Bob Murphy asks whether I have changed my mind. I say no, although I have gone from discussing it in the abstract to commenting on the particular policy developments of the day. Let me restate a few of my views:
1. We do have an acceptable means forward and it is called oil at $145 a barrel, combined with restrictions on dirty coal as a substitute and a more favorable regulatory treatment of nuclear power and other energy alternatives. We had one plank of that platform as recently as last year, and while it was painful it was not the end of the world.
2. It is worth debating how to get to higher energy prices but the bigger question is how much we are willing to go there at all. "Cheaper energy" is the one issue that had traction for the Republicans last fall at the polls.
3. Regulatory changes are an essential part of the way forward and that is often underemphasized by environmentalists, who are allergic to the word "deregulation." Yet if we had to build today's energy infrastructure under the 2009 regulatory regime, it would not be possible. NIMBY is a huge obstacle to future progress in this area.
4. I view Waxman-Markey as like a failed dieter pledging to go out and buy lots of diet books. It's easy enough to defend the diet books as a "first step," or a "framework." I would feel better if the book purchases were accompanied by a credible promise — or even a "cheap talk" lie — to lose weight. How many politicians in favor of the bill have stepped forward and promised to deliver higher energy prices?
I predict and fear that Waxman-Markey, if it passes, will deliver a more politicized energy sector without real progress on #1. I know all about the apparently impressive quotas for the out years. I also know how easy it will be for Congress to hand out more permits, perhaps in return for phony yet rent-seeking laden carbon offsets. That's what the political equilibrium looks like.
5. Here is a very good blog post on carbon offsets.
6. It is easy enough for someone to complain: "But he doesn't even favor buying the diet books!" but that is missing the point. The problem with Waxman-Markey is not the mechanics per se but rather how few politicians will emphasize or even admit that it will, in its working versions, significantly raise energy prices.
7. You can argue: "If we buy the diet books today, we will be ready to diet [raise energy prices] in a few years' time." I don't dismiss this argument, but I doubt it and I don't think that enough W-M proponents admit that their case largely rests upon it.
8. Energy prices have been rising with economic recovery. I am waiting for the first person to have the stones to argue that rapid and permanent economic growth is the only way (by raising the price of oil at a disproportionate pace) to limit greenhouse gases. You won't find those stones in my pocket (I don't think the argument succeeds), but sooner or later they will turn up. There is a more modest version of the argument which simply notes that in equilibrium politicians are likely trying to lower rather than to raise the price of fossil fuel-based energy.
9. I'm not going to restate my views on international cooperation but in general the quality of discussion on this issue is low, from both sides. That doesn't augur well. It is easy to see what won't work. It is much harder to see what might work. Very few of us actually expected Mr. Gorbachev to tear down that wall.
Regarding #8: Raising the demand for oil (without altering supply) does, of course, lead to higher oil prices. But why would this decrease the quantity consumed and the corresponding carbon emissions?
Maybe I’m misunderstanding what you’re saying here, because this sounds completely ridiculous to me.
If you accept point 1 as truth, I don’t see why much of the rest is under discussion. If those policies are what gets us there, I don’t see much need to mess around with the rest.
On point 8 and 9, I’d note two things. First, driving up the world price of oil, rather than the price in the US via taxes, might actually be somewhat feasible (politically). Simply tacitly and secretly encourage OPEC to drive up the price of oil.
You get all “benefits” of high oil prices, and quickly, but without the nasty political arguments that go along with raising taxes.
Second, you also increase the price of Oil in other countries, forcing them to take further rationing steps, and hence, you have a global effect.
What? This seems to be the obvious public choice approach. We just need Dr. Evil to commandeer the world’s oil supply.
NIMBY + market = IMBY
How rich would the Yuccans have to be to accept harmless nuke waste?
The problem with “raising energy prices,” as a virtue in itself, and I get the same feeling as I read your post, so I know politicians won’t differentiate, is that they will be raised, European style, with no relevance to internalizing their actual costs. It will just be another revenue stream, to be raised to the stratosphere, probably disproportionately on those in the lowest on the political totem pole (the others get exemptions and credits), who may be doing the most for society.
I’ve been making your argument all along, but maybe slightly differently. Technology is the only way out. The only way to have technology is to be rich enough for smart people to sit on their ass. Good growth, not the type of growth where we subsidize more consumption and house building for the dumb masses.
It is worth debating how to get to higher energy prices but the bigger question is how much we are willing to go there at all.
Sometimes I think we have an indirect, de-facto version of Ross McKitrick’s temperature linked carbon tax. Actual reductions in carbon emissions are a function of energy prices. And artificial politically induced increases in energy prices are a function of voter willingness. And voter willingness is a function of actual observed changes in climate.
As it is now, American voters have a weak preference for action on climate change (weak meaning that they favor action in the abstract, but are willing to pay very little extra), and those weak preferences will lead to weak programs that appear to do something but won’t actually impose much in the way of higher energy costs nor produce much in the way of reductions.
But Mike, if prices are that high as result of large demand, and not of reduction in supply, than by definition that oil is burned. We might be doing more useful stuff with it, but it is still burned. Efficiency can well reduce demand for oil, but prices would fall in line with the increase in efficiency.
Zamfir: right…but not all uses result in the same amounts of emissions. A better example might be burning a barrel of oil as gasoline to move a car around versus turning that oil into plastic to build the body of an electric car. If the car’s power is generated in a nuclear power plant or wind farm, that’s a decrease in carbon emissions with the same amount of oil consumption.
Reed wants to invest in preparedness. He’s right, of course. But since when did humanity ever do that?
Nah. It will be the usual private market planning technique, as in “Holy Crap we’re screwed. Now what do we do?”
Uhh…one more thing. Unless there is some new, digital age jargon I’m ignorant about, I don’t think people keep the “stones” you refer to in their pockets…
In terms of oil prices, the tax issue doesn’t always work. Both the US and China don’t tax oil much compared to other countries. China is moving to CAFE type regimes and taxing engine size which does have a huge effect on the type of vehicles being bought. However, they have seem to made the decision that keeping oil affordable is somewhat necessary.
Obama blew his chances here. Yes, we can live with $4 oil although it really hurts. What he needed to do is tell the American people in the first few months oil will be $4 again, and we have a choice: we can pay the oil producers or we can pay ourselves. A flexible gas tax that would keep the price of gas around 3.50 would lead to huge demand reduction. I’d even support something like 4.50 a gallon. Gas will be at that price by the end of summer in any case.
charlie: Obama blew his chances here. Yes, we can live with $4 oil although it really hurts. What he needed to do is tell the American people in the first few months oil will be $4 again, and we have a choice: we can pay the oil producers or we can pay ourselves.
But the U.S. doesn’t account for enough of worldwide demand for things to work that way. The E.U. is a bit larger than the U.S. But their high gas taxes don’t keep the price of crude low — instead, when the price of a barrel of oil skyrocketed last year, Europeans got socked with a combination of high oil prices and high gax taxes besides.
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