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Posted at 2:08 PM ET, 01/14/2011

Something is better than nothing -- but how much better?

By Ezra Klein

Cap-and-trade is dead. But it looks like a renewable energy standard of some sort has a chance of passage. As energy economists Robert Stavins and Dick Schmalensee observe, this is ridiculous: In addition to being "less effective and more costly" than cap-and-trade, a renewable energy standard relies more on a blunt government mandate (though there is some trading) than on the market. So how did cap-and-trade get replaced by a more statist, less effective, more expensive policy?

Beats me. My working theory is that there are a lot of legislators who know in their heart-of-hearts that climate change is a terrifying problem and history will judge them harshly for ignoring or impeding efforts to solve it. But they also know -- or think they know -- that cap-and-trade is political death for them. So they want to do something. And whatever you want to say about an RES, it's something. But as Stavins and Schmalensee say, that's also the downside of an RES: "There is a real danger that enacting these standards will create the illusion that we have done something serious to address climate change. Worse yet, it could create a favored set of businesses that will oppose future adoption of more efficient, serious, broad-based policies."

By Ezra Klein  | January 14, 2011; 2:08 PM ET
Categories:  Energy  
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Comments

Evergreen Solar Inc. will eliminate 800 jobs in Massachusetts and shut its new factory at the former military base in Devens, just two years after it opened the massive facility to great fanfare and with about $58 million in taxpayer subsidies.

Here’s what passes for the good news about Governor Deval Patrick’s big bet on Evergreen Solar Inc.: Taxpayers aren’t on the hook for the full $58 million the governor promised for a factory the company intends close two years after it opened.

Posted by: obrier2 | January 14, 2011 2:21 PM | Report abuse

"In a rare show of bipartisanship, a group of Democratic and Republican senators introduced legislation on Tuesday that would require utilities nationwide to generate at least 15 percent of their electricity from renewable sources like wind, solar and biomass by 2021."

Let's call this the "Ultimate Boondoggle Bill" and subtitle it the "Chinese Stimulus Bill"

It is a simple fact that the Chinese completely control the wind and solar markets, and the biomass market is an energy fraud as even Al Gore now admits.

How much do you want to bet that those bipartisan Senators have very strong ethanol interests in their respective states?

Oh BTW, the cost of enacting this bill would be to cause the ultimate consumers, you and me to pay about 55-60% more for our electricity bills, perhaps 100% more depending on how these things are financed and the condition of the bond market at the time.

Posted by: 54465446 | January 14, 2011 2:24 PM | Report abuse

A carbon tax is more effective than cap-and-trade or renewable energy standards, but it's likely nothing that would pass even the most liberal Congress and President will appreciably slow global warming.

Might not a better approach be to stop investing in infrastructure at low elevations, near the coast and in the southern parts of the country most likely to receive the brunt of the climate changes? Similarly, focus new infrastructure inland and northward, where the population will have to migrate.

Posted by: DavidinCambridge | January 14, 2011 2:30 PM | Report abuse

As a renewable energy analyst, I've spent some time looking at this bill and it'd actually be even worse than it seems. The overall demand it would generate for renewables would actually be less than the aggregate of the various state RPS requirements now. And while it doesn't supercede state RPS laws, it would allow double counting for renewable credits, so it would basically do nothing to stimulate additional demand, and might even encourage states to weaken or remove their own RPSs.

Of course 54465446 (or whatever) is just completely wrong about what it would to do energy prices, btw.

Also, why is this coming up now? That article you linked to is from September of last year. Has the bill been re-reported to committee? Or is there some talk of it being brought up again to the floor? I seem to recall that bills under consideration don't carry over from one congress to the next.

Posted by: genericOnlineID | January 14, 2011 2:36 PM | Report abuse

Blunt tools tend to create blunt tools.

I don't mourn the disappearance of cap and trade because it will be gamed into something that is overall negative by the financial squid.

The best thing to do is make petro-based fuels more expensive by euro-style taxation, and stand back to let the resulting market make enegy-source adjustmnets. Perhaps RES is a step in that direction. For a generation or more europeans have been paying about twice the US price for automobile petro, and they've adjusted to it. We are no longer exceptional (if we ever were), so let's get on that high-gas-price bus and ride for a while. It would greatly alter all sorts of established patterns (commuting, principally, but freight-hauling also) in positive ways - higher density cities, less commuting.

Posted by: JimPortlandOR | January 14, 2011 2:36 PM | Report abuse

I agree with you that there is a large enough number of Congresspeople who believe climate change is something we should be dealing with. In the last Congress, there were at least 67 Senators who at one time had at least said something positive about 'action' on climate change. But, the widespread opposition to cap and trade gave them an excuse.

Also - an RES is a mostly 'positive' sort of legislation, while a cap and trade is mostly 'negative'. By that I mean that in an RES, Congress is giving stuff away - to groups that will be happy to get it, while in a cap and trade, the perception is that you're just adding costs - a negative - that will harm people.

So - in a public choice sort of way, given a choice, legislators will always choose policy that gives targeted benefits to a few, while harming a general many (RES) over a policy that harms a targeted (but vocal) few while benefiting many (who don't realize the benefits).

Posted by: andrewholland | January 14, 2011 2:45 PM | Report abuse

But but but ... Klein *wants* an activist Congress. Someone has to *doooooooooo* something. Only government can save us!!!! It's too important to be left to free initiative.


We'd all be better off if Congress adjourned, everyone went home, and tended to their own personal lives.

Posted by: msoja | January 14, 2011 2:46 PM | Report abuse

Wasn't there an article in today's wonkbook which argued that simply getting rid of all energy subsidies across the board would be most effective? What happened to that? Didn't that suggest that nothing would in fact be better than something?

Posted by: justin84 | January 14, 2011 2:52 PM | Report abuse

"climate change is a terrifying problem...."

Which is it this week....global warming? global cooling? Too wet? Too dry? I have a hard time keeping up with the so-called 'science'.....

History proves there will always be swings in climate 'averages' from decade to decade, and progressives will always be there to spin whatever the 'change' is into a reason for more government control of business and our personal lives.

Just for fun sometime, go to the library and pull out some of the microfiche of Time and Newsweeks from the early 1970's when we were all about to die from global COOLING. And of course, progressives were right there at the time telling us the only possible solutions were their "sensible" proposals to regulate more of our daily lives.

Posted by: dbw1 | January 14, 2011 2:57 PM | Report abuse

I think the question you are missing is: "If you are passing energy reform legislation to combat climate change, how do you justify funding for ethanol, drilling in the gulf, clean coal, etc.?"

There are approximately 100 senators (+/-3) that are on board with an energy reform bill of some sort. You can bring about 75 of them in under an "energy independence" justification, 65 under a "green energy" justification umbrella. There are maybe 50 senators you could get with climate change focused legislation. That's not enough.

Perhaps there is someone who will find a way to claim that a carbon tax (which assumptively will be loaded with 'clean carbon' subsidies) is really designed to support energy independence, but that will be tricky to pull off.

Posted by: eggnogfool | January 14, 2011 3:04 PM | Report abuse

@Justin84

I think the point being made was that we heavily subsidize dirty fuel production (for ever dollar that the federal government gives to renewables, about 80 go to Oil/Gas/Coal).

However once you take into account the size of those industries (and their ENORMOUS profit margins), taking away those subsidies would do very little to increase the price of energy. Renewable technology is still very young (and barely 1% of annual generation in the country comes from non-hydro renewables). And even though the technology now is light years better than it was even 5 years ago, and will be light years further in another five years; if you took away subsidies for renewables the price would rise a good deal above the market and would cease to be competitive. Point being: removing the dirty subsidies would be a step in the right direction as they are basically a benefit-free handout to very mature and profitable industries right now, but removing the subsidies to the wind and other renewables (without putting a proper price on Carbon) would submarine an industry that has made huge strides in terms of capacity and price and is likely to be competitive on its own within a few years anyway. Especially because fuel prices in the gas/coal generation world will likely continue to rise, while fuel prices in the wind generation business are shockingly steady (free).

Posted by: genericOnlineID | January 14, 2011 3:05 PM | Report abuse

Following up on my last post, this is what I think a skilled politician could pull off. Say the following:

"In order to gain energy independence, as well as improve our trade deficit and make American goods more competitive here and abroad, I will submit legislation that amounts to a bunch of blatantly protectionist energy policies.

In order to get this past the World Trade Organization, I have formulated this bill as a piece of climate change legislation; it is based around a carbon tax and such things, but analysts have agreed that at its heart, it is putting a tariff on certain imports, subsidizing exports to improve their competitiveness abroad, should create jobs here in America, and should be cost neutral to the average American energy consumer after the associated tax rebate. If you are one that believes climate change is a concern we should be confronting, it deals with that as well."

Make it clear thatwhether or not we believe in climate change, the rest of the world does. If they're just suckers, we might as well take advantage.

Posted by: eggnogfool | January 14, 2011 3:35 PM | Report abuse

generic wrote:

"Of course 54465446 (or whatever) is just completely wrong about what it would to do energy prices, btw."

Ok, I'll bite, why am I wrong?

Posted by: 54465446 | January 14, 2011 3:46 PM | Report abuse

Jim wrote:

"The best thing to do is make petro-based fuels more expensive by euro-style taxation, and stand back to let the resulting market make enegy-source adjustmnets"

So in a 10% unemployment economy it's a good idea to tax the 90% of the economy that is based on fossil fuels to promote the 10% or less of the economy that is non-fossil based?

Sounds like a plan!

Posted by: 54465446 | January 14, 2011 3:50 PM | Report abuse

@54465446 wrote:
"It is a simple fact that the Chinese completely control the wind and solar markets"
.
Which is only true because our wonderful 'conservatives' have blasted any work in this field as being useless and a farce. Except it isn't as the Chinese are showing us.
.
If the GOP was the 'party of business' as they like to tout, why did they submarine our own industrial sector from providing the world with this new technology. Regardless of whether if it really is needed or not, this was a market that was begging for players and thanks to global warming deniers we completely abandoned it to the Chinese and other countries.
.
Now people like you complain that doing 'green' stuff only helps the Chinese. Just wow.

Posted by: rpixley220 | January 14, 2011 3:51 PM | Report abuse

eggnofool:

The problem is that alternative energies are not US industries so promoting them can never bring us to indepedence.

We currently produce no, that's right no rare earth necessary to use either wind, solar or even EV's for that matter. There is one mine in this country scheduled to open sometime this year, and another in 2013. However with 90% of the world market, China controls production and cost completely. The reason that the mine which reopens this year closed in the past was because they could not compete with Chinese production in the first place. Because of labor and currency issues, the Chinese can undercut the US market at any time.

Posted by: 54465446 | January 14, 2011 4:03 PM | Report abuse

rpixley wrote:

"Which is only true because our wonderful 'conservatives' have blasted any work in this field as being useless and a farce. Except it isn't as the Chinese are showing us."

Actually not at all. The Germans have the largest solar market in the world, and the Chinese are driving them out of the production end too!
.

Posted by: 54465446 | January 14, 2011 4:05 PM | Report abuse

generic wrote:

"Point being: removing the dirty subsidies would be a step in the right direction as they are basically a benefit-free handout to very mature and profitable industries right now, but removing the subsidies to the wind and other renewables (without putting a proper price on Carbon) would submarine an industry that has made huge strides in terms of capacity and price and is likely to be competitive on its own within a few years anyway. Especially because fuel prices in the gas/coal generation world will likely continue to rise, while fuel prices in the wind generation business are shockingly steady (free)."

The above proves that you're as much of an "alternative energy analyst" as Congressman Joe Barton is a petroleum industry analyst. It's ok to be an advocate. Why hide under the pretense of impartial analysis?

Posted by: 54465446 | January 14, 2011 4:12 PM | Report abuse

rpixley220:
"If the GOP was the 'party of business' as they like to tout, why did they submarine our own industrial sector from providing the world with this new technology?"

I missed that news somewhere along the line....I didn't realize the GOP banned solor and wind companies from developing and selling products in the US.

Unless, of course, what you mean is that those technologies have (thus far) proven less reliable and less cost-effective than the resources we already have, so therefore the GOP wasn't willing to go into even more debt subsidizing technology that wasn't needed.

I'm guessing you are fully supportive of Democrat efforts to transfer wealth from the poor to the greedy rich by subsidizing the Volt in the name of 'green energy'?

Posted by: dbw1 | January 14, 2011 4:14 PM | Report abuse

"I think the point being made was that we heavily subsidize dirty fuel production (for ever dollar that the federal government gives to renewables, about 80 go to Oil/Gas/Coal). However once you take into account the size of those industries (and their ENORMOUS profit margins), taking away those subsidies would do very little to increase the price of energy."

genericOnlineID,

I agree. Let it be done.

"would submarine an industry that has made huge strides in terms of capacity and price and is likely to be competitive on its own within a few years anyway."

If the industry would indeed be competitive on its own in just a few years time, the loss of subsidies wouldn't submarine it.

"Especially because fuel prices in the gas/coal generation world will likely continue to rise, while fuel prices in the wind generation business are shockingly steady (free)."

I fail to see why an industry with positive trends in terms of technology and relative prices needs subsidies at all, especially given the widespread view that green technology is morally superior, giving green cars a luxury status of sorts.

Especially when the body doing the subsidizing spends 80x as much subsidizing the incumbent dirty energy producers that we allegedly want to get rid of.

I view the externality argument as trumped in practice by public choice. Even if you agree that the arguments about global climate change are broadly correct - and I do more or less - relying on government has clearly failed.

Even with Democrats controlling two branches of government, we tax income rather than carbon, and we spend 98.8% of our subsidies on dirty energy with external costs, vs. 1.2% of our subsidies on clean energy with external benefits.

Democratic politicians decided that rather than move with climate change legislation they'd pursue a hopeless effort on immigration in order to hurt Republicans politically - well aware that climate change was likely to be dead politically for years as a consequence.

"And this is why Graham is angry: He's taken a huge risk to be the lone Republican on climate change. Patrick Creighton, a flack for the conservative Institute for Energy Research, says that Graham's involvement makes him "part of one of the most economically devastating pieces of legislation this country has ever seen, no more, no less." And now it looks like Democrats are going to leave that hanging there, moving to an immigration reform effort that won't pass but might split the Republican Party -- creating massive problems for pro-reform Republicans like, well, Lindsey Graham."

http://voices.washingtonpost.com/ezra-klein/2010/04/you_wouldnt_like_lindsey_graha.html

Posted by: justin84 | January 14, 2011 4:16 PM | Report abuse

dbw1, your comment was shockingly foolish.

Posted by: MosBen | January 14, 2011 4:17 PM | Report abuse

@54465446:

Rare earths don't really worry me. Everyone buys Chinese because the Chinese sell them cheap; we have tons of reserves if they wanted to start charging.

Anyway, the bill I would suggest would result in only moderate increases in usage of wind/solar, along with significant reduction in energy usage overall, greatly improved efficiency, and increases in nuclear.

Posted by: eggnogfool | January 14, 2011 4:39 PM | Report abuse

MosBen:

#1, which comment. #2, any effort to explain why it was so 'foolish'? Or, are you like most left-wingers on here and you have no substantive arguments, so you are left to name-call?

Posted by: dbw1 | January 14, 2011 4:53 PM | Report abuse

@Justin84

The reason costs are coming down is because there is high demand for renewables (created by subsidies and state RPS requirements) and the industry has blown up with competitors in both development and turbine manufacturing. It is this competition that has driven the costs down and efficiency up. Take away the subsidies now and the industry dies quickly and takes the positive trends with it. Take a look at annual wind build outs in the last decade and they peak and dive based pretty much entirely on whether or not the production tax credit has been extended. The industry is still so minute (as in, the third biggest wind company in the country has 300 employees) that the one dollar we get is worth more to us than the 80 dollars the oil, gas, and coal industries get. That is an incomparably huge and mature sector.

@544464464

re: energy prices going up

There's no evidence to back up your claim.

re: energy independence

The only "rare earth" materials needed in wind turbines are for the actual generator, same as any generator, be it gas, coal, oil, hydro or other.

Chinese companies hold only a tiny (though growing) sliver of the turbine manufacturing market. By far the biggest players worldwide are European (Vestas, Acciona), and by far the biggest player in the US is General Electric (which, of course, is American)

And even then, European companies that build factories here to produce wind turbines here that are constructed here and that then run for 30 years not using fuel purchased overseas are not functionally different from American companies doing the same thing from an energy independence standpoint.


Posted by: genericOnlineID | January 14, 2011 4:54 PM | Report abuse

Rare earth metals are not required for solar power -- solar thermal does not rely on them. One US company which produces these systems (and just landed a large contract with China) is Esolar (esolar.com). Neither do solar based Stirling Engine systems -- see US based Infinia (http://www.infiniacorp.com/powerdish.html).

IBM also now has non-rare earth solar cells, but these are new / less efficient / not-in-production, etc.
http://www.popsci.com/science/article/2010-02/ibm-develops-higher-efficiency-common-element-solar-cells

Not that the above are perfect, but it's not accurate to state rare earth metals are required for alternative energy systems.

Posted by: BHeffernan1 | January 14, 2011 5:02 PM | Report abuse

JimPortlandOR: I'm in complete agreement on the high gas tax. And I've actually met some conservatives who would agree. We should form a coalition or some such.

Yes, 54465446, we shouldn't buy into the "times are tough" no energy taxes. We're trying to discourage fossil fuel use and encourage the creation of a green industry here at home (not China). If there is a real, geniune "Green Jobs" movement to be had, it's never going to take off until we start pulling the rug out from underneath our dirty fuel industries.

And, dbw1, your comment: "which is it this week....global warming? global cooling? Too wet? Too dry? I have a hard time keeping up with the so-called 'science'....."

You sound like my dad, who got that witty line from Rush Limbaugh's radio show. Did Rush steal it from you?

One of the beauties of the "green industry" is that you don't have to believe the "science" of Global Warming to see the potential profits and benefits to be had from the green sector. Whether the Earth is "really warming" or not (here's a shocker, it is), the world's fossil fuel supply is finite. It will run out. Sooner. Or later.

Posted by: pbasso_khan | January 14, 2011 5:04 PM | Report abuse

@dbw1 wrote:
"I didn't realize the GOP banned solor and wind companies from developing and selling products in the US."
.
Yes because nascent industries can compete so easily with entrenched existing technologies that get 10s of billions of tax breaks. By not providing a foothold in the form of cap & trade or other incentive to use the new tech, it can't ever get off the starting ground. Germany, China and others have provided those incentives. We chose not too.
.
In this case, actively downplaying renewables as not necessary and standing on the sidelines by not providing tax benefits that make the renewables competitive until they can stand on their own; yes the GOP has clearly tried to keep renewables from gaining any foothold.
.
And to be fair, some Dems from fossil fuel states have done the same thing. But the GOP is far and away the party of 'no GW, no renewables' more than the Dems ever have been.

Posted by: rpixley220 | January 14, 2011 5:23 PM | Report abuse

@eggnogfool:
"Rare earths don't really worry me"
.
http://www.wikinvest.com/wiki/China%27s_Rare_Earth_Dominance#Where_are_rare_earth_reserves_.2F_mines_located.3F

China has 30% of reserves, we have 10%. That should worry you. Can you point to data that says otherwise?

Posted by: rpixley220 | January 14, 2011 5:38 PM | Report abuse

@dbw1:
re: Global Cooling.
.
Here's something to make you're head explode. Maybe the earth is in a cooling period, but humans are producing so much CO2 that we're counteracting that cooling and raising the temperature anyway.
.
Those 70s predictions may very well have been right and today we're also right.

Posted by: rpixley220 | January 14, 2011 5:42 PM | Report abuse

"Take a look at annual wind build outs in the last decade and they peak and dive based pretty much entirely on whether or not the production tax credit has been extended."

genericOnlineID,

Do build outs dive because they aren't profitable without the tax credit, or because people anticipate the return of the production tax credit and decide to hold off?

Instead of a tax credit, why not simply not charge taxes at all?

"The industry is still so minute (as in, the third biggest wind company in the country has 300 employees) that the one dollar we get is worth more to us than the 80 dollars the oil, gas, and coal industries get. That is an incomparably huge and mature sector."

But to me as the taxpayer, I'm less than thrilled paying $80 for something I don't want - indeed, am told is bad - in order to get $1 for something I might want. It's like being told (at gunpoint mind you - I don't have choice about whether or not to pay) to throw $80 into a fire and then buy a cup of coffee for $1. If the coffee is as good as you say it is, I'll pay the $1 for it without any coercion. Maybe some people don't want coffee, but they shouldn't be forced to pay for what they don't want.

How much in subsidies does green energy receive? If dirty energy recieves 80x as much, clearly not all that much, in terms of absolute dollars.

What I am getting at is, if those who cared deeply about green technology would be willing to voluntarily give 1.2% of the total amount of money confiscated by government to pay all energy subsidies, the green energy sector would be just as well off. Heck, you might be able to find a single green-minded wealthy patron able create an endowment that would provide the same level of funding.

Posted by: justin84 | January 14, 2011 5:54 PM | Report abuse

They shouldn't be hand in hand. Getting rid of that 80 would be great, and would have little impact on energy prices in general.

Getting rid of that 1 dollar would similarly have very little impact on the price of energy in general, but the price of new wind, which currently competes well with new gas and out-competes new coal goes up 30% and is then no longer competitive without artificial demand generated by renewable energy standards, which are mostly already satisfied on the state level for several more years thanks to the huge collapse of energy demand in 2008. Hence, the industry goes away again.

That is an interesting question regarding whether it was the non-presence of the tax credit or the possibility of its return that dampened buying. I'm not really sure, but it seems immaterial. If the prices weren't competitive they weren't competitive. Even if in the long run (most contracts in the wind business are 20-year) a wind contract would beat the market (which it would), if the initial cost is too high, utilities (not always the most sophisticated financial players) won't purchase.

Posted by: genericOnlineID | January 14, 2011 6:11 PM | Report abuse

Thank you for sharing a nice article.
seslisohbet

Posted by: seslisohbet | January 15, 2011 7:08 AM | Report abuse

"Which is it this week....global warming? global cooling? Too wet? Too dry? I have a hard time keeping up with the so-called 'science'....."

Your ignorance is not our problem...our wouldn't be if you didn't vote based upon it. It doesn't take much time to inform yourself upon this matter. The scientific conclusions are obvious, and all one needs to know is to read the summaries by major scientific organizations, which all say three things without exception: it's happening, we are almost certainly causing it, and it's probably going to be bad.

Btw, 2010 was both the hottest and warmest year on record. That is expected to continue.

Posted by: brickcha | January 15, 2011 8:43 AM | Report abuse

Cap and trade produces a switch to natural gas. Fine as a short term solution. The capital costs of natural gas plants are minimal and current price of natural gas is low.

40% of US Generating Capacity is already natural gas, add in the dependence on natural gas for residential heating and we get left with a huge future risk in terms of supply and price.

A national renewal energy standard provides a framework to guarantee a market for nuclear power. Nuclear power is relatively inexpensive if it gets to sell 100% of its output.

One of the problems potential nuclear power plant operators have in attracting financing is a lack of a guarantee that the output can be sold.

Natural gas prices have been all over the block in the last 5 years.
Ranging from an economy crushing $13/mmbtu to a coal/nuclear industry crushing $3.50/mmbtu.

The way the current US 'clean energy' market is playing out now is we are investing in natural gas capacity which has prices that can't be predicted and windmills, whose output can't be predicted.


Posted by: SoldiersDad | January 15, 2011 11:43 AM | Report abuse

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