Command and Control, California Style

By September 28, 2006Global Warming

How strange that a successful businessman, entrepreneur, individualist has embraced an economic philosophy of command-and-control.

SAN FRANCISCO (AP) – Gov. Arnold Schwarzenegger on Wednesday signed into law a sweeping global warming initiative that imposes the nation’s first cap on greenhouse gas emissions, saying the effort kicks off “a bold new era of environmental protection.”

We won’t reprise our arguments here about the questionable science and economic consequences — lost jobs, stagnation, etc. — of a regulatory regime designed to punish the use of energy. (Do click on our global warming archives if you’re interested, especially with respect to the media hype.)

Still, one bill warrants special critical attention:

Schwarzenegger also signed a bill that will prohibit California utilities from signing long-term contracts to buy electricity from out-of-state, coal-fired power plants. About a fifth of the electricity used in California comes from coal-fired plants out of state. The law will not affect contracts already in place.

The law requires new out-of-state coal-fired power plants to meet California’s stringent emissions rules for new natural gas-fired power plants. This requirement in effect prohibits new coal-fired plants from selling power to California.

Quick, sparsely researched observations:

  • So, you’ll be limiting new supply from lower-cost sources of energy. Basic economic theory — the free-market, proven kind that rejects command-and-control — tells us that reduced supply makes commodities like energy more expensive. Manufacturers use a lot of energy, and California’s will become ever more costly, i.e., less competitive. Which makes other states more attractive as plant sites.
  • By extension, California is encouraging expanded use of cleaner natural gas. And, how many LNG terminals to supply that gas are being permitted? Is there opposition, the kind that could block expanded importation through regulatory harassment and litigation? Well, of course there is.
  • The Commerce Clause of the U.S. Constitution would seem to come into play. In the ’90s, the Minnesota Public Utilities Commission sought to tax energy produced from North Dakota lignite (a low-grade coal) because of environmental “externalities,” i.e., pollution. The scheme failed, miserably, no doubt because its attempt to impose a state tax across state lines violated the primacy of the federal government in regulating commerce between states. The bill Schwarzenegger just signed is surely as unconstitutional.
  • Speaking of North Dakota, some California opinionators had great fun mocking Gov. John Hoeven in 2001 when he came to recruit companies to the prairies. Well, North Dakota is one of just a few states to have increased manufacturing jobs since 2000. (State statistics in .pdf file here.) Perhaps that’s because North Dakota’s leaders encourage manufacturers, promote abundant energy supplies and aren’t interested in making the state less competitive. Unlike some other state leaders we could mention.
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