Barack Obama’s green plans could cripple America’s economy

Cheap energy isn’t just the result of the shale-gas boom. In much of the US, the power industry continues to rely on coal. Consumers in Kentucky, where over 90% of electricity is generated from coal, enjoy electricity prices roughly 50% lower than in the UK – an indication of the huge potential cost of Obama’s plans.

Indeed much higher bills are almost inevitable now that the US is adopting EU-style policies. Carbon emissions from the power sector will be cut by an ambitious 32% by 2030 (compared to 2005 levels). Worse still, the ‘Clean Power Plan’ will favour expensive renewable energy over the relatively low-cost option of cutting emissions by switching from coal to natural gas.

Intermittent wind and solar capacity will have to be backed up by fossil fuel plants that can be switched on and off to balance supplies. And massive expenditure will be needed to link up the power grid to geographically dispersed wind and solar farms. If biofuels form part of the mix, yet more land will be transferred from growing food to producing ‘energy crops’.

Higher energy costs will not only mean hikes in utility bills but will also translate into higher prices in the shops. At the same time, there could be downward pressure on wages as firms attempt to mitigate the impact. US productivity growth is also likely to be lower as the returns from investing in energy-intensive, labour-saving measures are reduced. Fuel poverty is likely to increase dramatically, as it has in the UK.

Environmentalists would argue that the benefits of reducing emissions are worth the economic sacrifice, but it is far from certain that Obama’s policy will have the desired effect. There are huge question marks over the long-term impact of climate change – inevitable when trying to predict the behaviour of complex systems decades in advance.

More predictably, US firms will respond to higher energy costs by moving production to countries such as China, India and Mexico, where rules are more lax. While global agreements could address the problem of ‘carbon leakage’ they would risk slowing down development and keeping people in poverty for longer than otherwise would be the case. Green policies that damage Western economies also hurt poor countries by reducing opportunities for trade.

Obama’s plans are therefore ill-conceived. There is a high risk that the economic costs will far outweigh any benefits. A sensible US strategy on climate change would instead focus on win-win policies that help both the environment and the economy. Examples include phasing out agricultural subsidies and ending foreign aid programmes that contribute to the destruction of the rainforests.

Dr Richard Wellings is Deputy Editorial Director at the Institute of Economic Affairs.

Source:  http://www.telegraph.co.uk/news/worldnews/barackobama/11780350/Barack-Obamas-green-plans-could-cripple-Americas-economy.html

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s