News: CJ Exclusives

Government Policies Drive Up Energy Costs

JLF analysts cite contradiction with goal of low-cost energy

RALEIGH – As energy costs climb in North Carolina, state lawmakers are contributing to the problem with misguided policies targeting climate change. A new John Locke Foundation Spotlight report delivers that warning.

“North Carolina policymakers regularly express concern about the costs of energy, such as high gasoline prices,” said report co-author Daren Bakst, JLF Legal and Regulatory Policy Analyst. “Yet their actions tell a different story. They would serve the state’s taxpayers and consumers more effectively by focusing on policies to ensure low-cost energy.”

Lawmakers should not ignore North Carolina’s need for low-cost energy, Bakst said. “This is not a luxury,” he said. “Low-cost energy is a requirement to fulfill our most basic needs. Energy is an input for every product we use. Higher energy prices make it more expensive to purchase all of the things we value most, including critical items such as health care, housing, and food.”

Recent high energy prices are taking their toll on the economy, Bakst said. “A Congressional Budget Office study that examined the impact of high gasoline prices on the economy found Gross Domestic Product in 2006 is probably lower by about one percent, or $132 billion, than it would have been if energy prices had not risen,” he said. “In addition, the average household’s annual spending on energy goods and services rose by about $1,700 between 2003 and 2006, and their saving rate dropped sharply.”

Some policymakers recognize the importance of low-cost energy, but they ignore that critical need in their quest to fight global warming, Bakst said. “Many misguided energy proposals are based on the fear of global warming and the dubious notion that cutting carbon dioxide emissions would help cool the planet,” he said. “Even global warming alarmists admit there’s nothing that the whole world could reasonably do to have any meaningful effect on temperature in the next 100 years.”

Instead these policies would “drastically” increase energy prices, hurting groups that can least afford the higher costs, Bakst said. “Low-income families must use a larger percentage of their income to meet their energy needs,” he said. “They are disproportionately harmed by increases in energy prices.”

Lawmakers could avoid harming low-income residents and other consumers by dropping schemes that raise energy prices, Bakst said. “Whether you agree that global warming is a problem or not, you should understand that the best way to address any future climate problems is through private innovation,” he said. “That means we need wealth. Wealth enables individuals to adapt better to extreme weather events. Low-cost energy is critical to wealth and to providing innovators the means to solve any real environmental problems.”

Unfortunately, the gap between lawmakers’ statements and actions is clear from a review of the 2007 legislative session, Bakst said. “For example, lawmakers adopted Senate Bill 3 in the name of fighting global warming,” he said. “The legislation would have no measurable impact on the climate, but it could cost North Carolinians $500 million a year in new electricity taxes by 2021.”

“This is just the tip of the iceberg,” Bakst added. “North Carolina lawmakers could adopt policies that would make the costs associated with Senate Bill 3 look like chump change.”

Bakst and JLF research intern Geoff Lawrence discuss policies under consideration at the state level. In particular, the N.C. Legislative Commission on Global Climate Change is likely to recommend a cap-and-trade program for carbon dioxide emissions, Bakst said.
“A recent analysis from the National Association of Manufacturers and the American Council for Capital Formation shows a federal cap-and-trade program could cost North Carolina more than 146,000 jobs and a nearly $19 billion economic loss by 2030,” he said. “Gas prices could reach nearly $8 a gallon by 2030, and home electricity bills could climb by 135 percent.”

State legislators should turn their focus away from policies that raise energy costs, Bakst said. “Lawmakers should instead take a proactive approach to identify and eliminate polices that increase energy prices,” he said. “They should ignore global warming policies that, while achieving no benefit, would have a devastating effect on the health and welfare of North Carolinians.”