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Regulation as Stimulus

The White House continues its aggressive economic stimulus program by issuing ever more stringent controls over energy use, which it claims will bring great benefits to the nation for years. Unfortunately, the benefits are largely illusory and the costs are significant.

Consider one new, relatively small, final regulation just issued that will not take effect until 2016. The Department of Energy’s Energy Conservation Program: Energy Conservation Standards for Standby Mode and Off Mode for Microwave Ovens (10 CFR Parts 429 and 430) claims it will produce, over its 30-year life, 2016 to 2045, benefits of $3.38 billion (using a 3% discount rate) in contrast to a cost to the microwave industry of only $96.6 million. That is, the regulation supposedly produces 35 times more economic benefits than cost.

How is this economic wonder achieved? The cost side is relatively straightforward. Microwave ovens will be more expensive as they are retooled to use less power while sitting unused. DOE estimates manufacturers will lose about 7% of industry net present value due to higher costs and lost sales (the $96.6 million) — a substantial loss.

According to DOE, however, that loss in industry value is swamped by the benefits. Over 30 years, microwave users will use less electricity, so 38.11 million metric tons less of CO2 will be emitted (other emissions will also drop, but that is not where DOE says the money is).

The Social Cost of Carbon (“SCC”) from reduced CO2 emission is worth as much as $3.615 billion (at a minimum, it is $255 million, still much higher than cost). SCC was developed by an “interagency process” that determined that the value of a ton of CO2 should, as of 2013, be somewhere between $12.6 and $119.1 per ton, up substantially from the old 2010 SCC values of only $6.2 to $78.4 per ton.

This regulation drew particular attention as it is apparently the first to employ the new higher value of CO2 emissions. The problem is that the “value” of CO2 non-emissions is not based on anything other than the imagination of bureaucrats. Because there is no market for such emissions, no price exists except in the minds of the central planners who have divined a “price” from speculation. The real and measurable cost will be higher-priced microwaves (which will primarily impact lower-income people) and the attendant higher costs and lower sales incurred by industry.

Cross-posted from the Bush Institute’s Economic Growth blog.

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