Energy Consumption

This week The House of Representatives is set to vote on a, $6.6 billion home energy efficiency bill commonly referred to as “cash for caulkers.” The plan would give rebates to homeowners willing to green their homes by installing new windows and retrofitting homes energy efficient upgrades. The legislation, H.R. 5019, is being sold as a win for the economy, the planet and consumers. Its supporters of say it will create jobs and lower both greenhouse gas emissions and electric bills through less energy usage. But the old “If it’s too good to be true” adage holds up again. Cash for caulkers is nothing more than a $6.6 billion, taxpayer-funded government program that of wealth that will be fraught with fraud and is another step in the direction in the creating a green bubble.

More Picking Winners and Losers

Cash for Caulkers. allows for a maximum of $3,000 for homeowners to weatherize their homes as they see fit. Incentives work and surely enough, if you subsidize anything enough, people will buy it. But who are the taxpayers subsidizing? Those who would have made improvements in their house without the government’s help or those who are on a tight budget in a recessionary environment – and could ostensibly default on paying for the rest of the project. If people are careful however, and make cuts in their budget elsewhere, then there is no increase in economic activity but rather a shift from one sector to another. The Wall Street Journal labels it “a federally sponsored sale at the local Home Depot or Lowe’s through 2011, at least for those products and services that the government has decided are environmentally correct.”

This program is also more of the “we know what’s best” mentality that our government has. It’s attempting to change Americans’ choices by footing a portion of the bill with taxpayer dollars. Consumers are in a much better position to determine how to be energy efficient than the government and we as a country have become a much more energy efficient over time.

Just like cash for clunkers, the auto program deemed successful by the administration, these programs can have long-term effects on consumption patterns in the United States. If consumers come to expect a handout from the government, they may hold off on buying a new product. When the government provides subsidies, whether it is to businesses or individuals, it creates a dependence that isn’t easily forgotten.

We Already Have Ineffective Cash for Caulkers

We already have a $5 billion stimulus program to weatherize homes and it is off to a shaky start. ABC News reports that at the end of 2009, only 9,100 have been weatherized to save energy through the American Reinvestment and Recovery Act. $522 million of the $5 billion has been spent thus far, which equates to over $57,000 per home. The goal of the program was to cover 593,000 homes from the passage of the stimulus bill through 2012, which means they’re 1.5% of the way there towards meeting the goal. Texas Watchdog detailed their state’s problem with the weatherization program  noting that $3.7 million in taxpayer money had been spent to weatherize 47 homes – a steal at $78,000 per home. The stimulus bill also has tax credits for government-labeled ENERGY STAR appliances – 30 percent up to $1,500. Do we need another $6.6 billion on top of these programs already in place?

Potential for Fraud and Abuse

As colleague and Senior Research Fellow David Kreutzer said, “Any program that is going to run through a third party and is going to distribute billions of dollars needs to have lots of checks and balances to make sure there’s not abuse.” The government’s ENERGY STAR program is an infuriatingly perfect example of this. The Government Accountability Office (GAO) released a report and exposed the ENERGY STAR’S flaws finding that the government had endorsed 15 fake products of 23 submitted by GAO, including a gasoline powered alarm clock and an electric hammer. Maybe it’ll be more difficult to commit fraud when it comes to greening one’s home, but if a feather duster taped to a space heater earned the ENERGY STAR seal of approval, who knows.

Seeing Bigger Picture: The Next Bubble?

Sure, it’s only another $6.6 billion added to the national debt but we could be on the verge of something much more catastrophic. The talks of cap and trade, the creation of carbon credit markets, the subsidies and mandates for renewable energy and the tax credits for energy efficiency could artificially prop up an industry at any cost to the taxpayer. Arnold Kling and Nick Schulz liken it to the housing bubble:

“The echoes of the efforts to expand home ownership are eerie. Expanding the housing supply was always justified in part because it, too, could “create jobs.” A little over ten years ago, then-HUD chief Andrew Cuomo testified before Congress that “we must work to do two key things: We must create housing, and we must create jobs.” He then asked Congress for billions of dollars of loan guarantees and millions of dollars of subsidies that would “help create jobs and leverage private investment.” President Bush was similarly enthusiastic about boosting home ownership, no matter the costs. His former economics adviser Larry Lindsey admitted one year ago that “No one wanted to stop that bubble. It would have conflicted with the president’s own policies.”

And we have now seen how those policies, promoted by both political parties, have turned out. Does anyone doubt today that if a green-energy bubble emerges, President Obama’s own advisers will stay silent, as popping such a bubble would conflict with the president’s own policies? There is no doubt that the boosters of green-energy programs have their hearts in the right place. But then, so did most of those who were pumping up the housing bubble.”

We Don’t Need the Government to Be More Energy Efficient

Motives of cost reduction and increased profits go hand-in-hand with becoming more energy efficient. If a company can find a way to reduce its energy use, it can lower costs and thus the price to consumers. For instance, Wal-Mart did this by lowering packaging and fuel costs. Overall, energy consumption per real dollar of gross domestic product has dropped dramatically over the past sixty year and will continue to do so if we allow business to innovate – not stranglehold them with regulations and mandates.