Sunday, July 15, 2007

Emboldened by public anxiety over global warming and dependence on Middle East oil, Senate Democrats last month pushed through a 40 percent increase in the corporate average fuel economy standard for cars and trucks as the centerpiece of their energy bill.

The mileage standard will face a tougher time in the House, where John Dingell, the crusty, autocratic chairman of the Energy and Commerce Committee, who never misses a chance to defend Detroit’s perceived interests, guards the gate to a vote. But there is no question opponents of the tougher standard are now on the defensive.

If conservatives are to help defeat the new standard, they will have to do better than appeal to Americans’ reflexive distaste for government regulation. Indeed, in a political environment in which conservative power is waning, they will not have much influence over energy policy unless they can make a pragmatic case for relying more on markets and less on bureaucrats in coping with issues of energy security and climate change.

There’s no free lunch in ordering automakers to get serious about conservation. While Detroit’s doom-and-gloom about the impossibility of meeting the proposed mileage standards is rightly taken with a grain of salt, there is little doubt the standards can be met only by considerable spending on new designs and materials or by moving to smaller, less powerful vehicles (or both).

From economists’ perspective, though, the bigger drawback is the inefficiency of regulating vehicle design to reduce fuel consumption: the positive effect of tougher mileage standards is undermined by a built-in incentive to drive more. After all, the less gas burned per mile, the less it costs to make that optional trip to the mall or to forgo the inconvenience of carpooling.

What really seals the case against a new mileage standard is its inability to alter the realities of energy dependence. While reducing oil imports would be desirable, the fact two-thirds of our liquid fuel now comes from abroad makes it implausible that any policy initiative could significantly affect our overall dependence on foreign sources. What can be changed — and, thanks to the market, already is changing — is the degree of the world economy’s dependence on oil from unstable countries in the Middle East. Indeed, Cambridge Energy Research Associates, the widely respected energy consulting firm, forecasts enormous supply increases from a various areas including Canada, Russia and Latin America that will diversify oil sources in coming decades and even pressure prices downward over the next decade.

Of course, a supply-side solution to dependence on Middle East oil wouldn’t reduce carbon dioxide emissions or thus contribute to efforts to contain climate change. But the miles-per-gallon standard, which affects only vehicles (and, among vehicles, only new ones) is hardly anybody’s idea of a comprehensive climate control initiative. The most efficient way to control climate change — and the way prudent conservatives would be wise to favor — is to cap total carbon emissions, then auction (or even give away) these limited emissions rights to users and distributors of all fossil fuels.

To ensure emissions are curtailed in the least costly ways, holders of emissions rights would be allowed — no, encouraged — to trade them on private exchanges, much as commodities like corn and copper are traded. Industries and consumers would adjust to the costs by some combination of switching fuels, using new technologies or simply spending less of their income on products made with carbon-intensive methods.

Where do emissions from cars and trucks fit in this approach? The market would decide. Vehicles generate just one-fifth of greenhouse gases Americans dump into the atmosphere. And we simply will never know which ways to curtail emissions — the menu over the next decade includes everything from nuclear power to new light bulbs to ultra-efficient diesel engines — are the least expensive and least inconvenient to consumers, unless we make choices through markets.

The growing role of government in energy markets is virtually inevitable. What conservatives can do for the nation — and for themselves — is to remain relevant players in the formation of policy. And articulate opposition to tougher mileage standards is a fine place to start.

Doug A. Wilson is chairman of and co-author of “Getting America Right: The True Conservative Values Our Nation Needs Today.”

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