There has been some significant reaction to President Bush's energy policy proposals from last week's State of the Union speech. For example, Kevin Hassett argues in favor of a tax on carbon emissions and against ethanol subsidies. Greg Easterbrook praises Bush for calling for a raise in fuel efficiency standards in automobiles. Both of these solutions to energy strike me as statist and thus, to one extent or another, wrong headed.
Hassett's proposal is the worst. This site points out the harmful economic impact of carbon caps, which would have a similar effect as a carbon tax (Hassett wants to tax carbon so as to create an economic disincentive for the use of oil and coal). Carbon caps or taxes amount to a huge blow to the average household's budget. Hassett says that his proposal is the "text book" economic solution. But isn't the "text book" solution to allow the market to set the price? If people really wanted to lower their carbon output, wouldn't they do it by changing their habits? Or is that the more enlightened have the right to compel change through the taxing power of the state? It seems to me that people will show their preferences through their purchasing power. Sioux Falls Mayor Dave Munson seems to have a realistic view of the economic impact of carbon control.
Sioux Falls Mayor Dave Munson said he heard about the agreement only recently and is not sure South Dakota's largest city should sign on [to CO2 reduction plans].
"I think there is some worry about what it might do to the economy," he said. "Before you could commit to it, you would have to study what you'd have to do to get to that level."
Raising fuel efficiency standards seems less pernicious to me. Easterbrook points out that if Bush's proposals are followed, the average auto fuel efficiency will rise from 21 MPG to 31 MPG, a significant gain that might drop oil consumption as much as 20%. I just wonder what compromises in auto safety are required to make such a leap in fuel efficiency.
President Bush also suggested last week that we raise the amount in the Strategic Petroleum Reserve. This has the effect of taking large amount of oil off the consumer market, possibly raising price. It seems to me that the market has done its job so far. When price sky rocketed last year, production went up as well, along with the search for new oil fields. The result is a lowering of oil prices by about $20 a barrel from last summer. Also, SUV sales have plummeted as people search for more fuel efficient automobiles. As far as global warming, I tend to buy into the Blanchard thesis: there is nothing we can do to significantly lower the human component of global warming that will not destroy our economy. Technology is the solution to global warming, not economy destroying regulations. When the economy goes in the tank (so to speak), it won't be the rich oil "fat cats" that pay the price. It will be the hard working guys on the oil rig in the Gulf of Mexico who will be out of job.
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