Pope Francis' Plan to Help the Poor Will Backfire
This piece originally appeared on MarketWatch.
With today’s release of his encyclical, Pope Francis places the responsibility for global warming on mankind and calls for countries to reduce greenhouse-gas production.
Everyone wants cleaner air, but most people also want the security of employment that comes from industrial activity. Most would agree on the need to strike the right balance between the economy and the environment. The question is what is that balance.
Pope Francis argues that “the deterioration of the environment and of society affects the most vulnerable people on the planet: [the poorest].” For the poorest, however, curtailing the use of fossil fuels may be a cure worse than the disease.
Electricity from fossil fuels is less expensive than electricity produced from alternative fuels. The U.S. Energy Information Administration has estimated that the average levelized cost for natural gas-fired plants entering service in 2020 is $75 per megawatt hour, compared with $125 per megawatt hour for solar-powered plants and $101 per megawatt hour for biomass.
The bottom line: Households have far higher electricity bills using alternative energy than natural gas.
This disproportionately affects the poor, who spend a higher share of their income on energy. For the U.S., data from the Labor Department show that individuals in the lowest fifth of the income distribution spend an average of 24% of income on energy, compared with 10% of income for those in the middle fifth, and 4% of income for those in the top fifth.
In those parts of Asia, Africa and Latin America where people do not have access to clean water, adequate food or medical care, the difference is even more stark. Using renewables instead of fossil fuels will retard growth, resulting in a higher mortality rate and a lower life expectancy.
It is quite natural that people in emerging economies want the same level of development as those in the West. Cheap fossil-fuel or nuclear energy is the key to this development. One reason that the Chinese infrastructure bank has been so popular is that it is willing to lend for fossil-fuel-fired plants, unlike some Western institutions.
Once a certain standard of living has been achieved, including sewer systems, food and medical care, countries demand a cleaner environment. China has recently started to focus on cleaning up its air. But basic needs have to come first, and cheap energy is the way to get there.
The pope says that “[t]here is an urgent need to develop policies so that, in the next few years, the emission of carbon dioxide and other highly polluting gases can be drastically reduced.” However, the majority of such policies currently on the table would reduce economic growth not only in the U.S. but also in emerging economies.
A Congressional Budget Office report concludes that cap-and-trade policies, in which emissions are capped and traded at a price among firms or states, would result in imports of energy-intensive goods from abroad rather than those produced in America. CBO concludes: “Such a policy would impose costs on domestic firms, allowing foreign producers from countries with less stringent policies, or no policy at all, to charge less for their goods than U.S. producers.”
Energy-intensive jobs would move offshore. Not only would this reduce employment for Americans, but it would increase global greenhouse-gas emissions because our methods of production are cleaner than those of our foreign competitors.
That is also why a carbon tax would harm the U.S. economy. A $15 tax per metric ton of CO2 would result in an increase in gasoline prices of 15 cents per gallon, 75 cents per thousand cubic feet of natural gas, $6.45 per barrel of oil, and $28.50 per ton of coal. A $50 CO2 tax rate would raise the price of gasoline by 50 cents per gallon, natural gas by $2.50 per thousand cubic feet, oil by $21.50 per barrel, and coal by $95 per ton.
A carbon tax raises the price of energy and so discourages consumption and production, as manufacturers choose to locate elsewhere. Plus, it is regressive. Since the poor pay a higher share of their income for energy, a carbon tax would have to be accompanied by some form of compensation.
The poor are not required to file returns, and they would have to do so in order to be identified and compensated. That means extra work for them, and for the Internal Revenue Service. And, as recent events have shown, the IRS cannot even deal with its current responsibilities, much less take on additional ones.
To reduce global greenhouse-gas emissions in a less costly manner, America could assist China and India in developing shale gas from hydrofracturing and building natural-gas-fired plants to reduce their reliance on coal. Or America could ship coal to China, because U.S. coal burns more cleanly. The majority of China’s coal (54%) is bituminous, which has a carbon content ranging from 45% to 86%. On the other hand, 47% of America coal, a plurality, is subbituminous, which contains a carbon content of only 35% to 45%.
The role of capitalism and free markets in raising people out of poverty was acknowledged by Pope John Paul II in his Encyclical “Centesimus Annus” in 1981. He wrote: “The obligation to earn one’s bread by the sweat of one’s brow also presumes the right to do so. A society in which this right is systematically denied, in which economic policies do not allow workers to reach satisfactory levels of employment, cannot be justified from an ethical point of view, nor can that society attain social peace.”
Pope Francis’ concern for the environment is admirable. But to keep the poverty-reducing engine of economic growth running, it is necessary to continue to use fossil fuels. Our air is getting cleaner, and will continue to do so for the foreseeable future as new capital replaces old. Abandoning fossil fuels would hurt the most vulnerable in societies throughout the world.
Diana Furchtgott-Roth, director of Economics21 at the Manhattan Institute, is the coauthor of "Disinherited: How Washington Is Betraying America's Young." Follow her on Twitter here.
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