In recent statements both President Obama and Senator Lindsey Graham have harped on the theme that giving subsidies to so-called “clean” energy while taxing fossil-based fuels at the same time are part of a “market-based” solution to the nation’s challenges. Besides the Orwellian idea that government intervention is market-based, Obama and Graham’s remarks underscore just how remarkably inefficient “clean” energy sources are. In order to compete, these “clean” energy sources not only need a handout from the government, they also require that the Government kick their competitors in the face. And sometimes that’s not even enough.
The Rhetoric
On February 3rd President Obama said:
I don’t want us to just say the easy way out is to just give a bunch of tax credits to clean energy companies. The market works best when it responds to price. And if they start seeing…that dirty energy is a little pricier, clean energy is a little cheaper, they’ll innovate and they’ll think things through in all kinds of ways.
Perhaps to disarm critics who complain about government intervention in the market, Obama also said, “[T]he concept of incentivizing clean energy so that it’s the cheaper, more effective kind of energy is one that is proven to work and is actually a market-based approach."
Senator Lindsey Graham made similar remarks to reporters (on January 27) when he said:
To jump-start nuclear power, wind and solar and the green economy, you’ve got to price carbon….How you do it is subject to discussion and open debate. But the idea of not pricing carbon, in my view, means you’re not serious about energy independence. The odd thing is you’ll never have energy independence until you clean up the air, and you’ll never clean up the air until you price carbon.
Passing the Market “Test”?
Proposals for massive new federal interventions into the energy sector referred to by policymakers as “market-based” simply fail the straight-face test. We have already explained that cap-and-trade is not a “market solution.” Academic economists use the term to distinguish cap-and-trade (or an explicit carbon tax) from command-and-control approaches, such as the EPA’s endangerment campaign, in which the government literally orders particular firms to stop using so much electricity or tells utility companies they can’t use coal anymore. By artificially driving up the price of fossil fuels, proponents say, private businesses are free to determine their own solution to the new reality. Presto, there is your market-based solution.
The problem, of course, is that we have no reason to believe that the U.S. government will actually offset alleged “market failures” due to the alleged negative externalities of greenhouse gas emissions. Even if we disregard the recent “climategate” scandals and take the IPCC’s reports at face value, does anyone really trust the government to ignore the political process and completely revamp the energy sector in accordance with pure science as its guiding light?
In fact, President Obama’s own remarks show that his agenda has nothing to do with augmenting the price system to allow the market to work. He said that even if the science of manmade global warming were in doubt, he would still want to push through subsidies for “clean” energy and penalties for fossil-based energy. So how is this about climate change again?
The fact is President Obama has things backwards. Any trained economist – even those who favor government action on climate change, such as Harvard’s Robert Stavins or even Paul Krugman – admit that heavy government penalties on fossil fuels will hurt GDP growth and other conventional economic measures. So contrary to the president’s views, the question is not whether or not these proposals will hurt our already struggling economy, but rather how much pain it would inflict.
Obama’s arguments to the contrary are simply nonsense. New taxes on efficient energy sources through a cap-and-trade scheme, while at the same time lavishing more taxpayer support on inefficient energy sources is no way to lead the world in economic progress.
Obama and Graham Admit Just How Inefficient “Green” Energy Is
Notice too that both President Obama and Senator Graham admit that to revolutionize the American energy sector to fit their bold vision, it wouldn’t be enough to throw billions more of taxpayer dollars at their preferred technologies. On top of that, they would need to “price carbon,” which is a euphemism for massively taxing oil, coal, and natural gas—the fuels that provide 85 percent of our energy.
In other words, the supporters of “green” energy admit that it is so inefficient, that simply giving it a headstart in the race isn’t enough. On top of that, the federal government needs to break the kneecaps of “green” energy’s competitors. We call this the Tonya Harding approach.
Conclusion
It’s no “market solution” when the federal government picks arbitrary emission quotas, especially when that “carbon pricing” is augmented with massive command-and-control regulations and subsidies. As the quotes from Obama and Graham reveal, the only way to make their pet energy sources pass the market test is to change the test.
