Green Is As Green Does

by Don Boudreaux on April 12, 2008

in Energy, Environment, The Profit Motive

Today’s edition of the Wall Street Journal contains several excellent letters on the alleged desirability of using government to promote "green" technologies.  Here are the first three of these letters:

Fred Krupp’s op-ed "Climate Change Opportunity"
(April 8) overlooks what most climate change skeptics are skeptical of:
government’s ability to effectively regulate the economy. If there is a
way to make money from alternative energy sources, the market will find
it. There is no need for bureaucrats to lead the way. Government
regulations at best distort the market to benefit politically favorable
(read "green") industries, and at worst create unintended consequences
that increase the cost of energy and energy innovation. Congress
doesn’t need to act in order for energy efficiencies to be realized by
business; it needs to stay out of the way.

David Smith
Boston

In Europe, consumers pay
up to $9 a gallon for gasoline, in part because European Union
governments tax gasoline at rates of $2 to $3 a gallon and more. What
most people don’t realize is that gasoline taxes are implicit carbon
taxes. Taxing gasoline at $1 a gallon is roughly equivalent to taxing
the carbon dioxide emissions from gasoline at $100 per ton. So,
European motorists are paying carbon dioxide penalties of $300 or more
per ton. That’s about six times higher than the maximum estimated
carbon permit price under the Warner-Lieberman cap-and-trade proposal.

Yet where in Europe is
the miracle fuel to replace petroleum? Where are all the zero-emission
vehicles? Europe is not one mile closer than we are to achieving a
"beyond petroleum" transport system. In fact, from 1990 to 2004, EU
transport sector carbon dioxide emissions increased by almost 26%.

Mr. Krupp and other
cap-and-trade advocates ignore the main lesson of the failed Synfuels
program of the 1970s, memorably expressed by MIT’s Thomas Lee, Ben Ball
Jr. and Richard Tabors: "If a technology is commercially viable, then
government support is not needed, and if a technology is not
commercially viable, no amount of government support will make it so."

Marlo Lewis
Senior Fellow
Competitive Enterprise Institute
Washington

The Environmental
Defense Fund’s president says he is simply trying to lower the cost of
adapting to climate change. I’m suspicious. When environmentalists
wanted to save the spotted owl, they told us that economic costs should
not be a factor in that decision. When they wanted to save salmon by
demolishing dams, they told us that cost should not be an issue. When
they wanted to protect Alaskan wilderness, they said that energy costs
should not be considered. Now, suddenly, they are all about saving us
money. Either they have changed the way they think about the
environment, or they want to control how I live my life, using any
argument. That’s handy.

Bill Conerly
Chairman

Cascade Policy Institute

Lake Oswego, Ore

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{ 13 comments }

spencer April 12, 2008 at 1:01 pm

Interesting use of meaningless data.

What does the fact that European emission rose 26% from 2000 to 2004 tell us? Probably all it tells us is that the European economy was growing fast in that period.

Why doesn't he try using a statistic that actually tells us something, like a comparison of European to US emissions per passenger and/or fright mile? If what I learned in Econ 101 is correct we ought to see that European emissions per passenger mile is less then in the US. After all, the GMU economics department is all for congestion pricing because it supposdely will reduce congestion. Doesn't the same principle apply to emissions?

Sam Grove April 12, 2008 at 6:53 pm

The question posed by Marlo Lewis after noting those statistics is:
Yet where in Europe is the miracle fuel to replace petroleum?

How does your post address that question?

brian April 13, 2008 at 5:06 am

1) The miracle fuel in Europe that replaces petroleum? Isn't that a stupid question? If it was in Europe, it would be adapted in the US.

2) Besides, France has the most efficient nuclear power in the world, which is their main source of electricity with minimal effect on the environment.

3) Marlo Lewis seems to be implying that the taxation of fuel in Europe doesn't distort the economy. Wouldn't that be a good thing, according to him and folks from this site?

4) Have these people never taken economics? The market will underprovide researching alternative sources of energy because of the externalities.

5) Cornerly is cherry picking arguments from multiple different groups and lumping them together. I'm sure the folks who don't think we should take into account the economic cost of owls and dams surely don't think we should take those costs into account in the case of climate change. But those are the radicals. How about listening to the common sense supporters of environmental policy, who use the power of economics to determine the best policy?

6) I never bought the "yes a carbon tax would be the best solution, but we shouldn't do it because government wouldn't do it right" argument. It's akin to saying that we shouldn't deregulate industry because the deregulation process will be skewed to favor politically connected industries. Just think of all the deadweight loss associated with keeping the status quo when it's clear that at least a small amount of deregulation and a carbon tax will be better!

Sam Grove April 13, 2008 at 11:26 am

Marlo Lewis seems to be implying that the taxation of fuel in Europe doesn't distort the economy.

The point being that, supposedly, when the price of petro is high, even artificially high, the market should be stimulated thereby to come up with alternative means of powering transport.

The absence of a lower priced alternative in Europe illustrates that the holy grail replacement for petrol hasn't arrived yet, despite the distortion of high taxes.

Sam Grove April 13, 2008 at 11:29 am

close bold

Sam Grove April 13, 2008 at 11:31 am

I am frequently amazed at how often obviously smart people miss the point.

Sam Grove April 13, 2008 at 11:59 am

Bill Conerly's point:

The environmental left, emphasis on the 'left', will make any argument they think will advance their agenda, any argument at all, to the point of misrepresenting their actual position.

"yes a carbon tax would be the best solution, but we shouldn't do it because government wouldn't do it right"

I don't see that argument being made in any of the letters. Straw man.

brian April 13, 2008 at 1:31 pm

Sam:

I know no one made that argument, and I wasn't trying to say one of them did. I simply expected that to be a response to my post, so I preempted it. Feel free to ignore that then.
The point being that, supposedly, when the price of petro is high, even artificially high, the market should be stimulated thereby to come up with alternative means of powering transport.

The absence of a lower priced alternative in Europe illustrates that the holy grail replacement for petrol hasn't arrived yet, despite the distortion of high taxes.

Exactly. So what has failed us here? The taxes? Or the market that's supposed to generate the new alternatives?

I believe the market will come up with something better if people have to pay for the costs they inflict on others (that is, internalize the externalities). But this will take time, and the fact that it hasn't happened yet does not disprove standard economic theory, which seems to be what Marlo Lewis's argument (that taxes don't affect the incentives to avoid them) requires.

If I haven't been clear, here's how I see Marlo Lewis's argument. There are high petrol taxes in Europe; there is no good alternative to petrol in Europe. Therefore, the market doesn't respond to these price singals by finding ways to avoid taxation, making petrol taxes an ineffective policy tool. To anyone who knows any economics, that argument should sound downright silly.

Eric H April 13, 2008 at 2:59 pm

The market will underprovide researching alternative sources of energy because of the externalities.

Which externalities are those? IIRC, kerosene was developed as an alternative to town gas and whale oil. Also, windmills were in wide use before the REA.

The existence of externalities does not preclude all activity; it merely circumscribes the activity.

Sam Grove April 13, 2008 at 4:36 pm

If I haven't been clear, here's how I see Marlo Lewis's argument. There are high petrol taxes in Europe; there is no good alternative to petrol in Europe. Therefore, the market doesn't respond to these price singals by finding ways to avoid taxation, making petrol taxes an ineffective policy tool.

My take is that higher prices in Europe have not caused Europe to take the lead over the U.S. in development of alternative energy, suggesting that the break though has not been in the offing just waiting for profitability. Lewis elucidates this point in the last paragraph of his letter.

Hammer April 14, 2008 at 10:19 am

One problematic assumption in the arguments here is that there is some reasonably low breaking point after which an alternative fuel will pop out. We don't know whether it will take 5, 10 or 20$ a gallon gas to produce enough greed to prompt the production of an alternative fuel. It might only require 2$ a gallon gas coupled with the notion that this alternative fuel craze is not just some government induced fad.

My guess is the latter. When we are actually short on oil and not just short on government allowances on drilling and processing, we will see much focus on the long term replacement of oil. No one wants to spend years developing an alternative fuel only to have the Fed open up the Alaskan north shore and Gulf Coast to drilling while allowing for many new nuclear plants to be built. An alternative fuel is needed for the long run, but the short run till then is still pretty bloody long, and folks need to eat, after all.

Sam Grove April 14, 2008 at 3:26 pm

I'd like to place a bet on nanoscale electrostatic storage.

Eric H April 19, 2008 at 10:44 am

"Yet where in Europe is the miracle fuel to replace petroleum? Where are all the zero-emission vehicles?"

This is misdirection on Mr. Lewis' part. High prices on fuel will cause distortion, but without necessarily forcing the development of alternative fuel. After all, what *consumers* want is not a substitute fuel, but a substitute for expensive transportation. Europe has that in droves.

First, public transport tends to be very good there, with options for buses, trains, subways, and so on. You can always carpool and achieve higher efficiency per passenger-mile, but I believe that you also see consumers driving smaller cars, motorcycles, and mopeds in much higher proportions than in the US. Last I checked, a bicycle is a zero emission vehicle. There is another substitute which won't show up at all in transport figures: you can simply live closer to your place of work. In dense Europe, this is likely.

You can call these adaptations "distortions" if you must, but the use of the word distortion implies (1) a deviation from the optimally efficient and (2) assumes the free market was delivering that ex ante. However, that seems unlikely if you are willing to accept any of the following:

* Pollution (particulates, NOx, SOx, noise) from cars is a public bad
* Global warming is a possible outcome of burning fossil fuels at the current rate
* "Free" public roads are corporate welfare subsidies to the oil and auto industries. M1EK in particular has been pointing out the deceitfulness of denigrating buses as "public" transport: roads are just as public-dependent, but don't get lumped in to that category for some reason.

I'm not a fan of those fuel taxes, but I'm not so wide-eyed as to believe that they are the single blight on an otherwise free market.

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