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Yesterday I wrote a little bit about the unintended health costs from the Cash for Clunkers program. Today I want to look on an overlooked environmental cost of the program. In the course of unfettered market activity what you would see is that as gas and oil prices increased, consumers would respond to these higher prices by economizing on their use of gasoline – either by changing their behavior or by purchasing more fuel efficient cars. This transition would likely be slow and driven by the perceived scarcity of fossil fuel energy – just as we saw with household transition away from wood as fuel toward coal and then oil and gas, or from wax to whale oil to kerosene to electricity for lighting their homes.

But what happens when consumers are “nudged“into driving more fuel effiicient vehicles than they would have chosen on their own given the current price of gas and oil, and consumer expectations about the future path of those prices? If consumers to not drive much more in response to the lower costs of driving a better mileage car, it is entirely conceivable that the demand for oil and gas will fall. What will this do to the price of fossil fuels? It will put downward pressure on them – and if the supply of oil is fixed and hard to adjust in the short run (as many alarmists like to claim), then the price of oil and gas will fall rather dramatically. This should pose a little bit of a conundrum for those thinking that fossil fuels will doom the planet. If their costs are falling because of reduced demand and increased efficiency in the use of fossil fuels, we have effectively done two things.

First, we have exteneded the “life” of whatever remaining oil is in the ground – both of that discovered and yet undiscovered. So moving to a more fuel efficient car fleet that uses internal combustion engines will seem to prolong the feasibility of the carbon economy – not good if you are worried about CO2’s impact on the Earth.

Second, even if the first effect is small (it will be huge actually …), when the price of fossil fuels is low, there is a far smaller incentive for entrepreneurs in the alternative energy sector to discover cost-effective environmentally “friendly” energies. There is a substantially larger incentive to do so when the price of fossil fuels is higher.

Artificially nudging customers to purchase more fuel-efficient cars than thieir current plans would prefer at current fossil fuel prices can have the perverse environmental effect of sustaining the fossil fuel economy. I would remind readers that this statement does not make me a global warming denialist. If Environmentalists truly cared about the environment and not something else (such as political influence and power and perpetuation of the Corporate State), first and foremost on their minds should be the question, “Does this program move us in a better direction toward achieving our goals of a clean and sustainable planet?” While it might be the case that Cash for Clunkers does this, reflection on the possibility that it does not advance environmental goals is sorely lacking. The reaction I am observing seems to be the usual – “if people say it is good for the environment, then it must be good for the environment.” Anyone with even a passing familiarity of the Clean Air Act, the synfuels program, the Endangered Species Act, and a host of other legislation passed in the name of the environment, might understand that this is far from obvious.

One Response to “Clunking Toward a New Energy Source”

  1. Michael says:

    Bruce Babbitt wrote a book (can’t remember the title), but in it he talked about how horrible it was to have a tower a Gettysburg that allowed visitors to view the whole battlefield at once. Paraphasing: How dare they ruin my view! He ended up getting Congress to pass an act which paid the owners a couple million then demolished that tower (all this was by pg. 3 of the book). My thought: how is this action based on the whims and beliefs of certain people any different from tyranny?

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