What Ethanol Tells Us About Global Warming

In short: barring technological breakthrough, we're screwed.

Ron Bailey's Reason article gives some sense of the magnitude of the carbon-emissions challenge by putting the numbers into meaningful units. An 80% reduction of US emissions means the amount of CO2 the US emitted in 1920, when our population was 1/3rd the size it is today, and 1/4 the size it will likely be in 50 years. Globally, we need the equivalent of 37,000 500 megawatt power plants that emit no carbon. This could be easily done, if by "easily" you mean "15,000 nuclear power plants," or a few million wind turbines, etc. Now you know why GE thinks going green is such a fab idea.

Where ethanol fits into this is as a parable for the challenges that lie ahead. We are barely a few years into trying to use it to make a serious dent in oil imports and already there are massive global calls to put a halt to it due to the perceived impact on food prices. Even the most "market-oriented" greenhouse gas reduction policies start by imposing substantial costs on conventional means of energy generation.

We can agree that ethanol is a bad idea, but in the end, taxing coal and oil will have the same effect on food and broader commodity prices. Conservatives and environmentalists alike have been railing against ethanol for decades as "liquid pork" and an environmentally-unsound process. Nobody listened to any of that, but when food prices went up 5-10%, the public roared, and this in the richest country in the world, with some of the lowest prices on food in real terms.

There is no easy way past this. The most optimistic view is that high energy prices will drive technological breakthroughs in clean power. But even these will rely on perhaps a decade or two of expensive energy before the lines cross again. Will the public tolerate government policy that can be demonstrated to be reducing their standard of living for the achievement of an ill-understood future goal? Especially if China and India are completely screwing the pooch on emissions because any less would precipitate violent revolt? Doubtful is an understatement.

Cap-and-Pillage

Robert Samuelson states a number of unpleasant truths in his "Just Call it Cap and Tax" column yesterday. Cap-and-Trade was a good idea on paper, or as physicists like to say, "on a frictionless surface in a vacuum."

Carbon emission credits would by very definition have economic value, which is to say they would be money, only unlike cash money, which is at subject to at least a few customary limits on blatant scheming, carbon emission credits (or Tears of Gore, as I like to call them), would be set up explicitly for the purposes of manipulation of behavior. To the extent that energy underlies almost every part of the economy, and that the production of carbon goes hand-in-hand with the production of energy, cap-and-trade would create an opportunity for rent-seeking and outright looting on a scale not seen since the deeply flawed privatization of state businesses in Russia 15 years ago.

Against this, a plain old tax on CO2 emissions seems vastly more sensible, especially if the proceeds are used to offset capital gains or income taxes. Carbon-advantaged energy sources would have price incentives built into them, and offsetting other taxes would alleviate some of the economic damage associated with higher energy costs. This is especially important given that neither China nor India, who will within a decade's time likely dwarf US emissions, is going to do anything that actually stunts their economic growth. My most optimistic vision is that algae biodiesel or solar or something as yet unimagined becomes commercially practical on a large enough scale to make the issue moot.