Climate Change By Decree

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/13/AR2009071302587.html?referrer=emailarticle

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/31/AR2009053102077.html?referrer=emailarticle

I found myself confused last week when I read that leaders at the G-8 summit (plus China and India) in Italy had agreed on a climate deal. This basically involved "...embracing a goal of preventing temperatures from rising more than 3.6 degrees Fahrenheit..." which, while laudible, I find to be almost infinitely difficult to make happen - ie. how, exactly, are they going to do that? Can we "decree" that the temperature of the planet will be controlled?

Fortunately, I wasn't alone on being confused and Anne Applebaum has rescued me (attached) by pointing out that the world's leaders had once again failed to halt climate change by decree. She went on to point out that "The group could not agree on short term emissions targets, could not agree on how developing countries would be compensated for meeting those targets and, indeed, could not even decide from what baseline any targets would be calculated." This was a relief since there are actually scientists among us who report that, for the majority of this decade, the world has been cooling. But, I digress.

Back here in the U.S., Martin Feldstein, a Harvard economist and former Chairman of the Council of Economic Advisors points out (attached) that a proposed U.S. "cap-and-trade system" would have a trivially small effect on global warming while imposing substantial costs on all American households. The leading legislative proposal, the Waxman-Markey bill would reduce allowable CO2 emissions to 83% of the 2005 level by 2020, then gradually decrease the amount further. Overall, this would create a "market" for tradable permits where the cost to companies to buy them would be passed on in consumer prices.

Feldstein goes on to point out that the Congressional Budget Office recently estimated that the resulting increases in consumer prices needed to achieve a 15% CO2 reduction would raise the cost of living of a typical household by $1,600 per year. If this were all to happen, a 15% fall in U.S. CO2 output would lower global CO2 output by less than 4%.

My primary concern with this pending legislation is how does it effect economic growth and where will the very employment numbers that we have discussed in previous blogs go? Will this discourage other capital investment that could go toward innovation and job creation?

Returning to Anne Applebaum, she was also disturbed (as I was) at reading simultaneously about T. Boone Pickens deciding to postpone, until further notice, an investment in a big Texas wind farm. His perspective was that natural gas prices had fallen so low that once-promising investments in alternative energy didn't make sense. Sadly, wind energy is a clean technology and a business where unemployed auto workers, for example, can be retrained to produce the "spars" for wind turbines. These are places in the economy where clean energy, employment and economic growth can come together as a priority.

As Applebaum so brilliantly points out, "The truth is that carbon emissions will not be reduced by international bureaucrats, however well meaning, sitting in a room and signing a piece of paper. They will not be reduced by public relations campaigns or by Oscar-winning documentaries. Above all, they will not be reduced by a complex treaty that neither the United Nations nor anyone else can posibly supervise...They can, however be reduced by the efforts of entrepreneurs such as Pickens. If he and others can find viable ways to produce clean energy, then the problem will solve itself without the aid of a single international conference."

Perhaps "Energy Entrepreneurship" (like Pickens has displayed) deserves more emphasis than it's gotten thru tax and investment incentives. This year China is on track to pass the United States as the world's largest market for wind turbines - after doubling wind turbine capacity in each of the last four years. HSBC predicts that China will invest more money in renewable energy and nuclear power between now and 2020 than in coal-fired and oil-fired electricity.

Why can't we?