Opinion: Free Market Minute

“Market-maker, market-maker, make me a market”

Oh, and save me from global warming, too

It’s time to stop griping about global warming and start celebrating instead. Maybe. Even though the U.S. did not ultimately back the 34-nation Kyoto Agreement that took effect on February 15th, domestic global warming legislation, in the form of the McCain-Lieberman Climate Stewardship Act, claims it will be a major engine (if you’ll pardon the pun) of new jobs in the U.S. One problem with the jobs growth predictions: the claims are based more on politics than on science or economics.

According to a new study sponsored by the National Resources Defense Council, the U.S. can expect to generate 510,000 new jobs by 2015, 602,000 new jobs by 2020, and 801,000 new jobs by 2025. If these figures were true, global warming legislation would be an issue that economists could really get behind. The NRDC made a name for itself, and wrecked the livelihood of thousands of apple farmers, by promoting the Alar pesticide scare in the 1980s. Its claims about Alar eventually proved false, but not before an entire industry was devastated by their unsupported assertions. The NRDC record on environmental veracity suggests we examine with care the claims about the economic and scientific effects of McCain-Lieberman and Kyoto.

Independent studies conducted by Wharton Econometric Forecasting Associates, using data from the U.S. Department of Energy, net out the benefits and costs of reducing the greenhouse emissions that are blamed for the supposed observable effects of global warming. The benefits of reducing carbon dioxide emissions—the main greenhouse gas blamed for global warming—should be weighed against the human, economic, and other opportunity costs of the program. In 1998, the U.S. Department of Energy estimated net costs of a Kyoto-level regulation to be $397 billion in lost GDP by 2010; Wharton estimates were somewhat less dire, with predicted losses by 2010 of only $301 billion. These figures represent huge potential job losses, as well as a decline in American standards of living.

True costs of emissions regulation like McCain-Lieberman or Kyoto must also include harder to measure, but necessary, changes in energy demand and supply. These include a mandatory reduction in energy use by households, whether through regulation-induced purchases of higher-priced, higher-efficiency autos, laundry equipment, and the like, or simply through a lower standard of living. Along with this goes regulation designed to put commuters into public transportation in lieu of private cars, and families into urban, high density co-op and apartment living, instead of suburban single-family homes.

According to the list of required changes on the demand side of the energy market, the Natural Resources Defense Council and McCain-Lieberman seek nothing less than a total makeover of American lifestyles and market choices, while claiming to be a market-based initiative. For example, an “increased household investment in energy-related consumer durable and construction services” simply means that consumers who want conveniences like at-home laundry equipment (an “energy-related consumer durable”) will have to pay much more for them (“increased household investment”).

If they want to avoid the high price of regulation-compliant home equipment, they will have to settle for a laundromat, or choose a laundry service to clean their clothes, instead. This is a deliberate distortion of current market choices; one that environmentalists look forward to creating with new environmental legislation. The fact that all regulation affects market decisions does not make it “market based.”

Finally, the unasked question is: Is there really a global warming problem—or are we on another Alar campaign? The question is a controversial one, and environmental interests are increasingly at odds with climatologists and other scientists over the very existence of human-induced global warming. Even popular fiction is reflecting growing doubt about the scientific validity of a global warming “crisis.”

Regulatory intervention, in the form of legislated maximum allowable carbon dioxide and other greenhouse gas emissions, are inappropriate right now. Despite the hype, there is no scientific consensus that recognizes a greenhouse gas/global warming problem. Rather than adding a market-based solution, McCain-Lieberman and similar regulations will distort markets, impoverish consumers, and stunt alternative economic opportunities, all for no certain benefit whatsoever.