Friday, June 13, 2008

Higher oil prices make alternatives competitive?

Like many conservatives, I used to be 100% anti global warming. That was until I discussed the issue with my wife a few months back. She has this uncanny knack for drawing my attention to small intricacies and detail that I may have overlooked, or, more accurately, was simply refusing to observe.

"What if global warming is real?" she said, "What if we avoid it, and we eventually find out it is real?

At first I ignored her, and maybe even debated her, but the realist in me drove me to the library where I continued to read up on the subject more so than I ever had before. Now, while I still don't believe the world is going to end in ten years if we do nothing, what person wants to risk leaving his children a dirty world? Not this man.

Sure, it may be God's green earth, and he provided us with it to use, but should we not be responsible with it? Should we not work hard to keep it clean, and to work hard to find more earth friendly sources of energy and the like? Yes I say. Why not.

And so, while I discussed my eight step solution to the energy crisis last week, today I would like to discuss one reason why a carbon tax such as the one proposed by the Lieberman-Warner bill debated briefly this past week may be what this nation needs, with my eight steps mingled into the deal.

I know this bill is now dead in Congress, but the non-partisan in me thought this would make for a good discussion. Because we know this is going to come up again.

Don't curse at me, as I'm merely discussing options here. And, as Lieberman said, "This is a market-based approach." He may be right. I'm not saying he is, I'm just saying he may be.

This leads me to chapter seven of David Frum's new book "Comeback: Conservatism that can win again," which is entitled "Green Conservatism." While I considered my eight step solution to
"Green Conservatism," Frum actually adds to this list, or refines it in his own way.

For one thing, while I wrote that Newt Gingrich proposes that the U.S. go to nuclear power as it's main source of energy, and provide incentives for some American enterpreneur to invent in a hydrogen powered car (both of which would release zero carbon into the atmosphere), Frum states that the government should not endorse any alternatives to fossil fuels.

Instead, he says what we should do is increase the price of oil, even impose a carbon tax on it, even though we know this will probably drive up the price. (I say probably, because nobody really knows with 100% certaintly). Yes, he is a republican. He is a former speech writer for George Bush, and had written articles for Conservative medias such as National Review and

Historically, he writes, Americans have conserved more when prices are high. They use less energy. And when they use less energy when coal is the main source of fuel, or when gas is the main source of fuel, less CO2 is released into the atmosphere.

Set aside for a moment the argument that this would be horrifying for the economy, and the fact that 75% of Americans and 60% or republicans want to reduce CO2 emissions regardless of the cost (which is why this is politically popular), such an energy price increase would be coupled with tax breaks to anyone to invest in alternative energy.

This goes against what Nancy pelosi said when she became Majority leader: She promised "an energy policy that will reduce energy prices, reduce our dependence on foreign oil, and reduce pollution."

Still, Pelosi has never released such a plan. The reason, as Frum writes, is such a plan is imposible.

Frum claims that we cannot have both a reduction in prices and reduced pollution. These are opposing forces, whereas the price of oil goes down, people conserve less and pollute more. Likewise, foreign oil is cheaper, and if we use less foreign oil, the price of oil will be more.

Thus, if we want to protect the environment, we want oil prices to stay high or even get higher, and in return this makes alternative fuels look cheaper, and make them more competitive in the marketplace.

As a national security issue, Frum writes that "to govern is to choose. If we can have only two of the three (less foreign oil, cheaper gas, reduced pollution) benefits, Republicans should choose power that is American and clean--but not so cheap. Republicans should do so for the reasons laid down by Adam Smith in The Wealth of Nations: "Defense is superior to opulence" --or, in modern English, national security is worth paying for.

And," he continues, "Republicans should also do so because it is past time for us to rediscover our lost history as the party not only of conservatism but of conservation."

Yet we must keep in mind, he writes, that even a $0.50 increase in energy can really hold a family back economically, and can really stall the economy. He writes that, "All Americans would of course prefer the cheapest possible energy source. But cheap energy means oil, and not just any oil. Cheap energy means Persian Gulf oil--because the Gulf states are the world's lowest-cost producers. And as we have been painfully reminded over the past half-decade, Persian Gulf oil means trouble."

To compensate, he recommends major tax reforms. He writes that "a tax of $50 per ton of carbon emissions would raise the price of a barrel of oil by $6. At current usage levels, such a tax would generate over $20 billion in annual revenue fo the U.S. Treasury. If the tax cut oil use back to 1995 levels, it would still generate more than $100 billion-- more than enough to fund major tax reforms."

One tax reform he recommends which would hit the middle class worker and families, would be the per child tax credit. He says this should be increased to above the current $1000 or even more. The money made from the carbon tax would offset the loss of governmental revenue. Not only that, but this tax should be increased on a yearly basis based on inflation so that it remains as an incentive.

The market, therefore, would decide which alternative fuel made the most sense. He states that it would be foolish to do what Bush did and say that the U.S. should fund Ethanol, or what Gingrich says in that we should go to nuclear power.

It is best to let the market decide.

However, it almost makes sence that the real alternative to cancer causing, CO2 emitting coal is nuclear power, which has obstacles of its own, which include how to get rid of nuclear waste (however, there are plans in place to deal with this.)

Still, coal mining kills up to 50 people a year while injuring over 5,000, and nuclear plants have resulted in the deaths of zero workers in the last 50 years.

However, he writes, "Perhaps of greatest relevance, the very cheapness of coal discourages energy conservation and the development of alternatives."

Another thing that stymies conservation is cost. For example, while new air conditioners are available that consume far less energy than older models, "the older one is paid for, newer models cost money... Consumers will only invest in energy efficiency when those efficiencies make economic sense."

In summary, according to Frum, "A carbon tax would raise the cost of coal-generated power and enhance the competitiveness of alternatives. Of the non-carbon emitting alternatives, nuclear is both cheapest and most effective."

And the next market based incentive to higher gas prices would be to get away from gasoline powered cars. "A higher gasoline price--combined with the abolition of all other subsidies-- will clear the way for market competition to settle the issue."

Now did the Lieberman-Warner bill have these provisions? Or were these among the 200 ammendments proposed for the bill still up for discussion in the Senate? We'll have to wait to find out, as the bill is now on hold.

Listen, guys, I'm not proposing that we do this carbon tax thing, in fact I'm actually against it as I fear the risk of it causing an economic slowdown would be worse than what we are enduring today. I think my eight steps are better, except that I like Frum's idea of letting the market decide on what new energy sources will be used.

I'm just saying it might be worth considering, and it presents as another option to be debated in the arena of ideas.

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