Europe is a Poor Model for Global Warming Policy

| by FREE

Several Bozeman friends have traveled to Washington DC to support legislation ostensibly designed to reduce carbon emissions and speed our transition to a green energy future. They are convinced that this can only happen through government intervention. Perhaps. But I'm skeptical. Here's why.

Europe as a model for U.S. energy policy?

Europe's promotion of green energy has come at a high cost and yielded few environmental benefits. By next year, Germany will have spent $73.2 billion over a decade subsidizing solar power. Yet solar provides only 1 percent of the country's electricity. It should come as no surprise that Germany is building coal power plants to meet growing demand. (A note to Greenpeace: if you successfully shutter existing German nuclear plants, you're making an explicit decision to dig, shovel, and burn massive amounts of the dirtiest fuel on the planet)

Denmark, with more wind turbines per capita than any country in the world, still has not been able to displace the carbon emissions of a single coal-fired plant. A wind farm of 2,500 turbines can theoretically offset the emissions of one large coal or nuclear plant. Unfortunately, it cannot functionally do so.

Green jobs

Advocates argue that congressional legislation "could create 13,000 jobs in Montana by 2020, ... increase average household incomes in the state, ... create 918,000 to 1.9 million new jobs nationally, and increase national GDP by $39 billion to $111 billion...." While such employment projections sound impressive, they are exaggerated and made without considering the loss of jobs in carbon intensive sectors of the economy.

The entire green jobs model is built on the inefficient use of labor. Using labor efficiently is important because producing the same good with less input not only makes it more affordable, but also makes financial and physical resources available for other profitable opportunities. (No one seriously advocates getting rid of tractors to boost agricultural employment.)

U.S. competitiveness

Energy Secretary Steven Chu laments that "99 percent of the batteries that power America's hybrid cars are made in Japan. We manufactured more than 40 percent of the world's solar cells as recently as the mid-1990s; today we produce just 7 percent." Secretary Chu, please explain how using more expensive U.S. products in place of cheaper, high-quality, foreign-made ones will help create jobs or improve the economy. Will Denmark or Japan refuse to sell us wind turbines or hybrid cars?

Chu's fear of "dependence on foreign products" is essentially a plea for a
protectionist national industrial policy. Whenever nations have adopted such policies pain and misery follow - especially for the poor. Only a few special interests reap the benefits.

If green technologies have the potential to yield attractive profits, then U.S. firms will enter the game. Witness Exxon Mobil's recent $600 million investment in algae-based biofuels. (They are, after all an energy company.) If a technology is not economically competitive, no amount of public subsidy or special political favors will make it so.

Alternatives to the status quo

The Obama administration, like the Bush administration before it, recognizes the Kyoto treaty on climate change as a technical and political failure. Unfortunately the climate legislation under consideration in Congress is a clone. It's best understood as a carbon tax combined with a massive corporate welfare program. If passed it will provide zero environmental benefits while harmfully distorting energy markets.

A far better alternative is to gradually phase in a tax on carbon, while eliminating taxes in other areas. The economic logic supporting this is simple, widely endorsed, and will work.

Further, there is a credible body of serious work that explores alternative approaches to domestic and international climate change policy. (I provide links to some of them in the online version of this column on FREE's website.) I hope my friends will study these and provide alternatives to the status quo.