Wednesday, October 24, 2012

A response from CAP to Bob Murphy

I hate to admit it, people, but Bob Murphy got "it all wrong" on CAP's report on energy. If I had known this, perhaps I would not have favorably recommended his post the other day. But CAP's response says it's all wrong.

I'm kidding, of course. It was a good post from Bob. But I also recommend this one from CAP (HT Bob Murphy, as a matter of fact). I did wonder, when I shared Bob's post here, whether CAP really put so much emphasis on the "finite resources" thing (a point on which Bob is not only right, but also a lot clearer about than other Julian Simon boosters on the internet). CAP claims that misses the point of the report, which was primarily about oil and gas externalizing health and environmental costs, and on that point they're of course right.

I found this particularly interesting:

"The fossil fuel industry takes billions in direct tax incentives and subsidies every year. According to analysis by TR Rose Associates, for the past three decades, the coal industry has benefited from nearly $1 billion a year in subsidized public lands. And the oil-and-gas industry has benefited even more, taking $5.16 billion per year in subsidies in inflation-adjusted 2012 dollars. And these industries have been receiving public support for more than a century.

Let’s compare that to the renewable energy industry, a relatively new recipient of government support, which according to the TR Rose analysis receives $390 million per year in subsidies. Biofuels also receive about $1.1 billion per year. Phrased another way: The federal government’s commitment to supporting the oil and gas industry every year is about 3.5 times greater than its commitment to the renewable and biofuel energy industries."

The report they link to is hard to make sense of because they are averaging subsidies over a long period. That makes me think recent oil and gas subsidies might be less than the historic average (otherwise I imagine they would have shown it). But these sorts of things are path dependent, so that doesn't really matter. If you're concerned about government distortion of the energy market it seems like (even leaving aside the subsidy of externalties) the biggest problem is subsidization of oil and gas over a much longer period. Makes you wonder why groups like IER get so concerned about the renewable subsidies.

I said it in the last post, and I'll say it again. From my free market economist perspective I err on the side of being concerned about these implicit - and apparently also explicit - subsidies to the oil and gas industry. But that's just the free market perspective. Obviously there are other views besides the free market perspective that are less concerned about distortions, but that's my view.

1 comment:

  1. Daniel, I invite you to skim my post again. I quoted lots of stuff from them, showing that they were worried about environmental sustainability etc. In the section on "Finite Domestic Resources," I didn't say they based their case on that one point. Everything I said there was not only technically true, it was even "in the spirit" of what they were doing.

    The only thing in my post that I agree makes it sound like it was their whole case, was when I said "To see the ultimate flaw of the CAP vision..." I should have said something like "To see the ultimate flaw of CAP's emphasis on the 'finite' nature of our conventional resources..." But that's about it.

    Yes, I didn't talk about climate change because it was a blog post. I couldn't cover everything. If they had had a one sentence post saying: "Negative externality, we need a carbon tax, thank you for your attention" then I would have focused on that. But they were bringing up the "finite" stuff a few times, and saying the "right wing" vision was unsustainable and shortsighted. So that's why I focused on that point.


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