So far as I'm concerned Kevin Drum used up every shred of credibility with his "Iran is double-plus good" bullshit.

Maybe he can buy credibility on the spot market, while blaming the very poor quality of his thinking on the fact that the internet is insufficiently regulated.

just exporting energy use elsewhere

Government intervention sure has worked for California gasoline prices.

The only place I can see where government intervention might make sense is where individuals rationally make decisions that are globally irrational. For example, in many locations geo-thermal heat pumps make a lot of sense economically, but they require a large up front payment, just like flourescent bulbs instead of incandescent. There is an argument for making them mandatory in new construction. But I've also lived with 2.5 gpf plus plunger toilets, so I recognize there can be unintended consequences of such mandates. When you give these bureaucrat jerks power they inevitably metastisize and abuse it.

The most effective way in increase efficiency is to increase the price of energy. Sad but true.

The most effective way to reduce energy use is to increase energy prices. But that doesn't increase efficiency, it incurs a deadweight loss and decreases efficiency (assuming that increase is artificially induced via government taxes/regulations). Whatever you may want to say about the virtues of using less energy, you cannot call such a construct more "efficient" using any normal definition of the word.

#3

"where individuals rationally make decisions that are globally irrational"

Game Theory is exactly what you need in these cases, eh...

#4
Up to a point; when your reach the point of diminishing returns higher prices are only a burden. Energy efficiency cannot be increased indefinitely; sooner or later you run into physical limitations.

Here are some thoughtful and insightful comments from someone who definitely thinks before he speaks on this issue.

#5,

That's true in the beginning. But sustained high prices will eventually bring efficiency as people upgrade inefficient items for efficient ones. The problem we've had since the 1970's is we have this energy price cycle. When energy is cheap, no one cares about efficiency. When it peaks, people complain and reduce their use, but eventually the price comes down again and they return to not caring about efficiency. Certainly regulation can help through building codes, CAFE standards, etc., especially when energy prices are low.

Andy,

Why sad? It is normal. People don't give much thought to air until it is hard to come by.

Suing the car comapniesfor their car's CO2 emmissions is another clever California idea to hold down costs.

#5 The government has to raise revenue somehow. Whether you tax income or wealth or consumption or property, there will be distortions. A fuel consumption tax seems as fair as any, and less problematic than the CAFE standards.

#6 Energy efficiency of a given product cannot be increased indefinitely, but cost can lead to product substitution or non-use (such as, working at home).

California appears to be locking itself into a high-cost energy trap. It also appears to be increasing its reliance on natural gas for essential base-load power production. This decision will expose California to both pricing risk and supply risk because domestic production is not keeping up with demand.

Here are a couple of paragraphs from the original NY Times article that Kevin Drum ignored.

_"The risk, both Mr. Johns and Mr. Schmale said, is in increasing the state’s reliance on natural gas, whose price has been extremely volatile in recent years. (California law bars construction of nuclear plants until the questions of waste disposal are resolved.)

“When you exclude coal and nuclear from your base load,” Mr. Johns said, “you’ve only got one option, and that’s natural gas.” Another measure awaiting the governor’s signature toughens standards by requiring that by 2010, 20 percent of the energy sold in California comes from a portfolio of renewable sources, like geothermal and wind. Last year, 10.7 percent of California’s power came from renewable sources."_

It's a bad idea to rely on an energy resource that is subject to big price swings for base load power. It's an even worse idea to do that with an energy resource that is increasingly imported from unstable or hostile regions of the world.

California is going to get a very painful smack from reality's clue stick in the near future.

Andy #8, I think we're talking past each other due to differing use of terms. I was referring to economic efficiency, and you seem to be referring to energy use efficiency. In terms of economic efficiency, government taxes/regulations/energy use programs/etc are never more efficient than an untampered market. Which causes a further disconnect in terms:

As a fan of strictly economic rationales, I'd say you're slightly off base. You aren't describing a wax and wane in attention paid to an issue, you're describing the normal market participation in and reaction to basic supply and demand movements. In other words, no one ever cares about energy use efficiency, even when energy prices are high; they only care about reducing their own personal costs, and will only sacrifice to achieve that efficiency if it will ultimately reduce the total cost. This is entirely rational behavior for individual actors to undertake, and in fact--barring outside factors--it would be irrational for them to care about energy use inefficiency outside of that cost/benefit analysis, or to voluntarily participate in a national conservation program (when they could just coast on the well-known "free rider) effect).

PD Shaw #12:

I agree, and those distortions are not always a bad thing in other circumstances. However it does not follow that:

The "leap of faith" here is that the government needs to introduce a distortion for some reason, or that it needs to collect extra revenue from inefficient energy users. If I drive a 10 mpg SUV, and the guy next to me has a 50 mpg hybrid, why does the government "need" to tax me more? What extra costs does the government incur as a direct result of me buying X gallons more than the guy next to me, if I'm willing to pay for those extra gallons out of my own pocket?

Now certainly my extra purchases might make gas scarcer for the hybrid driver and thus his fuel costs may rise as well. But that's a normal supply/demand function, not an uncaptured externality which requires government mitigation. I guess my question is, where has the economic case been made that the market mechanism for regulating energy use has failed, and where is the justification claiming the government must intervene to fix such a failing, even at the risk of imposing an economic deadweight loss?

Mrs. Davis # 10 and James Jones # 12:

Power companies risk shareholders' suits if they construct any more power plants in California given the C02 lawsuit against auto manufacturers.

Fossil fuel plants emit C02. Any big manufacturer whose processes involve significant C02 emissions is now subject to liability to its shareholders if it builds plants in California. New manufacturing plants servicing the California market will now be built anywhere but California.

Goodbye jobs. Goodbye state tax revenues.

California is violating the iron law of unintended consequences.

" New manufacturing plants servicing the California market will now be built anywhere but California."

Nothing new about it. For years manufacturers have been fleeing Califonia as though the Big One was imminent.

Unbeliever,

The assumption in your arguments, which are valid as constructed, is that government policies et. al. aren't already providing effective subsidies re: that gasoline you're buying for the SUV.

If you're not paying the true costs because of existing distortions or externalities, on the other hand, then getting closer to true cost purchasing would be beneficial and government has a role in that.

This can be done by removing the distortions that have warped true cost, or via the less efficient method of introducing an equal and opposite distortion. The latter has long-term problems, but may induce more rational short term behaviour and is sometimes the only tool available if some of the distortions or subsidies are coming from other jurisdictions.

Katzman:
Do you live in California?! I do. This is were Enron and other big energy providers gamed the system to screw me, the consumer. We're still paying off that debt in CA, and my rates are higher now because of DEREGULATION than because of regulation. Are you lobbying for big energy on the side?

As for the Coyote Blog "demolishing" Drum's argument, Coy-boy there is pretty fast and loose with his factoids. CA may have a "milder" climate than Alaska, but we use our energy cooling instead of heating. And we've got the highest concentration of high-tech industries -- industries that vacuum up power. Hell, I heard that the Cisco campus consumes as much power as the rest of the city of San Jose (which is the nation's 10th largest city, now).

--Beo

#13 I am suggesting a tax on gasoline consumption, not gasoline inefficiency. There is a relationship btw/ consumption and government expenditures for road improvements, pollution and there is a geostrategic cost in the Persian Gulf. There are also subsidies on demostic oil production that might be considered.

I would also scrap the CAFE standards. If you drive your 10 mpg car 10 miles per week, what's the difference if I drive my 50 mpg car 50 miles a week? What if we eliminate 10 mpg cars and you buy two 20 mpg cars, each of which are driven 10 miles per week? And don't get me started on the different standards between cars and trucks that essentially encouraged people to buy SUVs.

Along with income tax reductions, this is the three part program that ensures I will never be elected to political office.

It's true that California's energy use might be lower than, say, Alaska's, thanks to our better climate. (It also might be worse, since they don't run their air conditioners much up there.)

But that's beside the point. My post was about change over time. California's climate relative to other states has been exactly the same for the past 30 years, but our energy use has increased at a much slower rate. That has nothing to do with climate, and a lot to do with law and policy. Regulation doesn't account for 100% of this difference, but it does account for a lot of it.

Also worth noting: some of the effect of this regulation is to drive up energy prices, as Coyote notes. This reduces demand. But that's the whole point, not some weird side effect.

I know most of you guys prefer to think that regulation is unreservedly bad and never accomplishes anything, but it's just not so. The air I breathe in Orange County is far better than it was when I was born, and that's due almost entirely to regulation. The story with energy use is less dramatic, but regulation still had a significant part to play.

#13

"If I drive a 10 mpg SUV, and the guy next to me has a 50 mpg hybrid, why does the government "need" to tax me more? What extra costs does the government incur as a direct result of me buying X gallons more than the guy next to me, if I'm willing to pay for those extra gallons out of my own pocket?"

It incurs the cost of your polution... no?

I think you've defined the costs and benefits that determine behavior very narrowly, and I agree with you... it's all very rational by that narrow definition.

But the true costs and benefits are much wider than your scenario suggests. That's why I would support a higher gas tax, even if hurts my wallet.

Must we always react to pain, instead of anticipating it? There's nothing rational about our energy policy today.

@#17: As I recall, Enron was only able to game the system in California because the state's deregulation program left much to be desired, deregulating the cost side of the equation, but not the price side: in essence forcing energy companies into irrational behavior in order to stay afloat.

Texas' deregulation came about differently, as a direct result of watching how California's didn't work...

"California's climate relative to other states has been exactly the same for the past 30 years, but our energy use has increased at a much slower rate. That has nothing to do with climate, and a lot to do with law and policy."

California is surely its own problem, and not one of my real concerns -- until it decides to export its policies out my way. So here's my question:

In 2000, when I came back from living in China, I arrived in a San Francisco that was experiencing rolling blackouts. HangZhou managed to provide energy to its citizens, but not a major city in the US!

When I inquired as to why, I was told that it was a side effect of deregulation. I gather the idea was that it reduced the supply, rather than increased the demand, by allowing (here I simplify the argument as offered to me, but not, I think, harmfully so) energy producers to sell energy elsewhere that would have previously been offered to California.

So, then: deregulation reduced the supply of energy; and yet regulation was responsible for lower consumption. How can both things be true? Why, just as you say: regulation will reduce demand. By increasing the cost, you note. So much as to offset the increased supply, in Cali's case. And indeed, rather than some 'side effect,' that's the whole idea.

This is, of course, why economics is still called the "dismal science." Malthus wasn't alone -- ya'll come up with such wonderful ideas for ordering our lives.

"But that's beside the point. My post was about change over time. California's climate relative to other states has been exactly the same for the past 30 years, but our energy use has increased at a much slower rate. That has nothing to do with climate, and a lot to do with law and policy."

Change over time Kevin? Have you considered the percentage of the population using AC today compared to 30 years ago? Look at these census figures from 1997.

In the South, out of 35.9 million households only 2.7 No/Dont use Air Conditioning.
In the Pacific Timezone, out of 15.6 million households, 9.9 million No/Dont use Air Conditioning. Thats a huge difference.

Now, knowing what we know about the demographics, of the South in particular, would you not agree that 30 years ago the percentage of the population using AC was significantly lower than it is today (or in 97?). Of course it was. All your statistics are revealing is that over the last 30 years, more and more Americans, especially poor and rural Americans, have gained access to Air Conditioning. It happens to be a rather great if seldom mentioned social advance.

AC may seem trivial and (obviously by the stats) unnecessary in much of California, but in the humid South it is a major, major big deal. AC is a rather new phenominon and we are just starting to see the results of its near universal use. This timeline sums it up nicely, notice the disparity of AC use noted in the south.

1960: According to the U.S. Census, 12.4 percent of all U.S. households, and 18.3 percent of Florida households, have some kind of air conditioning.

So obviously it will have a big impact on electricity consumption regionally. Im not saying thats the only reason, but you have to admit it is significant.

Beo,

Yes, I live in California. We do not in fact use a lot of energy cooling - certainly nothing even remotely like, say, Texas or Alabama. As for not using heating - you must live in southern California. There's a state up above you guys, you know, and it sometimes drops below 60 degrees up there. So some of us do use heating. But is it cold? Not by my standards - and things like heating just one room during the daytime (which we're about to do) and having the thermostat kick in around 3pm are thinkable options. Not a great idea in Canada, or for someone from Wyoming (who gets the double-whammy, cause summer is a scorcher - did I mention that they aren't very 'energy efficient'?).

I used to live in Canada, whose energy efficiency ain't so great. Come visit us in winter time and see why. Or look at a map and note the distances goods have to move (we're bigger than you are). It made me somewhat allergic to simplistic 'thinking' of the kind you espouse and Drum promotes.

Mark Buehner neatly explains why changes in public access to goods like air conditioning will tend to produce changes over time. He also notes the immense social good involved - and you're welcome to experience an Alabama summer without AC if you doubt it.

Likewise, Kevin Drum had a good point when he said that sometimes regulation produces good things. Air quality is in fact a good example, and everything from emission standards to letting hybrid vehicles drive in carpool lanes has helped that along here in California. A classic 'externality' example, where the market isn't pricing it so it's not a decision factor. Regulation can help there - though so could a tradeable market in credits, with vehicles tested and assigned ratings that translated into required credits.

Speaking as a Canadian, I'll add that upping the required building code insulation for your heat-gushing houses in northern & central California would be another big regulatory plus - though I'll acknowledge that measures like brick can't be used in an earthquake zone. This gets new houses up to snuff fast, when it's cheapest for all concerned. Likewise, there are measures that could be taken to change the code for commercial buildings that would produce powerful energy saving effects without adding a lot of cost.

My problem with Kevin's piece is that the evidence he uses for regulation's value shows no understanding of (a) the country he lives in, and (b) the nature and potential pitfalls of regulation. If I'm going to be regulated, I want it to be done by smarter people - folks who use more thought and less religious faith in their approach to the problem.

Adding solar panels for water heating during the design and construction of buildings allows for huge energy savings with small additional cost.

Solar panels aren't really for central heating, but they will provide plenty of hot sanitary water. All over the year in southern USA; for shorter times the northern you go.

I agree with Joe and hence with Kevin that, yes, regulations can promote both social change and environmental improvement. But the key is flexibility. Regulations need to be monitored and assessed to see if they are reaching their goals vs their opportunity cost.

Here is what I see, and I'm not putting words in anyone in particulars mouth. Conservatives have a knee jerk abhorrence of regulation as interference with freedom of commerce and action that is often overdramatic and unworkable. The left, on the other hand, often views regulation as an end in itself- ie, there is a problem, something needs to be done to address it, and whether it works efficiently or not is secondary to the importance of addressing the problem. Both of these are pragamtism killers because they are tied to larger idealogical movements- the right (supposedly) desperate to strangle anything interfering with business, the left asthetically unhappy with the thing being regulated and eager to limit it for its own sake even more than the quantitative social good.

Energy is the perfect battle ground for these two philosophies. Conservatives are aghast at the thought of interfering with the lifeblood of business (and personal freedom they would argue), leftists have a deep seated problem with our petroleum based, (in their opinion) wastrel society in general. Small wonder useful compromise is so difficult to achieve, even though taken in context we all pretty much agree on the limited goals we are trying to achieve (clean environment etc).

Alabama without air-conditioning is close to Southern California without the Clean Air Act of 1990, a difficult place to imagine living for many.

The Clean Air Act had two parts, a draconian set of restrictions for Southern California and then standards for the rest of the country. This is not because the world hated Southern California, but because its a dumb#ss place for that many people to live, environmentally speaking.

So, yes, Southern California kept installing car pool lanes and closing old plants, while hustling back to Washington DC to show models that this would cut emissions by 0.0001%. And ultimately emissions reductions reduced the growth of energy use. But ultimately Southern California is unique and proposing its cure would be like adopting New Orleans flood protection regulations to slow urban sprawl in the rest of the country. Yes, increased construction standards would make houses more expensive and slow growth, but huh?

(And note that the Clean Air Act of 1990, created innovative emissions trading markets)

In fact, a place where many people have chosen NOT to live... iirc the entire southern/southwest US boom is the direct result of the availability of AC...