Wednesday, June 13, 2007

Dumb Energy and Carbon Dioxide Policy by Dems

Good policy should look at problems, and find effective and efficient solutions to those problems. This usually means doing the 'easy' and 'simple' things first that promise high returns on investment, and then seeking to do the more difficult things in the future that promise lower returns to meet the last 10% to 20% of the goal. You do this for a couple of good reasons. First, there is never a guarantee that a program will be completed, so getting early and simple successes in allows for sustainable improvements. Secondly, if there are future resource constraints, the remaining projects have comparatively lower ROI anyways, so the opportunity cost of abandoning those projects are much lower. And finally, the easy and simple are doable today, while the difficult projects with low ROI may become easier as learning by doing and general technological advances should simplify things.

The Energy Bulletin takes a look at some of the alternatives for dealing with global warming and energy issues. Some of the alternatives to the present petroleum based, and rather inefficient systems that we have in place are readily doable, and offer significant profit in both the short term and long term. These are the projects that should be encouraged immediately.

Policy presciptions on the furthest left hand side of the graph are proposals that if implemented today could remove significant CO2 emissions WHILE also generating profits compared to present alternatives. These are the no brainers that should be encouraged. Alternatives on the right hand side of the graph have net present costs and should be done later on as there is a good chance that those costs can be brought down.

The Democratic Senate should be encouraging left hand side solutions. Encouragement could be shown in a variety of ways; informational campaigns that show LEED certified buildings are more cost-effective, mandates that all new federal construction have either white or green roofs, or low interest loans for insulation and water heating improvements. These steps are simple, cheap and promise significant impact in the short and long term. This set of pay-offs shows that reducing carbon dioxide emissions is not an inherently scary or life altering policy option, so the future political and policy option space is much wider than working on right hand solutions that are expensive and risky.

However the energy bill looks like it will be encouraging right hand side solutions. The Washington Post is reporting that coal to liquid conversions seems to be one of the big ideas that Democrats will be embracing in this summer's energy bill. The calculation is partially political, in the same manner that bi-partisan support for ethanol policy is an escalating game of bidding for Midwestern electoral votes, as the policy is aimed at subsidizing the US coal industry.

A group of Senate Democrats from coal-rich states is drafting an amendment to proposed energy legislation that would provide as much as $10 billion in federal loans to pay for capturing and storing greenhouse gases produced by plants that would turn coal into liquid transportation fuels or chemicals.....

Environmental groups oppose coal-to-liquids programs because, they say, such technology produces twice as much greenhouse gas as conventional petroleum-based motor fuels....

The public policy pay-off for these loans is minimal compared to the numerous other alternatives that are available. The coal to liquid proposal is not good policy, and not particularly good politics as the Democratic coalition of voters is trending towards the higher value added parts of the economy and away from the extraction and rent seeking segments of the economy. Coal burning is a rent seeking activity that gains its rent from the ability of the burner to dispose of his negative externalities into the shared public atmosphere. Just not a smart idea here.

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