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William O'Keefe
CEO, George C. Marshall Institute

William O'Keefe

William O'Keefe is CEO at the George C. Marshall Institute, a think tank that promotes better use of science in public policy. He is a former COO at the American Petroleum Institute.

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KGL: "Kill the Good Life"

We may never know whether there was broken faith or whether Senator Graham simply went wobbly. Whatever the reason, the outcome may be no climate bill this year. If that is the case, it is unlikely that there will be one next year. That outcome would be good for the American people because the Senate seems to be wedded to a fatally flawed approach: cap and trade.

No matter how the three senators tried to spin what they were doing, the net effect would have been to create scarcity and make the price of energy higher. Government action which raises prices directly or indirectly is a form of taxation even if it is not recognized by the IRS.

Senators Graham and Kerry have gone to great lengths to assert that they had not intention of raising the price of gasoline through a linked carbon fee. What did they expect would happen to gasoline prices when a carbon fee (tax) was imposed? You don't have to have a PhD in economics to know that if you want less of something consumed, you raise its price and if you want more consumed, lower it. If Congress is serious about reducing carbon emissions, carbon will have to become more scarce and hence more costly. And, until a low carbon substitute is found that is cost competitive, that means that carbon based energy will have to be more expensive to provide the incentive for investing in alternatives and new technology.

The problem with the KGL legislation, which might have been titled "Kill the Good Life" if it was given life, is that it is based on the flawed cap and trade concept. The EU's emission trading system has shown that it doesn't work. Emissions are not going down but prices are going up and there have been an unending number of get rich schemes instituted by those who can game the system. There are two major reasons why cap and trade won't work. First, there are no commercially viable alternatives that can replace fossil energy any time soon on the scale needed to support strong economic growth. Second, the caps are arbitrary and have no connection with economic, energy, or technology realities. Cap and trade is a complex system that enriches traders and those with the resources to exploit it.

In 2005 and 2007, the Senate passed energy legislation that had dozens of provisions that promoted energy efficiency, new technologies, and R&D into new energy technologies. They are working. Actions taken over this decade are the reason that emissions here have grown less than those in many EU nations. If the Senate wants to do more, it should begin with a clear understanding of what is doable and the consequences of actions.

The challenge of reducing carbon emissions without hampering economic growth is a long term one that requires long term action; not arbitrary mandates like 17 percent below the 2005 level by 2020. Achieving that goal would require annual reductions on the order of 2 percent annually assuming reasonable levels of economic growth. Looked at another way, it would require removing one gigaton of carbon from our energy/economic system. That would be the equivalent of doubling the miles per gallon of every car on the road or building over 100 nuclear power plants. Who believes that is realistic? Over the last 2 years, carbon emissions have gone down by about 2 percent each year as a result of the worst recession in decades. That is a steep price to pay for reductions.

The answer to the carbon emission challenge is not arbitrary caps. It is innovation, new technologies, and getting them in place as quickly as practical.

By William O'Keefe  |  April 27, 2010; 10:10 AM ET Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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"... the caps are arbitrary and have no connection with economic, energy, or technology realities."

No, the price of coal and oil do not reflect the future or present damage they cause. Current prices have no connection to environmental reality. Caps or taxes are attempts to take this cost into account.

"The answer to the carbon emission challenge is not arbitrary caps. It is innovation, new technologies, and getting them in place as quickly as practical."

But how to pay for this? How to decide which technologies to invest in? That's what C&T does: redirect resources. If corn ethanol is a net CO2 increase, a C&T market will punish it no matter how good their lobbyists are.

Posted by: mike_midwest | May 2, 2010 6:24 PM
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