Down on the Farm
The President’s new energy proposals have generated a continuous stream of stories and analysis on the challenges of reducing our dependence on fossil fuels. This analysis has unfortunately produced more questions than answers. The primary question concerns our capacity to meet the demand for alternative fuels, which under any proposal, is likely double over the next two years, and could experience a seven-fold increase over the next decade. If corn-based ethanol is the alternative fuel of choice, ethanol production would grow over the next decade to consume the equivalent of all of the corn currently produced in the U.S. You don’t need to be an economist to comprehend the upheaval in U.S. agriculture that this new voracious demand will cause. The effects are already being felt, with the price of corn doubling over the past few years. This price increase ripples throughout the food chain. Even if corn-based ethanol is not the long term answer, the next few years are still likely to be jarring for farmers and ranchers. Enough new ethanol plants are under construction to double the production of ethanol, and whether or not these plants succeed, they will buy a lot of corn in the short run.
Not surprisingly, most experts agree that corn-based ethanol, as currently produced, will not fulfill anyone’s vision of a less oil-dependent world. Not only are the demands on farmland unreasonable, but the fuel is still plagued with concerns about its net energy output. This inconvenient reality is the reason the recent energy proposals rely so heavily on “new technologies” for the answers. Much work is under way to identify other plants, such prairie grass, to replace corn as a fuel source. Other companies are working on methods to convert food waste into fuel and use methane from manure instead of fossil fuel as an energy source for ethanol production. All of these efforts are promising and offer some reason for optimism in the face of the obvious shortfalls of the corn-based ethanol solution.
The growing chorus of critics of the proposals offered by the President recognizes the critical missing ingredient: a reduction in demand for fuels of any type. I have been a broken record on this point. Our consumption-obsessed culture will stress any fuel source and cause harmful side effects. The prospects for corn-based ethanol are so bleak, in part, because the amount of fuel required to maintain our self-centered lifestyles is staggering. The notion that we can innovate our way out of this mess is delusional, and sends the message to the public that we just need to sit around and wait for the ethanol to arrive at the gas pumps and all will be fine. New technologies only get us halfway. We have to effectuate a change in fuel-consuming behaviors to get us the rest of the way.
The American public has become impervious to emotional pleas for self-sacrifice, so the answer lies in changing incentives. A consensus of opinion is developing for two proposals previously discussed on this site: a cap and trade emissions trading system and a carbon tax. The Economist has repeatedly urged the U.S. to adopt both proposals and weighed in again in its current issue:
The measure of Mr Bush's failure to tackle this issue seriously is his continued rejection of the only two clean and efficient solutions to climate change. One is a carbon tax, which this paper has long advocated. The second is a cap-and-trade system of the sort Europe introduced to meet the Kyoto targets. It would limit companies' emissions while allowing them to buy and sell permits to pollute. Either system should, by setting a price on carbon, discourage its emission; and, in doing so, encourage the development and use of cleaner-energy technologies. Just as America's adoption of catalytic converters led eventually to the world's conversion to lead-free petrol, so its drive to clean-energy technologies will ensure that these too spread.
Thomas Friedman, who wrote extensively about the growing scarcity of energy resources as a result of the raging economies of China and India in The World is Flat, piled on the criticism of the President, saying (subscription required):
The really bold, transformative — and popular — initiative Mr. Bush should have offered would either be a national cap-and-trade system for controlling CO2 emissions by utilities, manufacturers and autos, or a carbon tax. Both would create economic incentives for us to get rid of appliances, buildings and cars that emit a lot of CO2 and to invent and purchase those that don’t.
Friedman, however, writes that some observers believe the President would sign a bill creating a cap and trade system. I happen to agree with this speculation. As a lame duck President concerned about his legacy, Bush should be more amenable to such a scheme than in the past.
A carbon tax, which taxes all forms of carbon outputs, is a more far-reaching version of a gas tax. As a tax, this idea is the more politically challenging of the two proposals, and may need to wait for the honeymoon that accompanies a new administration. A carbon tax, though, should produce an immediate impact on fuel-consuming behaviors. For example, recently released data shows that when gas prices climbed past $3 per gallon, Americans drove less. In 2005, Americans drove fewer miles than the previous year for the first time since 1980. Can you imagine the changes in behavior at $4 per gallon?
With gas prices down and likely to stay that way due a growing concern by oil producing countries that high oil prices will contribute to a permanent reduction in demand, we need policy changes more than ever. Americans may still be wary of buying SUVs and driving too much, but we have famously short memories. With gas at $2 per gallon or lower, it won’t be long before our nationwide concern for global warming and finding alternative fuels turns into just another fad.