No End to Energy Stalemate

No End to Energy Stalemate
January 24, 2005

Joseph Bast

Joseph L. Bast c.v. Joseph Bast is president and CEO of The Heartland Institute, a 29-year-old... (read full bio)

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In December 2004, the National Commission on Energy Policy (NCEP) released a report titled "Ending the Energy Stalemate: A Bipartisan Strategy to Meet America's Energy Challenges." The group claims to have established "a constructive center in the often polarized debate over national energy policy," and indeed its report contains ideas and recommendations often found in reports produced by industry groups or by environmental advocacy groups but rarely in both.

The report contains some good ideas, and the studies prepared by subcontractors to the commission, listed in an appendix to the report, may contain valuable original research. (This writer has not read them.) However, the report's recommendations often seem to combine the worst, rather than the best, of what these two sides in the debate have to offer.

Rather than setting their private interests and agendas aside, corporate members of the commission call on taxpayers and consumers to subsidize and bear the financial risk of programs that would benefit them, while the commission's professional environmental advocates make little effort to temper their alarmist agenda with sound science or common sense.

Taxpayers, consumers, many credible scientists, economists, moderates, and conservatives have all been left out of this "bipartisan strategy." Behind the big PR budget, the NCEP is just another liberal advocacy group calling for more government spending and regulating.

What Is the NCEP?

The NCEP was not created by its 16 commissioners. It was founded in 2002 by the William and Flora Hewlett Foundation and four "partner" foundations: Pew Charitable Trusts, John D. and Catherine T. MacArthur Foundation, David and Lucile Packard Foundation, and the Energy Foundation.

According to the Capital Research Center, a philanthropy watchdog organization, all five foundations fund primarily left-of-center causes. For example, the William and Flora Hewlett Foundation is a major contributor to the Tides Center, which is believed to funnel dollars to radical and even eco-terrorist groups, as well as the Union of Concerned Scientists, Environmental Defense Fund (now called Environmental Defense), Worldwatch Institute, and Sierra Club. None of these groups can be called moderate or bipartisan.

The Pew Charitable Trusts is even farther to the left than the Hewlett Foundation. On its scale of 1 to 8, with 1 being "radical left," the Capital Research Center ranks Pew a 1. Besides giving millions of dollars to the Tides Center, Pew is a major funder of Ralph Nader's Public Interest Research Group ($3,475,000 in 2001 alone) and the Earthjustice Legal Defense Fund (previously the Sierra Club Legal Defense Fund, $5.5 million in 2002 and $4,668,000 in 2001). The director of Pew's global warming programs is Eileen Claussen, who was President Bill Clinton's chief negotiator on the global warming treaty.

The John D. and Catherine T. MacArthur Foundation funds the Tides Center as well as the Earth Island Institute, a group deliberately created to make other leftist environmental groups look more moderate by comparison. According to the Earth Island Institute's Web site, "On multiple fronts, from reproductive health to climate change to wildlife biology to air and water pollution, the Bush administration is treating science as its enemy, to be overruled and overwhelmed. The result: a blithe discounting of mounting threats to human health and the global environment."

The MacArthur Foundation also funds the Natural Resources Defense Council -- an organization apparently used as the model of a radical environmental organization willing to manipulate press coverage of environmental issues in Michael Crichton's new novel, State of Fear -- and the Worldwatch Institute, Environmental Defense Fund, and Physicians for Social Responsibility, all liberal and very partisan organizations.

The David and Lucile Packard Foundation and the Energy Foundation, the remaining founders of the NCEP, give millions of dollars a year to many of these same groups.

It would be surprising if an organization created by these five foundations would advocate moderate or pro-market positions on energy and environmental policies, and indeed, the NCEP does not.

Staff Similarly Biased

Like its funders, the staff of the NCEP leans to the left. Jason Grumet, executive director of the NCEP, was previously executive director of the Northeast States for Coordinated Air Use Management (NESCAUM), where he advocated adoption of California emission standards, mandatory production and sale of zero-emission vehicles in the Northeast, and tighter regulation of air quality.

Deputy director Lisel Loy was President Clinton's staff secretary from 2000 to 2001. Paul W. Bledsoe, NCEP's director of communications and strategy, was a senior vice president with Fenton Communications, the public relations firm used by the Natural Resources Defense Council to create the infamous ALAR scare of 1989. Drew Kodjak, program director, worked for Grumet at NESCAUM and also is an advocate of zero-emission vehicles.

It appears that no one on the staff of NCEP has any ties or affiliations with centrist or conservative think tanks. Probably for this reason, there are no references in the report to, or even any sign of familiarity with, the work of such non-alarmist experts as Sallie Balliunas (Harvard), Robert Mendelsohn (Yale), Richard Lindzen (MIT), Robert W. Hahn (AEI-Brookings), Patrick Michaels (Virginia), Jay Lehr (Heartland), Bjorn Lomborg (The Skeptical Environmentalist), Robert L. Bradley, Jr., the late Julian Simon, and many others.

The result is a report that differs only in minor ways from those released by many leftist environmental advocacy groups.

Who are the Commissioners?

The "front office" of NCEP consists of 16 figures drawn from business, government, academia, organized labor, and environmental advocacy groups to create the appearance of diverse perspectives and interests. However, like the funders and staff of the NCEP, it appears that most of them are political liberals and/or alarmist environmentalists.

  • Leo W. Gerard is international president of United Steelworkers of America, a union that (according to its Web site) worked hard for the election of John Kerry and John Edwards.
  • John P. Holdren is the Teresa and John Heinz Professor of Environmental Policy at Harvard University. He is also one of the loudest and most alarmist voices in the American environmental movement. His radical views on energy and global warming were recently the subject of a scathing report by Robert Bradley for the Competitive Enterprise Institute. According to Bradley, "Holdren once predicted that as many as one billion people could perish by 2020 from man-made climate change. He now hedges: 'That the impacts of global climate disruption may not become the dominant sources of environmental harm to humans for yet a few more decades cannot be a great consolation.' Yet he remains firmly in the alarmist camp." http://www.heartland.org/Article.cfm?artId=12651.
  • Sharon L. Nelson is an attorney who served as chief of consumer protection under Democrat Christine Gregoire in the office of the Washington Attorney General and is chairman of Consumers Union. While Consumers Union is best known for ranking consumer products, it is also a liberal advocacy group. It has editorialized on the need to take action against global warming and has copublished with the Environmental Defense Fund a book titled Fight Global Warming.
  • Ralph Cavanagh is an attorney with the Natural Resources Defense Council, a highly partisan environmental advocacy group that claims on its Web site that "the Bush administration took nearly 150 actions to undermine environmental protections over the past year," and characterizes the first Bush term as "four years of relentless assault on the nation's environmental protections."
  • William K. Reilly is an attorney who served as administrator of EPA under President George H.W. Bush. Prior to that he served as head of several environmental advocacy groups.
  • F. Henry Habicht is an attorney who served as deputy administer of EPA under Reilly.
  • R. James Woolsey is an attorney who served for two years as director of the Central Intelligence Agency under President Clinton.
  • Philip R. Sharp is a former Democratic U.S. Representative who coauthored the original CAFE fuel economy legislation, and who now serves as a director of Cinergy Corp., New England Power Co., and Distributed Energy Systems Corp.

The remaining members are two attorneys who served in the Department of Energy under George H.W. Bush, a Democratic politician (also an attorney) from Texas, executives or former executives with Ford, Exelon, and ConocoPhillips, and MIT scientist Mario J. Molina, whose theory that chlorofluorocarbons (CFCs) threaten the Earth's ozone layer led to the global treaty banning CFCs.

The characteristics that stand out from this group of individuals are (a) nearly all of them are lawyers, (b) nearly all are liberals, and (c) nearly all stand to gain by calling for massive public subsidies to the energy industry. The group includes no non-alarmist energy scholars, taxpayer advocates, or business leaders known for taking free-market positions.

Appealing to Businesses

The NCEP seeks to win corporate and Republican support for its recommendations by validating some of their concerns. For example, on the topic of global warming, the Commission says "the United States must take responsibility for addressing its contribution to the risks of climate change, but must do so in a manner that recognizes the global nature of this challenge and does not harm the competitive position of U.S. businesses internationally." (p. ix)

The Commission says the way to do this is to focus, as the Bush administration has, on the emission intensity of the economy (tons of emissions per dollar of GDP) rather than actual emissions. It would phase in caps and emission permit trading and include a "safety valve mechanism" that allows more permits to be issued if compliance costs exceed $7 per metric ton.

The report also supports construction of a natural gas pipeline from Alaska, (p. 46) removal of regulatory barriers and uncertainty that stand in the way of new energy infrastructure, (p. 84) siting new liquid natural gas receiving terminals, (p. 47) safe storage of radioactive waste, (p. 60) and larger public investments in clean coal technology (p. 51) and a new generation of nuclear power generators (p. 57).

Each of these items often appear on the wish list of corporations and business groups, but of course that does not mean they would be good public policy. Removing regulatory barriers is almost always good public policy, but subsidies in most cases are wasted on producing products for which there is no market demand or giving windfalls to companies that would do much the same things without subsidies. In either case, wealth is forcibly transferred from one group to another without producing any social gains.

Sound Science and Economics

The NCEP report makes a few concessions to the legions of scientists and economists who do not buy into the alarmist predictions of energy shortages, climate change, and environmental destruction that are the premise of much of the report. For example, the report acknowledges that:

  • world oil production has not peaked but will continue to grow for the foreseeable future (p. 1)
  • oil is a global commodity so that "as market forces prevail, the price of U.S. and world oil will be the same" (p. 3)
  • tar sands in Canada and heavy oil in Venezuela have the potential to expand enormously the world's usable reserves of fossil fuels (p. 6)
  • estimates of the cost-effectiveness of energy-saving technologies do not "account for--and thus cannot by themselves resolve--potential trade-offs in terms of vehicle performance, safety, and impacts on jobs and competitiveness" (p. 8)

On the controversial matter of global warming, the report comes perilously close to repeating the now meaningless mantra of a "growing scientific consensus" on the need for immediate action (meaningless because science does not advance through consensus and because scientists are leaving the alarmist camp, as demonstrated just this month by the resignation of Chris Landsea from the IPCC). However, the Commission narrowly avoids the error by leaving out any mention of how much warming can be attributable to the human presence and what harm, if any, that warming could cause. (p. 20)

The Other Shoe

The few concessions to sound science and economics made by the report's authors are difficult to find among the many dubious and outright false assertions and conclusions. Here are some of the worst:

  • Despite refusing to predict when, where, how much, or how harmful future warming will be, the report nevertheless says "the risk of global climate change from emissions released by fossil fuel combustion will exert a profound influence on the world's energy options and choices over the decades ahead." (p. vi) It's a classic non sequitur: It hasn't been proven that global warming should be allowed to exert such an influence on energy planning and use.
  • Increasing global demand for oil "will be accompanied by higher oil prices and the potential for more serious and frequent supply disruptions." (p. 1) This is another non sequitur, since it is never shown that demand will outstrip supply or that slowing the rate of growth in U.S. demand would make the U.S. economy less vulnerable. Many experts, including Douglas Bohi and Michael Toman of Resources for the Future (1996) and the Congressional Research Service (1997), say it would not.

Slowing U.S. demand for oil is likely to make the country more, rather than less, reliant on imports because oil production costs are higher in the U.S. than in other parts of the world, so as prices fall, imported oil would replace domestic oil.

  • "Except for significant progress in filling the U.S. Strategic Petroleum Reserve (SPR), efforts to buffer the U.S. economy from oil price shocks have faded." (p. 4) In fact, many studies show the U.S. economy is less energy intensive and less vulnerable to oil price shocks than ever before. Changes in financial markets, improvement in shipping, and diversification of sources have greatly reduced the threat and consequences of supply interruptions.
  • The Commission calls for "a significant strengthening of new vehicle fuel economy standards ... based upon a variety of studies of technology potential and cost-effectiveness completed since 2000." (p. 10). The studies cited somehow do not include any that show how raising Corporate Average Fuel Efficiency (CAFE) standards imposes social costs several times the value of fuel saved, even including dubious "externalities" such as global warming and higher defense spending.

This includes a 2003 Journal of Economic Perspectives piece by Paul Portney et al. which concluded "that tightening CAFE could significantly reduce social welfare overall," and a 2002 CBO report that "CAFE standards do not directly encourage either producers or consumers to decrease gasoline use, so they do not offer the flexibility or the incentives for gasoline reductions to occur at the lowest possible cost."

The CBO study also called the flaws in CAFE "intrinsic to any policy that regulates fuel economy instead of providing a direct incentive to reduce gasoline consumption." The study was requested by Sen. Jim Jeffords of Vermont.

  • The Commission claims "passenger vehicle and heavy-truck fuel economy improvements offer the potential to reduce U.S. oil consumption by 10-15 percent or 3-5 MBD oil by 2025." (p. 2) This is unlikely, given the experience with CAFE so far.

Better mileage lowers the cost of traveling, resulting in a "rebound effect" that cancels out between a quarter and half of the theoretical gains. Higher CAFE standards leads to longer retention of older and less fuel-efficient (but generally heavier, more powerful, and/or safer) cars and trucks, canceling out some more of the gains. High tech substitutes for steel used to lighten cars and trucks without surrendering safety consume more energy to create, offsetting still more of the savings. And in the past, consumers chose different kinds of vehicles (SUVs and light trucks in the recent past) to evade CAFE standards on passenger vehicles.

Even if higher CAFE standards translated into less oil consumption in the U.S., NCEP makes no effort to predict what impact this would have on either energy security or global warming. We can be quite sure it would be negligible in both cases.

  • "Unfortunately, however, market forces alone are unlikely to deliver the full potential of energy savings given a host of market failures that tend to discourage efficiency investments even when they are highly cost-effective." (p. 30) Markets don't deliver all the spending on energy efficiency desired by these advocates because markets, unlike engineering studies, take into account learning curves and risk aversion as well as values such as safety, convenience, flexibility, and performance that compete with energy efficiency. This is a good thing, not a bad thing, and it is outrageous to dismiss these competing values and benefits as "market failures."

Consumers are not ignorant and entrepreneurs are not blind. If the benefits of investing more in energy conservation were greater than the costs, more would be invested. We don't need subsidies and market-distorting regulations to make this occur.

Buying Consensus

Nearly all of the NCEP recommendations require massive taxpayer subsidies, including:

  • "$3 billion over ten years in manufacturer and consumer incentives for domestic production and purchase of efficient hybrid-electric and advanced diesel vehicles"
  • "$4 billion over ten years in public incentives for integrated gasification combined cycle (IGCC) coal technology and for carbon capture and sequestration"
  • "$3 billion over ten years in public incentives to demonstrate commercial-scale carbon capture and geologic sequestration at a variety of sites"
  • "$2 billion over ten years ... for demonstration of one to two new advanced nuclear facilities"
  • "increase federal R&D funding for renewable electricity technologies by $360 million annually"
  • "establish a $1.5 billion program over ten years to increase domestic production of non-petroleum renewable transportation fuels"
  • "double federal government funding for energy research and development"

On its face, it appears that the business members of the Commission signed off on the environmentalists' agenda in exchange for support of higher taxes and massive subsidies to businesses. It may be a fine deal for the 16 Commissioners, but it is very bad public policy for the rest of the country.

All together, the Commission estimates its plan calls for increased federal spending of $36 billion over ten years. This does not include other costs imposed on consumers. For example, the CBO put the cost to consumers of using higher CAFE standards to reduce gasoline consumption by 10 percent at $3.6 billion, and this is net of fuel savings. Mandating that electric utilities use wind and other renewable energy sources instead of less-expensive coal and natural gas would cost consumers billions of dollars a year more.

Not to worry, though, the authors write. Their plan is "revenue neutral" thanks to the "sale of a small portion of emission allowances under the proposed tradable-permits system for greenhouse gases." (p. viii)

Emissions Trading Not the Answer

Emissions trading is often proposed by environmentalists as an efficient way to cap greenhouse gas emissions. While a growing number of academics and think tank experts make a good living refining and defending the latest plans, the concept is rife with problems.

Emission trading programs have been tried nationally and in various states (e.g., New Jersey and California) and for different substances (oxides of nitrogen, VOCs, greenhouse gases, sulfur dioxide) with mixed success. While advocates of emission trading often point to the sulfur dioxide emission trading program created under the Clean Air Act Amendments of 1990 as an unvarnished success, many critics tell a different story, and more importantly question whether its limited successes are transferrable to a greenhouse gas program.

All emission trading programs face four problems: denial of property rights status to emission permits, regulatory bias toward command-and-control rules, inability to detect or prevent fraud, and changing political priorities. What the NCEP calls "flexibility" is actually the power of elected officials to change the rules at any time, leaving investors high and dry and often at the mercy of regulators with perfect hindsight.

Several coauthors and I have critiqued emissions trading plans elsewhere (see "Greenhouse Gas Control: Implications for Agriculture," by Bast et al., 2003, http://www.heartland.org/Article.cfm?artId=12728, pp. 27-38). Curious readers can follow up with the many sources cited there.

Conclusion

Despite its big budget, big names, and promising rhetoric, the National Commission on Energy Policy does not offer a roadmap for "ending the energy stalemate." It offers, instead, a large helping of the same alarmism and flawed analysis that flow liberally from other, less credible, advocacy groups funded by the five foundations that created and own it.

Because it fails to take seriously most of the research and analysis that challenge the myths and assumptions of the left wing of the environmental movement, the NCEP fails to offer a strategy that those of us closer to the middle can accept. And because it panders to the demands of a few corporations, it sacrifices the interests of American taxpayers and consumers.

The desire to find a "constructive center" in the debate over environmental policy was not wrong, but NCEP's execution certainly was not right.


Joseph L. Bast is president of The Heartland Institute, coauthor of Eco-Sanity: A Common-Sense Guide to Environmentalism, and publisher of Environment & Climate News. He can be reached at jbast@heartland.org.

Joseph Bast

Joseph L. Bast c.v. Joseph Bast is president and CEO of The Heartland Institute, a 29-year-old... (read full bio)