What's the Best Way to Save Energy?
The “cap and trade” law passed by the House of Representatives also contains command-and-control regulations that affect owners of dwellings.
November 23, 2009
Fred Foldvary, Ph.D.

Often laws passed by Congress contain much more than what appears in the title of the legislation. That is the case with the “cap and trade” law passed by the House of Representatives. That law also contains command-and-control regulations that affect owners of dwellings. It should be called “cap and command.”

If passed, the law would include a requirement for an energy audit when a building is purchased, before the transaction is closed. If a house did not pass some requirements, the seller would have to install insulation and other retrofitting. Perhaps the windows would need to be replaced, or the buyer would have to alter the furnace. The seller might have to install a timed shower governor that stops the water after a few minutes of use, forcing people to take quick or cold showers. The costs of the replacements would usually be passed on to the buyer. The extra expense would include the inspection of the house, which could cost $400 or more.

The timing for this mandate is terrible, since the housing market is just starting to turn around. Just when prices are no longer falling and buyers are responding to tax credits, wham! The cost of buying houses in many older neighborhoods will zoom up, and properties will linger in the market unsold once again.

Because old houses compete with new houses, and there are still many houses sitting unsold, the selling price of many older houses will fall. The cost of installing new appliances and replacing fixtures will be passed on from a lower market price of the building so that the purchase price to the buyer is not so high. So the burden of cap-and-command will be split between the buyer and seller, depending on the alternatives in that neighborhood.

Such commands and controls is why the proposed law contains 1400 pages. Any law that thick is most likely bad legislation. Most Congress personae do not read laws that long, since there are not just a lot of pages, but the wording is in thick legalese, making it a torture for ordinary folks to slog through.

The costs of such government mandates are in effect a tax. The government could instead just levy taxes and use the revenues to pay for these costs. By making it command and control, the regulation cost does not show up in the government budget.

The efficient way to reduce pollution is with a periodic charge. Make the polluter pay for the social costs when he pollutes, not when a particular transaction takes place. With pollution charges, the polluter will respond according to his own costs and benefits. Instead of dictating how long you should shower, and at what temperature, the resident would decide whether the benefit of using more energy and polluting more is worth the cost. People would do whatever has the lowest net cost, paying the charge or avoiding it by reducing pollution.

Moreover, the focus of policy should not be on energy use, but directly on what is bad, the pollution. It should be none of government’s business how much energy one uses. Energy is just another product, like bananas and haircuts. If one is willing to pay to use more energy, it does not harm anyone else. What harms is the pollution, and much of pollution does come from heating and cooling buildings. But all that is needed is a monthly payment when one pollutes. A buyer of a building could voluntarily pay for an inspection to see what the energy costs are, and he would also know how much is being paid in pollution charges.

There is also a health danger in internal pollution. A house might be fully insulated and not be emitting any pollution to the outside, yet trap the pollution inside and endanger the dwellers.

The bill passed by the house also mandates changes to building codes that would increase the costs of construction. Building codes have been under the jurisdiction of local governments, which can be adapted to local climates and local materials. But now the federal government would intrude into local governance with one-size-fits-all regulations.

Congress is imposing a huge deadweight loss on the economy with this legislation, as a waste of resources and a reduction in social well being. This legislation is one more reduction in liberty and a steep increase in big federal government. And in the end, this legislation is bad for the environment, because when folks rebel against being forced to take cold showers, they will not replace tyrant commands with a green tax shift, but will be disgusted with the entire green agenda, and so pollution will continue to poison and plunder the planet.

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Fred Foldvary, Ph.D.

FRED E. FOLDVARY, Ph.D., (May 11, 1946 — June 5, 2021) was an economist who wrote weekly editorials for Progress.org since 1997. Foldvary’s commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary’s areas of research included public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.