The White House continues its aggressive economic stimulus program by issuing ever more stringent controls over energy use, which it claims will bring great benefits to the nation for years. Unfortunately, the benefits are largely illusory and the costs are significant.
Consider one new, relatively small, final regulation just issued that will not take effect until 2016. The Department of Energy’s Energy Conservation Program: Energy Conservation Standards for Standby Mode and Off Mode for Microwave Ovens (10 CFR Parts 429 and 430) claims it will produce, over its 30-year life, 2016 to 2045, benefits of $3.38 billion (using a 3% discount rate) in contrast to a cost to the microwave industry of only $96.6 million. That is, the regulation supposedly produces 35 times more economic benefits than cost.
How is this economic wonder achieved? The cost side is relatively straightforward. Microwave ovens will be more expensive as they are retooled to use less power while sitting unused. DOE estimates manufacturers will lose about 7% of industry net present value due to higher costs and lost sales (the $96.6 million) — a substantial loss.
According to DOE, however, that loss in industry value is swamped by the benefits. Over 30 years, microwave users will use less electricity, so 38.11 million metric tons less of CO2 will be emitted (other emissions will also drop, but that is not where DOE says the money is).
The Social Cost of Carbon (“SCC”) from reduced CO2 emission is worth as much as $3.615 billion (at a minimum, it is $255 million, still much higher than cost). SCC was developed by an “interagency process” that determined that the value of a ton of CO2 should, as of 2013, be somewhere between $12.6 and $119.1 per ton, up substantially from the old 2010 SCC values of only $6.2 to $78.4 per ton.
This regulation drew particular attention as it is apparently the first to employ the new higher value of CO2 emissions. The problem is that the “value” of CO2 non-emissions is not based on anything other than the imagination of bureaucrats. Because there is no market for such emissions, no price exists except in the minds of the central planners who have divined a “price” from speculation. The real and measurable cost will be higher-priced microwaves (which will primarily impact lower-income people) and the attendant higher costs and lower sales incurred by industry.
The 4% Growth Project will continue its exploration of the relationship between energy regulation and economic growth by hosting a major energy conference on September 12, 2013, at the George W. Bush Institute in Dallas, Texas. Stay tuned to www.fourpercentgrowth.org for further details and continuing analysis.
Countries Compete Head-to-Head in Ultimate Competition: The Global Economy
The United States, Canada, and Mexico team up to be the most economically competitive trade bloc in the world, scoring a B+ on the Scorecard.
The Working Group Visits the U.S.-Canada Border
Recently, the Bush Institute’s North America Competitiveness Working Group convened again to continue its policy work on North American economic integration. The Working Group toured sites in Detroit and Windsor, Canada that show our policy priorities in action in the real world. The Detroit-Windsor area is the busiest commercial land border crossing in North America, handling 31 percent of U.S.-Canada trade carried by truck. Typical traffic includes the automobile industry, where car parts will typically cross the U.S-Canada border as many as six times before the finished vehicle is offered for sale to the public. Thousands of people cross daily as well, including the many Canadian nurses who staff Detroit-area hospitals. Over $100 billion in trade crossed here in 2014. With such a large volume of daily border crossings, reliable and efficient cross-border infrastructure is vital. Detroit-Windsor currently has three main crossings—the tunnel, which hosts primarily p
What Happened to the Issue of Debt?
We should be glad that the annual budget deficit has declined substantially as a percentage of the gross domestic product. The deficit was 2.5 percent of GDP in 2015, as compared to 10 percent in 2009. The GDP comparison matters because it shows whether the deficit is a drag on the economy. A low percentage generally shows it is not. But what we should worry about is that the federal debt continues to go unaddressed. The debt, which is the accumulation of our annual deficits over time, now stands about $19.4 trillion. (You will hear people talk just about the public debt, which is the portion of the debt that is borrowed from the public at large, but does not include money borrowed from the trust funds for Social Security and Medicare. The 19.4 trillion figure includes those government trust fund borrowings.) GOP House Speaker Paul Ryan, R-Wis., continues to warn about the dangers of that large number and the pressures that keep driving it upward. But otherwise the t