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In this week’s Grumpy Economist Weekly Rant, John Cochrane examines whether current climate policy is delivering meaningful benefits at a reasonable cost. He discusses the Trump administration’s move to withdraw from the UN climate framework underlying the Paris Accords, the reversal of the EPA’s carbon dioxide endangerment finding, and the broader legal and economic questions surrounding federal climate regulation.
Cochrane also considers how energy policy operates in practice. From renewed momentum behind nuclear power to California’s refinery shutdowns, imported gasoline, and Jones Act shipping rules, the discussion returns repeatedly to one standard: whether these policies produce measurable gains proportionate to their economic costs.
Transcript
Hi. I’m John Cochrane, senior fellow here at the Hoover Institution, and welcome to the Grumpy Economist Weekly Rant. This week, I’m going to rant about energy news, sanity, and insanity.
In the sanity department, the Trump administration has announced that it’s going to formally withdraw from the 1992 United Nations Convention on Climate Change that underlies the Paris Accords, the promise that countries made to achieve net zero, whatever that means, in short order.
Also in good news, the Environmental Protection Agency reversed its finding that carbon dioxide is a major pollutant, and thus one that the Environmental Protection Agency has the authority to control. Those are big news because they are more permanent than mere executive orders. They’re hard to undo.
Now, I’m not saying climate change isn’t real. It is. But as an economist, I want policies that achieve good benefits at low costs, and the current climate policies that we have in place chew up trillions of dollars with very little or no discernible benefit whatsoever.
Here in Palo Alto, they think about saving the climate as buying a Cybertruck to drive down to your private jet to go down to Cabo. Got bad news for you. That’s not going to help.
Similarly, spending $100 billion on a high-speed train from nowhere to nowhere, that will come in place just as everything else has been turned over to electricity anyway, is billions of dollars to no discernible benefit.
The endangerment finding is important. The Environmental Protection Agency is the one in charge of regulating smoke that comes out of the back of your cars and out of smokestacks and factories, and they’ve done a great job of that. Our air is much cleaner, and human health is much better as a result.
So you say, shouldn’t they be in charge of regulating how much carbon dioxide comes out of tailpipes and out of factory smokestacks?
No. Congress authorized the EPA to regulate pollutants that were a danger to human health. Carbon dioxide is not directly dangerous to human health.
So how did the EPA get the authority to regulate carbon dioxide? Well, they made up a long, fantabulous story that by issuing carbon dioxide, that would warm the planet. The warming planet might change the weather. Things might get a little hotter, although remember more people die from cold than from heat. Forest fires might get worse, but remember that mostly comes from not tending the forests. There might be more rain. There might be unspecified dangers to human health in a hundred years. And on that basis, they regulated carbon dioxide.
Weather is some of the smallest effects on human health to start with. Not only is it all hypothetical, but this violates the major questions doctrine, which is that administrative agencies should not take on major, big regulations with big effects on the economy without clear congressional approval.
If Congress wants the EPA to regulate carbon dioxide, Congress can pass a law allowing the EPA to regulate carbon dioxide. It has not done so.
That, too, I think, is very hopeful because it’s much harder to undo. The next president can’t simply come in and wave a hand, wave an executive order, and get that regulation going again.
In more good news, the Nuclear Regulatory Commission issued a construction permit for the first sodium nuclear reactor, as one wag put it, the first reactor designed since 1960. And Ursula von der Leyen, the head of the European Union, said that eliminating nuclear power in Europe was a strategic mistake, even though she voted for it.
I applaud people who can admit that they made mistakes. Europe is waking up. Their electricity is two to three times more expensive than in the US, and the result has been deindustrialization and moving all their carbon-producing activities to other countries, not reducing carbon much at all.
They, too, are realizing that was a mistake, and that’s more permanent. It’s a vibe shift. It’s an understanding that we are not going to go back to the tremendously expensive and tremendously ineffective carbon policies we’ve been at for the last 10 or 20 years.
In the insanity department, welcome to California. California has just shut down more refineries. We now get 40% of our gas from The Bahamas.
Why are we importing gas from The Bahamas? Ah, because the Jones Act means if you import gas from refineries in Louisiana, you have to do it with US-made ships and US merchant marine, which costs way more than anything else.
So gas in California is about five and a half, $5.29 a gallon, $3.59 elsewhere in the US. And how much carbon dioxide did we save? Well, that’s negative because it costs a lot more to refine it elsewhere, send it to The Bahamas, put it on ships to send it back to the United States, into California.
Ah, costs with no benefits. Welcome to California. If you like this rant, don’t forget to click the subscribe button.
John H. Cochrane is the Rose-Marie and Jack Anderson Senior Fellow of the Hoover Institution at Stanford University. An economist specializing in financial economics and macroeconomics, he is the author of The Fiscal Theory of the Price Level. He also authors a popular Substack called The Grumpy Economist.