The highly publicized – first by the White House, now by the media – “Green Movement,” which subsidizes alternative energy while strangling hydrocarbon-based energy, is a near-perfect example of why government is the worst source for making generalized economic policy.
First, on broad-stoke issues. Assuming that we need to rid ourselves of hydrocarbon-based energy, and that we must do it now, politicians offer nothing substantive beyond the statement itself. The assumption is accepted as axiomatic. There should be a rational conversation on both halves of that assumption – that change is necessary, and that change must occur now.
Assuming that we must wean from hydrocarbon-based energy, given the current state of alternative energy technology, how long will it take for viable alternatives to be in a position to replace hydrocarbons for transportation, electrical power generation and winter heating without severely stunting GDP, all other things being equal? In other words, how long do we have to ramp-down oil and gas use? Again, two parts – how long will it take, and how much will it cost?
Government is functionally silent on both parts. In public, politicians act as though we can do it tomorrow if we just let go of gasoline and incandescent light bulbs; and, of course it will cost more, but it’s worth it. In reality, they are clueless on the first part and indifferent to the second.
We have a test-case for following the administration’s blueprint for rapid adoption of existing alternative energy sources: Spain. Europe’s current policy and strategy for supporting the so-called “green jobs” or renewable energy dates back to 1997, and has become one of the principal justifications for [our] “green jobs” proposals. Like politicians everywhere, the Spanish government phased-in their proposals over a five-year period, so it wasn’t really in effect until 2002. How did “green jobs” do? In 2002, unemployment is Spain was 11.3% – normal for heavily socialized and taxed Europe – and in 2008 (the year that the global recession hit in November) it was 13.9%. It is now over 20%.
Turns out that a rush to “Green Energy” cost the conventional economy 2.1 jobs for every “Green” job created. Everything touched by the “Green Economy” rose in cost. Spain is now functionally bankrupt (next in line after Greece). Just when they need to return to oil and gas to reduce costs, their dismantled hydrocarbon sector is in no position to resume supplying oil and gas at pre-Green levels, and they can no longer afford to import enough to take up the slack. Spain’s energy sector has turned gangrenous.
“No matter,” says our administration, “we’ll do it better.” The early signs are not encouraging.
First, we mandated that ethanol be blended into gasoline in the US, and subsidized its production from corn – “Brazil has almost completely transformed their automotive use over to ethanol-burning cars,” we were told. The subsidy made it more profitable to grow corn to burn than to grow corn to eat, so other crops were ignored to plant more corn, meaning that our foodstuffs exports plummeted, causing increased hunger and food riots in south Asia and Indonesia (and, incidentally, increased trade deficits). Other users of ethanol, mainly the plastics and pharmaceutical industries, find one of their basic feed stocks suddenly scarcer, raising their cost of production, raising their price to consumers. This “let’s burn food” policy is now recognized as a misstep, but the agricultural states who benefit from the subsidies won’t readjust their practices back toward growing for food and export, and their congressional delegations won’t vote to end the subsidies. In other words, we’re stuck with a poorly thought-out policy that is costly and dysfunctional.
After the West Wing took over General Motors, it saw a two-birds-one-stone opportunity if it insisted that Chevrolet rush its Volt electric car out as a hybrid, giving buyers a $7,500 rebate. The car, a converted $18,000 Cruze, costs ~$40,000 after the rebate, doesn’t perform as well, and has sold fewer than 8,000 (GM had estimated 10,000 cars sold by the end of 2011). Add to that, National Highway Safety Board testing has resulted in three battery pack fires after side-crash tests. All Volts have been recalled for adjustments to the liquid-cooled batteries, and loaners given to owners who request them. Total cost of this hasn’t been released, but the math is fairly straight forward – research and development of the fix, plus dealers’ time in applying the fix, plus rental cost per diems for those requesting a loaner. It will be in seven figures.
And of course, there’s Solyndra, Beacon Power, and Ener1 bankruptcies, costing over $660 billion with no successes to show for God know how much more taxpayer money. All of these examples – ethanol, GM and solar/biofuels/batteries – show what has been widely known all along: politicians are abysmal at picking winners and losers in the marketplace. They don’t make business or economic decisions, they make political ones.
On the other side of the equation, EPA is, as I write, formulating regulations that will render coal mining and coal-generated electricity non-profitable far faster than we can replace them. The administration’s plan for forcing the market to adopt inferior technology is to outlaw what works, making available energy more expensive than the experimental sources it favors. The net losers? Us – the people who use energy in their daily lives, or use the things that use energy in their production and transportation (read: everything).
Any sane examination of the energy problem would seek a way to increase private research and development in alternative energy, while expanding domestic oil and gas production to bridge the gap until reliable, cost-effective new energy sources are brought on-line, and updating our fragile electric grid which simply can’t add America’s cars to existing industrial and domestic electricity use. None of this is finding its way into this administration’s thinking.
Regardless of the goodness of the intent, the execution of this administration’s energy policy is profoundly wrongheaded in demonstrable ways, and will result in quite predictable and profoundly costly failure.