysayers. Some of this will be accurately placed, but most will simply be political blame game trash-talk. Unfortunately, this blame game and political posturing will obscure the real reasons of the failure and the lessons that could be learned that would result in a bill in 2010 or more likely 2011.

Real reason #1 of congressional failure on climate is that the President’s driving motivation for pursuing climate legislation is to raise revenue. His secondary motive appears to appease his environmental constituencies. The next motivation seems to be to have something, (anything?) for when the world’s climate negotiators meet in Copenhagen in December. Achieving significant GHGs in a low cost way is a distant fourth. These mixed up priorities doomed climate legislation from the beginning.

Real reason #2 of congressional failure on climate is that dealing with GHGs if done wrong can be very, very, very expensive. And, wrong and expensive is how the U.S. House bill seems to be going. Thus, while some banks may be too big to fail, some legislation is too big to not fail. It tries too much, too quickly at too great an expense.

Real reason #3 of congressional failure on climate is that GHGs are a global problem that requires a global solution. An international solution is needed before national solutions will be environmentally effective. Just as it is unwise for a single state or region to unilaterally address their GHGs, no nation (even one as big as the USA) can tackle this issue by itself.

Real reason #4 of congressional failure on climate is that successfully tackling the issue is very, very hard and needs the Congress’ undivided attention. And, that’s just not happening. Besides energy and climate issues, the President is asking the Congress to deal with health care, banking, education, the closing of Gitmo, budget bills, and of course, the nomination of Judge Sotomayer to the Supreme Court. These issues will distract the Congress, preventing it from focusing on the climate.

Real reason #4 of congressional failure on climate is that there are just too many substantive and political balances that need to be achieved. For example, Congressmen Peterson and Walz have already expressed their concerns with the House climate bill because of how it treats ethanol and agriculture. Then there are the balances between the House and Senate.

These are the real reasons that there will be no climate bill this year. Political gamesmanship and special interests may exacerbate these fissures, but they do not cause them. And, there are some lessons to be learned from them:

Lesson #1. The climate bill has to be about reducing GHGs in the easiest, cheapest manner. It cannot be about revenue-raising, appeasing constituents, or “punishing” emitters.

Lesson #2. The Congress should consider taking a deliberative and iterative approach to GHG reductions. First, promote more efficiency; then increase the use of renewables. Third, set a reduction goal; and then building upon these actions take the time to develop the lowest cost, simplest ways to achieve that reduction goal.

Lesson #3. Instead of rushing (and failing) to put together Potemkin climate legislation in advance of the Copenhagen meetings, our national leaders should focus on getting an effective international agreement that includes all the countries of the world. Once that is done, the USA will know what it needs to do and know that other countries will be doing what is necessary.

Lesson #4. If President Obama and the Congress need to recognize that they cannot and ought not do everything at once. They need to set priorities.

I could be wrong. The Congress could still pass climate legislation this year. In which taking credit (instead of blame) becomes the main game. But I doubt it.

Supporters of Corn-Ethanol Reeling...

When it comes to the core of environmentalism, there are no sacred cows. After years of support for corn ethanol, many environmentalists have "turned tail" on the corn farmers over land-use impacts.

Supporters of corn-based ethanol are reeling in response to federal climate change legislation that will punish carbon emitters, including the agriculture industry. They worry that policies like cap and trade and low carbon fuel will destroy their tenuous, taxpayer-subsidized market and lead to the corn ethanol industry being permanently put out to pasture. Most scientific data suggest they are well justified in their concerns... There are many outstanding, credible, scientific studies of the benefits of cellulosic ethanol over corn ethanol.

Here are a few more high-quality scientific studies:

http://www.sciencemag.org/cgi/content/abstract/319/5867/1238

Originally published in Science Express on 7 February 2008 Science 29 February 2008: Vol. 319. no. 5867, pp. 1238 - 1240 DOI: 10.1126/science.1151861 Reports Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change Timothy Searchinger, 1* Ralph Heimlich, 2 R. A. Houghton, 3 Fengxia Dong, 4 Amani Elobeid, 4 Jacinto Fabiosa, 4 Simla Tokgoz, 4 Dermot Hayes, 4 Tun-Hsiang Yu 4

Most prior studies have found that substituting biofuels for gasoline will reduce greenhouse gases because biofuels sequester carbon through the growth of the feedstock. These analyses have failed to count the carbon emissions that occur as farmers worldwide respond to higher prices and convert forest and grassland to new cropland to replace the grain (or cropland) diverted to biofuels. By using a worldwide agricultural model to estimate emissions from land-use change, we found that corn-based ethanol, instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years. Biofuels from switchgrass, if grown on U.S. corn lands, increase emissions by 50%. This result raises concerns about large biofuel mandates and highlights the value of using waste products.

1 Woodrow Wilson School, Princeton University, Princeton, NJ 08544, USA. German Marshall Fund of the United States, Washington, DC 20009, USA. Georgetown Environmental Law and Policy Institute, Washington, DC 20001, USA.2 Agricultural Conservation Economics, Laurel, MD 20723, USA.3 Woods Hole Research Center, Falmouth, MA 02540–1644, USA.4 Center for Agricultural and Rural Development, Iowa State University, Ames, IA 50011, USA.

Corn-Based Ethanol Flunks Key Test
http://www.sciencemag.org/cgi/reprint/324/5927/587.pdf

Biofuel Researchers Prepare To Reap a New Harvest
http://www.sciencemag.org/cgi/reprint/315/5818/1488.pdf

Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change
http://www.sciencemag.org/cgi/reprint/319/5867/1238.pdf

On a macro level, the genesis of this government subsidy and preferential treatment program is but one of multi-thousands of examples of how government interference in the private market place has externalities rarely thought through at the time of group-euphoria and enactment. Regardless of what the lead California and Massachusetts politicians and their following say, cap and trade will have huge financial impacts on consumers and producers.

Your thoughtful, reasoned reactions are always welcome.