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Shoveling hundreds of billions of dollars to the party’s allies isn’t sound economic or environmental policy.
T he corporate-welfare “climate-change bill” that Joe Manchin and his Democratic colleagues in Congress wish to inflict upon the republic is a bad piece of legislation for any number of reasons. The obvious one is the economic reason — the combination of higher taxes and a rush of hundreds of billions of dollars in new federal spending lands on the wrong side of both parts of our don’t-call-it-a-recession stagflation, in which we are seeing declining economic output, declining real wages, and inflation above 9 percent overall — and above 40 percent in energy prices. More uncertainty is the last thing American businesses need.
Our progressive friends will tell us that a few hundred billion dollars is a reasonable price for a credible climate-change bill — but is it that?
There are reasons to be skeptical.
The Biden administration says it would like to see the United States reduce its emissions of carbon dioxide by 50 percent or more by 2030. Advocates of the Manchin folly say that its provisions could enable a reduction of 40 percent by 2030. Well, maybe. Keep in mind that when they say, “40 percent reduction in emissions,” they mean a 40 percent reduction from 2005 levels. Thanks in large part to the economic displacement of coal by natural gas in electricity generating — which is to say, thanks to fracking — the United States already has cut emissions by about 20 percent from where they were in 2005: We’re halfway there, having done not very much, and the trend line already is pointed downward — sharply downward during the economic pause associated with Covid-19, but gently downward even without that dramatic episode.
The Manchin bill is, à la mode, a cowardly piece of legislation, in that it is all carrot, no stick. Its environmental program is mainly one of subsidies for politically connected business interests engaged in the so-called green-energy trade and handouts to upper-middle-class urban progressives who enjoy getting a $7,500 tax benefit when they buy a new Mercedes.
What these subsidies amount to is a reverse carbon tax. The idea of a carbon tax is to make the costs of petroleum and coal high relative to renewables, in order to encourage the flourishing of those alternative sources; a subsidy does the same thing on the other end of the equation: The government is, in theory, spending money rather than collecting it, but the point is still to make wind, solar, and — with any luck — nuclear competitive with hydrocarbons by taking money out of someone’s pocket.
Everybody loves the carrot. But the proposition that we are going to get the outcomes the Green New Dealers want simply by shoveling great heaping gobs of money to Democrats’ political allies without any painful new regulation or taxes is one that deserves a great deal of skepticism.
The most obvious point of comparison is the European Union, which imposes an indirect carbon tax by means of a carbon-permit market; the benchmark contract currently trades around 76 euros per ton, but it has been as high as 100 euros per ton, a price level it is expected to achieve again or even exceed between now and 2024 as the (imbecilic and unnecessary) return to coal-fired power in Germany and elsewhere increases demand for emissions credits. As it stands, the price per ton of carbon emissions in the European Union is today about eleven times what it was a decade ago — as Milton Friedman never said, Ce n’était pas un repas gratuit.
The price of European carbon contracts is mainly of interest to our friends over at Capital Matters, but for our purposes here, one fact is of keen interest: In spite of its imposition of a significant carbon price and in spite of its much more activist approach to the climate issue, the European Union has not decarbonized its economy — not even close, not even halfway, not even one quarter of the way. In 2020, renewables accounted for about 22 percent of the energy consumed in the European Union and about 10 percent of the energy used in EU transportation.
Unsurprisingly, the European Union is farther along that curve than is the United States, which relies on renewables for about 13 percent of all its power compared with the European Union’s 22 percent, and which generates about 20 percent of its electricity by means of renewables, compared with the European Union’s 38 percent. That has real consequences for climate policy: By the most economically relevant measure (emissions per unit of GDP) the United States is about twice as carbon-intensive as Germany.
But it is Germany, not the United States, that is getting ready to fire up coal plants.
Policy proposals are constrained only by the utopian imagination; policy outcomes are constrained by physics, geography, and technology, among other inconvenient exogenous factors. At a sufficient level of subsidy, wind and solar are economically viable alternatives to coal and gas, but they are intermittent, and it is likely that their role in total electricity generation will always be a limited one. Affordable, nearby hydrocarbons — Russian gas or, in its absence, coal — are what is going to fill in the gaps.
(The French, doing themselves a favor for once, generate most of their electricity with climate-friendly nuclear power, which provides a nice baseline load to support fluctuating renewable output.)
Completely decarbonizing electricity is a long ways off, in reality something that probably isn’t going to happen and probably doesn’t need to happen — but consider that electricity is the low-hanging fruit: It is not want of forward-looking policy but physical and technological realities that fortify the central role of hydrocarbons in transportation. Even if we were willing to endure what surely would be an astronomical transition cost, there isn’t an electric long-haul truck on the market that can do what a diesel-powered semi does — at any price. Container ships are the lifeblood of the global trade in physical goods, and most of those run on barely refined oil. Even if we were willing to deal with the security issues involved in developing a nuclear-powered global cargo fleet (there have been prototypes), those ships do not yet exist, and neither does the fuel-processing infrastructure that would be necessary to sustain them.
The case for a carbon tax is that current U.S. practice does not put any price on the externalities associated with burning hydrocarbons. And that is fair enough. But we should not delude ourselves into thinking that there exists some “clean” source of energy capable of sustaining modern life. As Thomas Sowell put it, “There are no solutions; there are only tradeoffs.” Some of those tradeoffs are economic: You can pay to make renewables relatively affordable either by subsidizing them or by taxing hydrocarbons. Others are environmental: The more batteries are used in transportation and utilities, the more battery manufacturing and disposal are going to be major environmental problems. Petrochemicals and petroleum-derived polymers are used in manufacturing solar cells, wind turbines, batteries, and much else that is “green.” When it comes to rare-earth minerals, many of the relevant geopolitical facts are geological facts. Beyond that, it is likely that demand for petrochemicals will in the near future outpace demand for fuels as the primary driver of worldwide oil consumption. Maybe at some point in the future the most common solar panels will be built of something other than petroleum-derived polymers, but in the here and now, that is not the case. There is no escape from the environmental effects of modern life, only management and mitigation.
Those being the facts, the case for shunting a few hundred billion dollars into corporate welfare for Democratic political supporters is far from self-evident. It is particularly amusing to watch Democrats argue for a bill that purports to address the problem of businesses not paying their “fair share” in taxes while larding up that same bill with billions of dollars in special-interest tax credits for their favorite businesses. That is the great Democratic tax strategy: create tax subsidies for businesses and then, two elections later, complain that businesses take advantage of tax subsidies. It is the unserious program of an unserious party run by unserious people who increasingly resemble the ignoramuses and maniacs who elect them.
If Democrats were trying to come up with a way of showing that they don’t think of the climate-change issue as anything more than an opportunistic pretext to raid the fisc on behalf of friends and cronies, they could hardly improve on this bill.
I hope Senator Manchin got something really good in exchange, and that his new position is not too hard on his knees.