As lawmakers debated whether to raise US energy prices last week, a new government report reminded Americans how much governmental misjudgment costs. The Senate began deliberation of the Climate Security Act, a complex bill that would cap emissions of greenhouse gases and foster trading of emission allowances. That the measure should come up while energy prices are setting records and the economy is tottering testifies to the political influence of fear about global warming. That serious people think the US might implement an aggressive cap-and-trade scheme without hurting energy consumers testifies to the power of alarmist propaganda.
In April, the US Energy Information Administration estimated costs of the legislation: motor gasoline prices higher than a reference-case forecast by 22-49¢/gal in 2020 and by 41¢-$1.01/gal in 2030; average annual, nontransport energy bills up $30-325/household in 2020 and $76-723/household in 2030. EIA estimated the measure would lower US gross domestic product during 2009-30 by $444 billion-1.308 trillion (0.2%-0.6%).
Who pays?
Most Americans probably don’t want their government to raise energy costs and limit economic growth. But many Americans apparently think—erroneously—that “cap-and-trade” means someone else pays. While external factors certainly are at work, much of the extraordinary elevation in prices of oil products relates to costs of past such action—and inaction—by the federal government.
Large in the category of inaction is leasing of a small part of the Arctic National Wildlife Refuge in Alaska. Thought to contain the largest untested onshore structures in the US, the ANWR coastal plain encompasses a resource estimated by the US Geological Service at 5.7-16 billion bbl of technically recoverable oil, with a mean value of 10.4 billion bbl.
ANWR is an old story and, in view of recent stresses, a sad one. The coastal plain resource can’t be assessed until it’s drilled, and it can’t be drilled until it’s leased, which requires approval by Congress, which isn’t considering it. Along with moratoriums on the leasing of 85% of federally owned offshore, ANWR embodies consistent US refusal to act against environmental opposition on behalf of energy supply.
Last month, responding to a request by Sen. Ted Stevens (R-Alas.), EIA produced a report showing what the US may be missing. The report surmises ANWR production on the basis of each USGS resource estimate, assuming coastal-plain leasing is approved this year and production starts 10 years hence.
Under the USGS mean estimate, EIA projects that ANWR production would peak in 2027 at 780,000 b/d. Cumulative production during 2018-30 would be 2.6 billion bbl. The boost to domestic supply, EIA estimates, would cut the cumulative US expenditure on foreign oil during the period by $202 billion (2006 dollars). The extra supply would lower the price of light, sweet crude from reference-case projections by a maximum 75¢/bbl in 2025.
Benefits like these might now be in full force if Congress had approved ANWR leasing 20 years ago. It was then, in fact, as close as it had been in years to doing so. But the Exxon Valdez oil spill in March 1989 spoiled the politics. A shipping accident thus thwarted leasing and whatever oil and gas supply might have resulted.
Governmental habit
Opponents to ANWR leasing will say EIA’s projections are too small to warrant risks to the bleak coastal plain. They’re the same politicians and interest groups who make similar claims while opposing leasing off the East and West Coasts. They’re the politicians and groups arguing in Washington, DC, last week that the US must implement sacrificial warming precautions that might not affect global average temperature at all. Their cumulative triumph is a governmental habit of erring on the side of environmental caution and ignoring costs—including those of forgone supply—in decisions ranging from fuel chemistry to federal permitting.
Decisions made this way add costs in steps that, viewed in isolation, can seem minor. Yet the accumulated effects constitute a large and overlooked part of the economic load now crushing fuel consumers. Congress needs to change its decision-making habits. Environmental protection shouldn’t mean economic strangulation.
