Thursday, January 29, 2009

Geography is Divinding Democrats Over Energy

With the recent influx of Democrats into Washington, there has been much talk about the change in the United States energy policy. However, there is beginning to be a divide within the Democrats on what the policies behind the new energy policy need to be. The problem behind this is “most of the policy makers on Capitol Hill and in the administration charged with creating the legislation come from either California or the East Coast.” These congressman are the main proponents of pushing for renewable energy sources. This is a catastrophic problem for those who live in the Midwest. The congressman from the Midwest states are banding together to fight the strict regulations that are being proposed by the committee. If new regulations are passed based on California's legislation, then the Midwest will collapse because their entire economy is dependent on coal. The committee are against coal as a fuel source, but cutting that straight from new policy would cause an already crumbling economy to collapse. 

The Midwest relies on coal for its use in manufacturing. For example, in 2005, “California derived only 21% of its electricity from coal; whereas, Ohio drew 86% of its electricity from coal.” Based on those figures, how can the policy makers from California expect Ohio and other Midwest states to be able to function without the ability to burn coal for electricity.  It can be inferred from the graph that the states that rely the most on coal are where the centers for manufacturing are located.  The representatives from these states agree that there needs to be restrictions against the amount of carbon dioxide that is allowed to be emitted it into the atmosphere, but they cannot have any new regulations that almost destroy their economies.  They believe that a system like cap-and-trade would be able to work because their economies would still be able to function, but they would have to be more careful on how the coal is burned.  The main question behind this new energy policy if it is enacted would it create jobs or destroy jobs. That is the main question because at this turbulent time in our economy it is important to make sure new jobs are created without the expense of eliminating current jobs.  It will be very interesting to see how this all pans out, but it could possibly be the end of the automotive industry and other manufacturing industries that rely on coal.   


Nate said...

In this blog, the notion that the Mid-West's economy would "collapse" under new energy policies rests on the idea that coal would no longer be used as an energy source. This is an exaggerated description of the policy consequences, as it is clear that coal fired power plants are not going to disappear, or simply stop generating electricity. Instead the cost to produce energy from coal would increase to reflect the costs associated with emitting carbon.
While this would increase manufactorer's costs, I am reluctant to except forecasts of economic devastation for Mid Western industry. American manufactoring is already at a cost disadvantage when considering our labor costs alone. Outside of relocating, outsourcing, or renegotiating with an often stubborn workers union, there is little that can be done to reduce labor costs. A carbon policy that increases the cost of electricity would not devastate industry because there are always ways to reduce electricity consumption, and lower costs. Manufactorer's will have incentives to increase the efficiency of various processes, and spur innovations that can counter the rising cost of their energy needs.
Additionally, a carbon cap and trade program is the most desireable system of carbon regulation for the Mid West. Cap and trade schemes reduce the cost to industry more so than other carbon regulations such as a carbon tax, because those plants that can abate carbon at a low cost will do so, while older coal plants with high abatment costs (older Mid-Western coal plants) can reduce costs by simply buying carbon permits. This system minimizes costs to the entire industry effected. The hugely successful SO2 cap and trade program highlights the cost savings of a cap and trade scheme, as hundreds of millions of dollars were saved by the coal generated Electricity industry the first years of the program alone.
The "re-industrialization" of America is an idea that I have taken a liking to, particularily the idea of setting up new manufactoring facilities in states whose manufactoring sectors have been hit hardest in the last 20 years, namely Mid Western states. Admittidely, it would be difficult to craft such legislation that would include a carbon cap and trade system and incentives for clean technology manufactorers to locate in such states. A policy that included such vision would dampen the effects of increased costs of electricity for industries in the Mid West by bringing in additional facilities and jobs.

David Wogan said...

There are a lot of good points here on both sides. I think something to keep in mind is that any changes from legislation, whether in the form of carbon taxes or cap and trade programs, will take a long time. If done right, it looks like new jobs could be created. More than likely, some jobs will be phased out and people will have to transfer their skills.

abhishek gaurav said...

I have a question on cap and trade system. Well as much as I know years back, when the environmental laws came into effect,then many environmental companies came up who worked on limiting any industry's pollution level, did some optimisation and something....and made a lot of money in the process. But these environmental companies were owned by individuals who made a lot of money just because of the envirionmental laws.

Q. Did these laws create a lot of
jobs ?
A. Absolutely not, just a few individuals made a lot of money.

Now you talk about the Cap and trade system ?
Q. Why are you trying to associate this system with creating many jobs, please explain.
Because, I think this again will give an opportunity to many individuals to make a lot of money, and wont really help in creating more jobs!

Nate said...

the merits of cap and trade lay in the scheme's ability to reduce compliance costs across a whole industry, while committing to a quantified reduction of pollution. Job creation is not, and has not been a reason to pass cap and trade legislation.
I believe the point David was making regarding jobs was that a shift in manufacturing or "re-industrialization", would require a transfer of skills.
Job creation associated with cap and trade would be negligible indeed.

iheartgas said...

Your post points out some interesting challenges for the Democrats in Congress going forward. There appear to be several pockets of dissent throughout the party, particulaly on the House side. Each group concerned about various approaches to our energy problems and potential negative effects for their districts and the country.

Following the November elections for example, energy politics lead to some significant committee head changes including the replacement of Congressman John Dingell (MI-D), the House’s longest serving member, as Chairman of the Energy and Commerce Committee by Congressman Henry Waxman (CA-D). Dingell, an obvious ally of the auto industry, was seen by climate progressive democrats as a hinderace to significant climate legislation, so he was replaced with a Californian.

There also exists a division between House Leadership and some of the more conservative members of the Democrat party, also known as the “Blue Dog Democrats”. The blue dogs along with a group of producing-state Democrats blocked Speaker Pelosi’s and Congressman Rahall’s (VA-D) attempts to pass the “use-it or lose-it” bill last summer. Congressman Gene Green (TX-D) recognized the misguided nature of the legislation and successfully led a group of dissenting Democrats to oppose the measure and protect some of the largest employers in his home state: the oil and natural gas industry. The bill failed to receive the 2/3 majority necessary to pass the House. Coincidently, earlier this month Waxman dissolved the subcommittee Green chaired on the Energy and Commerce Committee.