Real Clear Policy
September 26, 2012
by Lee Lane
President Obama's support for green energy policies is unprecedented in its scope and scale. His policies remain very costly even as resources have become painfully scarce. Oddly, through time, the stated goals of the president's policies' have seemed to shift. Energy independence and green jobs have largely replaced the earlier stress on global warming. But while the policies' rationale has evolved, the president's support for them has never wavered. What explains this pattern?
By 2010, government was spending $37 billion a year on direct energy subsidies. It had also guaranteed $36 billion in energy loans. Direct energy spending exceeded the Fiscal Year 2007 level by 108 percent, with most of the increase coming in renewable energy and conservation.
New regulations greatly increase the scale of the green energy effort. Stricter CAFE standards require automakers to produce vehicles that substitute high mileage for other features that consumers value more. The new renewable fuel standards enacted under President Bush, but aggressively implemented by the Obama EPA, forces drivers increasingly to fuel their cars with ethanol. Not even this year's drought-ravaged corn crop has caused EPA to relent.
It is worth asking, then, if the green technologies that the president is pushing can actually fulfill the promises that he makes for them. In fact, they cannot.
The renewable fuels standard is a prime case in point. This program is one of the most costly of all green energy initiatives. A recent MIT study found that this one regulation alone will cost the U.S. economy nearly $10 billion a year. Yet in 2010, corn ethanol supplied only about 4 percent of U.S. liquid fuel. Ramping up production is not an option. Corn-based ethanol already consumes about 40 percent of the total U.S. corn crop.
Nor will cellulosic ethanol save the day. An expert panel of the National Research Council (NRC) found that ethanol from this source is very far from being cost competitive with oil. Further, no biorefinery can yet produce this fuel on a commercial scale. The expert panel concluded that the production targets mandated by the renewable fuel standards will not, therefore, be met. Actually, even if they were met, the effect on U.S. oil consumption would still be minor.
Electric vehicles offer no better prospects for oil independence. Despite huge per vehicle federal subsidies, the Chevy Volt is a flop. It costs too much to make, and its range is too short. An electric vehicle that could pass a fair market test looks to be years or perhaps decades away, and enough cars on the road to meaningfully affect oil dependence would take much longer still.
Certainly, promoting wind and solar power is not going to make the country oil independent. Almost no U.S. oil goes to electricity generation. And America has an abundance of natural gas and coal with which to fuel its power plants.
Perhaps someday scientific breakthroughs will cure the defects that hobble today's green energy technologies. Government has a legitimate role in fostering basic scientific research that might provide such breakthroughs. The administration's support for work of this kind seems warranted. But the big Obama green energy programs all aim at producing more and more of today's flawed technologies not at discovering the principles that might allow them to be supplanted with something better.
In addition to oil independence, one justification the president provides for his policies is that they create "green jobs." Most green energy projects, though, have long lead times. This feature makes them ill-suited to the role of alleviating cyclical joblessness. These projects also often demand the wrong kind of labor for them to be much help with structural unemployment. In any case, supplanting oil and gas with higher cost green energy decreases the productivity of the average U.S. workers. It must, therefore, depress average wages and lessen U.S. competitiveness.
A recent study from the Brookings Institution shows that many able economists, including some Democrats, have long understood that green energy policies cannot solve either oil dependence or joblessness. What goal, then, lies behind the president's policies?
Two political motives are likely to be at work. First, taxpayer funding for green energy is popular with the president's base. According to a Pew Research Center poll, 68 percent of Democratic and Democratic leaning voters support greater government investment in renewables. Republicans oppose.
Second, green energy must be a rich source of campaign contributions. The firms, farms, and unions that profit from green energy programs know that the policies on which they depend contribute little to any broader public purpose. Thus, extra generous campaign contributions are needed to procure continuing political support. In effect, a substantial share of the money mulcted from taxpayers and consumers must find its way back to Washington as the price of political protection. Patronage politics Chicago-style is quite at home in Washington, D.C.
Lee Lane is a Visiting Fellow at Hudson Institute.
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