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Global-warming policy typically aims to restrict emissions of carbon dioxide (CO2). But CO2 is the inescapable byproduct of the hydrocarbon fuels that supply 70 percent of U.S. electricity and 84 percent of all U.S. energy. The Kyoto global-warming treaty, which would limit U.S. CO2 emissions to 7 percent below 1990 levels, is a gigantic energy-rationing scheme — the regulatory equivalent of regressive, growth-chilling energy taxes. The Senate Energy and Natural Resources Committee has drafted "energy" legislation that will, if enacted, lead inexorably to Kyoto-style energy rationing. The draft bill directs the Department of Energy to award companies "transferable credits" for "voluntary" CO2 emission reductions. Under this scheme, companies that take steps now to reduce their CO2 emissions will earn regulatory credits they can later use to comply with Kyoto or a similar compulsory regime. This is fatal to sound energy policy because transferable credits will: (a) create the institutional framework for future Kyoto-type emissions cap-and-trade programs, and (b) grow the "greenhouse lobby" of Enron-like companies seeking to profit from energy suppression policies. Here are nine reasons
why policymakers should deem any transferable credit provisions as an
energy-legislation deal breaker: Why did Republican staff include transferable credits in its draft energy legislation? Surprisingly, the big push for credits these days comes not from the Green Left but from the Bush administration. The administration seeks to replace Kyoto's mandatory emissions-tonnage-reduction targets, which are inimical to growth, with voluntary emissions intensity reduction goals, which can accommodate growth. The administration views credits as a way to motivate companies to reduce emissions per dollar of output, and the draft Senate energy bill reflects this thinking. However, credits would be awarded only for "real" (i.e. tonnage) reductions, so the scheme would ratify rather than replace the Kyoto framework. More critically, an emissions-intensity goal provides no alternative to Kyoto if it is coupled with a crediting plan that fuels pro-Kyoto lobbying. There is a better way to encourage emission-intensity reductions. Expensing (accelerated capital-cost recovery) would help companies reduce their emissions per dollar of output — without picking winners and losers, setting the stage for cap-and-trade, or building political support for energy rationing. By reducing the tax penalty on capital investment, expensing would speed up turnover of plant and equipment. In general, newer, more modern facilities are cleaner and more productive than older units, delivering more output per unit of input, including energy inputs. Expensing would accelerate carbon-intensity decline while boosting productivity and wages. Expensing is, thus, a true "no regrets" policy — desirable whether global warming ultimately proves to be a serious, minor, or imaginary problem. This is the path pro-energy policymakers should pursue. — Marlo Lewis is a senior fellow at the Competitive Enterprise Institute. |
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White House seems to believe that passing an energy bill — any energy
bill — will help GOP candidates win in 2004. Because of this, Republicans
on Capitol Hill are likely to face increasing pressure over the coming
year to accept "energy" policies that are, in fact, anti-energy.
That would be a colossal blunder.
Transferable
credits will mobilize lobbying for energy rationing. Credits attain full
market value only under a mandatory emissions reduction target or "cap."
In effect, credits are Kyoto stock that bears dividends if, but only if,
Kyoto or kindred regulation is adopted. Every credit holder will have
an incentive to lobby for Kyoto or its domestic equivalent.
