Conflating Energy and Climate Policy: Road to Nowhere

By Kennedy Maize

Washington, D.C., March 4, 2012 — Conflating climate and energy policy in the U.S. over the past several decades has produced incoherent policy in both areas, along with considerable confusion and loss of focus, argues economist Denny Ellerman in the current issue of Economics of Energy & Environmental Policy, the journal of the International Association for Energy Economics. While sharing some attributes, the two areas of public policy have important differences, argues Ellerman, and the past 30 years of energy policy demonstrate that following that the path that intellectually combines them leads “to nowhere.”

Ellerman has been a participant and observer of both energy and climate policy for many years. Currently teaching at the Robert Schuman Centre for Advanced Studies of the European University Institute in Florence, Italy, Ellerman was for many years executive director of MIT’s Center for for Energy and Environmental Policy Research and MIT’s Joint Program on the Science and Policy of Global Change. He was also an energy economist with the Department of Energy in the Carter administration (where I first got to know him) and the chief economics thinker for the late, and long-lamented National Coal Association.

Looking back at the sorry U.S. history of energy policy, and the often parallel course taken in examining global warming as a policy issue, Ellerman sees a confusing and dangerous landscape. “Over the past thirty years,” he writes, “energy policy has become almost devoid of meaningful content; and effective climate policy involves a good deal more than reducing CO2 emissions.” Climate involves reducing other greenhouse gases, adaptation, land use, terrestrial sinks and biofuels, and other areas that don’t have much or anything to do with energy, notes Ellerman.

“Conflating climate with energy,” says Ellerman, “not only ignores these other aspects of climate policy, but also risks heading down the same road to nowhere.” That the country has moved down that road quite a distance is irrefutable, he observes.

Ellerman’s article provides a brisk, pointed history of the development of U.S. energy policy since the 1973 Arab oil embargo, a period of some 40 years that covered most of the careers of both of us. The landmarks include the Nixon administration’s silly “Project Independence,” the same administration’s counterproductive wage and price controls that included crude oil, a legacy of natural gas price controls going back to the end of World War II, the Carter administration’s feckless “moral equivalent of war,” the Clean Air Act Amendments of 1990 in Bush I, the Clinton administration’s failed energy tax proposals, Bush II’s slapdash surrender to subsidy, and Obama’s complete conflation of energy and climate policy when cap-and-trade legislation died on the congressional vine. When cap-and-trade up-and-died, Obama proclaimed that “cap-and-trade was just one way of skinning the cat.”

“Energy policy has evolved since the 1970s into the promotion of whatever form of energy has the requisite political support at the moment, and climate policy has become indistinguishable not only in the measures proposed but in the rhetoric as well,” Ellerman writes. “If the evolution of energy policy over the past three decades is a guide, climate policy will have as little effect on greenhouse gas emissions as energy policy has had on oil imports.”

A fundamental aspect of U.S. energy policy has been the notion of “energy security,” a form of either outright or virtual autarky where U.S. consumers are assured of a plentiful supply of low-cost, domestically-produced energy that is insulated from world markets. Of course, this is often at complete odds with the goals of those who fear climate change will destroy the earth and civilization as we know it. Coping with that threat, as New Yorker writer David Owen points out in his new book “The Conundrum” requires expensive, high-cost energy so that folks won’t use much of it. The subtitle of Owen’s book tips his policy hand: “How Scientific Innovation, Increased Efficiency, and Good Intentions Can Make Our Energy and Climate Problems Worse.”

Looking back, Ellerman observes that “it is remarkable both how enduring the theme of energy security has been and how meaningless the phrase has become.” In that context, he says, “climate policy has come to be seen as just another form of energy policy….”

Both energy and climate, says Ellerman, have risen to the policy agenda “because of mispricing.” In energy, that was the hangover from the days of formal government price controls. In the case of climate, “the problem is the absence of a price on the externality that attaches to the carbon content of fossil fuels….” The energy misallocation was largely cured by letting markets set prices. That was easy. “Energy security,” on the other hand, is neither attainable nor particularly desirable.

Not so for climate, says Ellerman, where, failing to put a price on carbon, the Obama administration has adopted its “skin the cat” regulatory agenda. That has meant that “the conflation of climate with energy policy is complete” and climate policy has become “indistinguishable not only in the measures proposed but in the rhetoric as well. If the evolution of energy policy over the past three decades is a guide, climate policy will have as little effect on greenhouse gas emissions as energy policy has had on oil imports.”