Portman and Shaheen: The Dumb Consumers Protection Act

Underlying all government interventions to achieve greater energy efficiency is the belief that the market has failed and consumers are not smart enough to act in their own self-interest. This legislation continues to reflect the philosophy that government knows best how consumers and business should allocate their resources and which trade-offs they should make. This is just another example of the “Fatal Conceit.” Over the past 40 years, it has been demonstrated time and time again that market forces promote energy efficiency much better than big government.

Energy intensity, the measure of energy used per dollar of GDP has been declining for decades. This reflects both the changing composition of our economy and the advances in technology. The EIA’s Projections to 2040 in the 2013 Annual Energy Outlook show the energy intensity of each sector covered by this legislation declining.

-Residential energy intensity…declines about 27% from 2005 to 2040.

-Commercial energy intensity…declines about 17% from 2005 to 2040.

-Industrial sector energy intensity…decreases 25% below its 2005 level in 2040.

Implicit in the Portman-Shaheen legislation is the belief that this rate of decline is not acceptable. The knowledge that they would have to have to make such a judgment is well beyond their competence of that of their staffs. Since this legislative proposal has been embraced by the environmental community, it is probably a safe bet that groups like NRDC were actively involved in the drafting. And, they have a strong hostility to hydrocarbon energy.

The stated legislative goal is to “increase energy efficiency is buildings and industry …and save taxpayer dollars, promote job growth, and cut carbon pollution by increasing investments in energy efficient buildings and technologies.” In keeping with how Washington works, it provides subsidies for upgrades, process improvements, and worker training. In truth, this is just another attempt at industrial policy. If the proposal becomes law it will simply create another way for rent-seekers to gain profit from regulation instead of through competition.

Consumers, investors, and businesses face budget constraints and have to make trade-offs to achieve their goals in the most cost-effective way possible. A business that is induced by government to buy a piece of equipment may substitute that for adding employees who in the long run may be more productive. Individual consumers are faced with similar trade-offs in how they allocate their income. Making government preferred investments has consequences and there is no reason to assume that they produce more good than bad.

If the investments that the two senators want to promote made economic sense, they would be made without the need for subsidies. The private sector already has businesses that help building owners, manufacturers, and home owners identify ways to use energy more efficiently. Nothing associated with this legislation demonstrates that the energy efficiency market is not working or that those businesses lack incentives to increase their revenue by obtaining more business. Hence, the proposed subsidies are just another form of government waste.

The legislation also purports to be focused on helping manufacturers become more efficient and competitive. If that was really the objective, the two senators would focus their energy on lowering the corporate tax rate to make it more competitive globally, promoting a business climate that encouraged more investment, and reducing excessive regulatory burdens.

Behind all of the rhetoric associated with this proposal is the goal to reduce carbon emissions assuming that would have some meaningful impact on our climate system. They won’t. Senators Portman and Shaheen are locked into a paradigm that is woefully outdated. Global growth in emissions is coming from the emerging economies. Forced incremental reductions from the US economy will have no effect, even if there was a credible case that carbon emissions are causing global warming. There isn’t.

 

This article appeared on the National Journal Energy Insiders weblog at http://disqus.com/wokeefe/

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