Carbon Pollution and Wealth Redistribution

July 2, 2013

Whatever the weakness of the evidence on greenhouse gases (GHG) and climate effects, the real goal of carbon policy is a regional redistribution of wealth, a reality that explains the inability of Congress to enact such policies since the Clinton administration. President Obama too was unable to convince even a fully Democratic Congress to adopt such policies, and so he now proposes that his Environmental Protection Agency (EPA) and Department of Energy implement regulations reducing emissions of carbon dioxide and other GHGs, says Benjamin Zycher, a visiting scholar at the American Enterprise Institute.

  • The president proposes the imposition of a GHG emissions standard on both new and existing electric generating plants; expansion and tightening of energy-efficiency standards for buildings, appliances, and some vehicles; and an increase in (subsidized) renewable power generation from federal lands.
  • Policies making some energy sources more expensive inexorably will create such redistribution because states and regions differ in the proportions of their energy use derived from alternative technologies.
  • In particular, the president's proposals will penalize areas and industries disproportionately dependent on coal-fired power.
  • A recent MIT study concludes that under a policy to reduce GHG emissions "California, the Pacific Coast, New England, and New York generally experience the lowest cost...while the South Central [Arkansas, Louisiana, and Oklahoma], Texas, and Mountain States face the highest cost."

That conclusion is consistent with the data on average retail electricity prices reported by the Energy Information Administration.

  • The winners are states with high power costs or with significant inexpensive hydroelectric resources that would be unaffected by GHG policies.
  • The losers are states with low power costs driven by disproportionate use of cheap, coal-fired power.
  • By driving power costs up in the latter group of states, the GHG policies would reduce the competitive disadvantages of the former group.

The policies examined in the MIT study surely differ from those that will emerge from the regulatory processes given force by the president. But if the effect of the latter is some substantial reduction in GHG emissions, in particular from electric power generation, then it is difficult to see how the distributional impacts might differ substantially from those reported by MIT, and it also is difficult to believe that the basic red-to-blue transfer is accidental. Instead, given that the actual climate effects of reductions in U.S. emissions would be trivial, it is straightforward to hypothesize that the direction of the wealth transfer is the central motivating objective of this policy proposal.

Source: Benjamin Zycher, "'Carbon Pollution' and Wealth Redistribution," The American, June 26, 2013.

 

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