Prius Politics

Just to hold greenhouse-gas emissions steady will require massive gains in efficiency or shifts to nonfossil fuels. The McKinsey Global Institute predicts that, under present trends, worldwide energy use will have risen 45 percent from 2003 to 2020. China will have accounted for a third of the increase, all developing countries for four fifths. Even after assuming huge improvements in energy efficiency (better light bulbs, etc.), McKinsey still projects an increase of 13 percent in global energy demand.

But we've got to start somewhere, right? OK, here's what Congress should do: (a) gradually increase fuel economy standards for new vehicles by at least 15 miles per gallon; (b) raise the gasoline tax over the same period by $1 to $2 a gallon to strengthen the demand for fuel-efficient vehicles and curb driving; (c) eliminate tax subsidies (mainly the mortgage interest-rate deduction) for housing, which push Americans toward ever-bigger homes. (Note: If you move to a home 25 percent larger and then increase energy efficiency 25 percent, you don't save energy.)

I support these measures, because we should implement them anyway. We should limit dependence on insecure foreign oil. Tax subsidies cause Americans to overinvest in oversized homes. But practical politicians won't enact these policies, except perhaps for higher fuel-economy standards. They'd be too unpopular.

Prius politics promises to conquer global warming without public displeasure. Gains will occur invisibly through business mandates, regulations and subsidies. That's why higher fuel-economy standards are acceptable. They seem painless. It sounds too good to be true—and it is. Costs are disguised. Mandates and subsidies will give rise to protected markets. Companies (utilities, auto companies, investment banks) will manipulate rules for competitive advantage. There will be more opportunity for private profit than public gain.

The government's support for ethanol is instructive. In 2006, 20 percent of the U.S. corn crop went for ethanol; the share is rising. Driven by demand for feed and fuel, corn prices have soared. With food costs increasing, inflation has worsened. The program is mostly an income transfer from consumers to producers and ethanol refiners. Americans' oil use and greenhouse gas output haven't declined.

Deep reductions in emissions of greenhouse gases might someday occur if both plug-in hybrid vehicles and underground storage of carbon dioxide from coal-fired power plants become commercially viable. Meanwhile, Prius politics is a delusional exercise in public relations that, while not helping the environment, might hurt the economy.

© 2007