Energy is the lifeblood of our economy and allows us to have a high standard of living. With that in mind, two John Locke Foundation researchers are asking why some policymakers are trying intentionally to make energy more expensive through new taxes and regulations. JLF Legal and Regulatory Policy Analyst Daren Bakst and research intern Geoff Lawrence co-wrote a recent Spotlight report on the topic. They discussed that report with Donna Martinez for Carolina Journal Radio. (Click here to find a station near you or to learn about the weekly CJ Radio podcast.)
Martinez: This is such an important discussion, and you have hit on some key issues in this paper [“Low-Cost Energy: Critical for the Economy and Our Way of Life”]. Daren, when I think of critical components of our economy, I think of things like roads, airports, education, technology. You say in this paper that low-cost energy should be at the very top of the list. Why?
Bakst: Well, everything you just mentioned wouldn’t exist without low-cost energy. Every product we buy, energy is an input into that product. And it’s really critical for everything that we purchase, the services that we buy. For healthcare, think about the machines that are operating at the hospital that keep us alive. It wouldn’t exist without the energy, and low-cost energy.
Martinez: Geoff, why then are there efforts, it seems, at both the federal and the state level, for some elected officials to try to implement policies that would make energy more expensive? It seems counterintuitive.
Lawrence: Well, the principal reason that they generally cite is to try and avert climate change or global warming, which is typically blamed on carbon dioxide emissions. And carbon dioxide is the result of producing electricity or burning fuel, such as gasoline, or any type of fossil fuel. And because these are the cheapest forms of energy, whenever you tax carbon dioxide emissions, it raises the cost of energy because you have to go to more expensive sources or come up with some way of capturing carbon dioxide that’s emitted from burning fossil fuels.
Martinez: Even though the science isn’t settled on this issue of climate change and man’s influence on anything that might be happening, we’re seeing all these policies?
Bakst: We are. We’re seeing these policies. And there is consensus on global warming, and that is that there’s absolutely nothing we can do to have any impact whatsoever on the temperature.
Martinez: Well, that makes it sound even worse, what we’re talking about here.
Lawrence: It’s kind of like a feel-good thing almost. People know that we can’t influence the temperature just by some type of public policy, but it makes you feel like you’re saving the planet when you do it, so it gives people that little feel-good incentive.
Martinez: Let’s talk about some specific policies. You write in your paper about the issue of a cap-and-trade program. Evidently this is being considered at both the federal level and the state level. Daren, tell us what cap and trade is and what the impact would be.
Bakst: Well, the idea is that you put a cap on carbon dioxide emissions, and since carbon dioxide is kind of a result of burning fossil fuels — and fossil fuels are needed for energy — it’s basically a cap on energy use. And when you restrict the supply of, or the use of fossil fuels, what you’re doing is, you’re creating a tax as a result. It’s basically an energy tax or an energy-rationing scheme. And this is a particularly problematic policy, maybe worse than any other of the policies, because it would have a devastating impact on the economy. There’s been a recent study done by the National Association of Manufacturers and American Council for Capital Formation, and they analyzed one of the federal cap-and-trade programs. They found that it would cost North Carolina more than 146,000 jobs and nearly $19 billion in economic loss by 2030. We’re talking about a net job loss here. That means 146,000 people — possibly you and me, our friends, family — that will not have a job due to this policy.
Martinez: Incredible. Geoff, there would likely be a very big impact on our wallets, our everyday lifestyle. You talk in the paper about some of the things that would happen — electric rates, gas prices. This sounds like it would be very detrimental to the average family in North Carolina.
Lawrence: Oh, yes. The study that Daren just cited actually also showed that, by 2030, we could be looking at gas prices of about $8 a gallon. Those are in real dollars, based on 2007 dollars.
Martinez: Well, that would be something, since I just paid about $3.65 [per gallon] to fill up my Tahoe, and I don’t think I’d want to go to the levels you’re talking about.
Bakst: I think the critical issue here is that you hear a lot of policymakers doing a lot of hand wringing about high gasoline prices and concern about energy costs. But while they’re talking about tax holidays and all kinds of other things that are popular with the public, what they’re also doing is, they’re proposing and considering policies that would be far worse than anything that they’re talking about, in terms of solutions. This cap-and-trade program would just be devastating to the economy.
Martinez: There is also a big discussion now about renewable energy sources. And, in fact, here in North Carolina, last session of the General Assembly, we saw the passage of Senate Bill 3, mandating certain percentages of energy be produced from renewables. Give us a sense of the impact that is going to have on our state economy and our wallets.
Lawrence: Well, the cost of Senate Bill 3, as was estimated by the [N.C.] Utilities Commission, which only estimated the cost of part of the bill, could be $500 million annually by the year 2021. These additional costs basically are new taxes on energy. The total cumulative cost before 2021 could be as high as $3.6 billion.
Martinez: Daren, it sounds like these policies would very much have an impact on our own lifestyle, what we’re able to do, household income, disposable income, and wealth creation in general.
Bakst: Yes. I mean on Senate Bill 3, the one thing about those taxes is the fact that they would be hidden taxes in electricity bills. So consumers are paying this additional price in their electricity rates without even really knowing that they’re paying for it. Now as it relates to the wealth, you’re talking about policies that have no impact on temperature but would have this incredible impact on the economy and energy.
Let’s say you do think that global warming is going to be a catastrophe and something needs to be done. Well, the last thing you want to do is to increase energy prices, because what you’re going to do is, you’re going to make sure that we have less wealth. There’s a reason why poor countries don’t have great environmental records. It’s because they are poor countries. Wealthy nations have the best environmental records.
The best way to adapt to any major catastrophe, like you see in “The Day After Tomorrow,” is to have wealth, so we have strong infrastructure, strong buildings, to be able to adapt. Also, if we’re going to have any type of breakthroughs with technology, the only way that’s going to happen is if we have the means to invest in the technology needed to address these environmental challenges. If the United States were a very poor country, we would not solve the global warming problem, if there is even a global warming problem.