The Rest of Waxman–Markey: Caveat Emptor!

On June 26, 2009, the U.S. House of Representatives passed the Waxman-Markey climate bill, known also as the cap-and-trade bill. This is unfortunate because cap-and-trade takes up no more than 30 percent of its pages. The rest of the telephone-book-sized HR 2454 detailed new regulations, wealth transfers and taxes whose aggregate adverse impacts may well surpass those of cap-and-trade.

Here is a quick list of some important provisions of the American Clean Energy and Security Act of 2009, nicknamed the Enron Revitalization Act of 2009 here at MasterResource.

Still more encouragement for renewable resources that cannot pass market tests. A national “renewable portfolio standard” will require that 20 percent of the nation’s electricity in 2020 (relative to 2.8 percent today) come from sources the law defines as “renewable” or (to a limited degree) improvements in efficiency. For the past ten years, wind power is the only renewable whose output has grown substantially, and it is only viable because of a federal production tax credit. Other renewables are generally even less economic. The national RPS is special interest legislation for wind.

Research on fuels and technologies that harms consumers and reduces employment opportunities. Section 114 institutes a new $1 billion annual tax on power from coal- and gas-fired generators, to fund a government corporation that will investigate carbon dioxide capture and storage. Even such optimists as the Pew Center on Global Climate Change estimate that the technology will increase the cost of coal-fired power by between 40 and 70 percent. At the same time, evidence on ethanol’s high costs and adverse environmental effects has been accumulating rapidly, but Waxman-Markey does not allow EPA to further regulate it for at least six years. As for the real fuel of the future, Waxman-Markey’s single relevant natural gas provision entails funds for a modest study on the feasibility of more gas-burning vehicles.

Numerous funding and research programs that replace market judgements with governmental ones. Waxman-Markey initiates a revolving credit plan and a “Clean Energy Development Administration” program that will together allocate at least $37.5 billion in loans and grants to be to technologies that private investors have declined to fund. The bill’s authors apparently know the technologies to subsidize, even if important components of them are yet to be invented. Utilities must develop large scale plans for electric vehicles (that ratepayers will finance) and billions of additional grants and loans will be available to encourage the production of electric cars and the necessary infrastructure (Secs. 121 and 125). The Department of Transportation also can choose to require the production of flex-fuel vehicles (Sec. 127) Government research will find efficiency improvements that manufacturers of electric motors have somehow missed, while also instituting a $350 million “Cash for Clunkers” program to encourage electric motor trade-ins (Sec. 245).

Further federal interventions in engineering and construction. Waxman-Markey will take regulation of buildings and their construction away from states and localities, which have good reasons for individualized codes. If state and local building codes do not meet standards that it sets, a federal code will be imposed on them. That code will in effect require that new buildings in 2014 consume 50 percent less energy than those constructed under today’s most stringent standards. (There will also be subsidies for retrofits.) Inside of buildings, there are new regulations on appliance designs and light bulbs, including underwater fixtures. If you are saving incandescent bulbs in anticipation of the 2012 ban, remember to stock up on ancillary items — Waxman-Markey will require that lamps soon come with sockets that only accept fluorescents.

Expansion of federal environmental jurisdiction. If climate change is really a problem, adaptation measures such as seawalls are as deserving of consideration as reductions in emissions. Waxman-Markey indeed considers adaptation, but almost exclusively for animals – There will be expanded programs to protect habitats and migration corridors in ways that go beyond the Endangered Species Act, along with federal databases that intervenors in local land-use proceedings can use. Electric utilities are also encouraged to plant trees as shady alternatives to new generation.

An increased role for politics in electricity and gas regulation. The Federal Energy Regulatory Commission, one of the few federal agencies that (at times) attempts to foster efficiency and competition in power and gas, will lose many of its powers. They will fall into the hands of a Presidentially-appointed “consumer advocate,” who will take control of the Commission’s legal staff away from the actual Commissioners.

Higher costs, job displacement, and impediments to trade. Despite frequent claims that it creates jobs and does not affect energy costs, Waxman-Markey contains provisions that would not exist if these claims were true. It includes rebates to low-income households that will protect them from increases in energy costs, retraining programs, and “adjustment” aid for displaced workers up to 70 percent of their wages for up to three years. If imports from countries with inadequate climate programs penetrate the U.S. too heavily, the President will be required to impose tariffs on them, unless a vote of Congress prohibits him from doing so.

Buyer Beware!

About the only aspects of energy policy Waxman-Markey does not cover are the discovery and production of new supplies, and the encouragement of competitive markets for them. This energy bill is on close inspection an anti-energy bill. Caveat emptor!