October 26, 2004

October 26, 2004 | Commentary on Energy and Environment

President knows how to tackle energy problem

Oil roars past $50 a barrel. The presidential election nears. And here come the candidates with their "plans" to cut our dependence on foreign oil, reduce our demand for energy, increase less-expensive sources of energy - yet leave our economy unharmed.

If only.

The problem with most energy "plans" is that they attempt to pick the winners and losers of the energy "game." Only this is no game. In truth, the government plan that works best - that results in rich, diverse supplies of energy and a strong economy - is the government plan that intervenes least.

Public policy shouldn't dictate which new sources of energy to develop, nor should it meddle with demand. When government picks winners, by, say, showering subsidies on ethanol or solar power, it stifles innovation of new technologies that could be more productive. When it tampers with demand, by throwing up barriers such as mandates and regulations to make certain sources less attractive, it slows economic growth through higher costs and causes capital and other resources to be inefficiently directed.

The right energy policies lead to increased supplies of domestic oil and gas, more energy from alternative sources, an improved electricity infrastructure and a better environment for investment to get the most from existing resources and develop new technologies.

The current energy bill, now languishing in Congress because of regional and partisan squabbles, is a great example of what not to do.

Initially, it contained many good elements of the Bush energy plan. Then, Washington's entire lobbying machine got involved and hijacked the legislation into a schizophrenic grab bag of special-interest subsidies, corporate-welfare giveaways, and preferential treatment for various industries. All that was missing was a tax credit for dilithium crystals. Not even all the President's men could right this No Lobbyist Left Behind Act.

President Bush at least understands where an energy plan should start: with sensible recommendations to boost domestic production, such as opening exploration to restricted areas offshore and on federal lands.

This helps more from a national security standpoint than from an economic one. Oil is a global commodity. Demand is growing worldwide, from Pennsylvania to the Punjab. But it makes little difference in price whether it comes from Tulsa or Tehran. However, instability in some OPEC nations, as well as Russia and Africa - which together control most of the world's crude - threatens steady flows of oil.

The more oil we produce here, the less we have to buy overseas. But there's more to energy policy than increased production at home. America needs a diverse mix of energy supplies. This includes nuclear power, now generating a fifth of our electricity. It could be far more if Congress would remove barriers, such as permitting and liability uncertainties, that prevent this technology from expanding. Even France understands the value of nuclear power and is less reliant on foreign imports as a result.

The President's plan also entails a series of steps to modernize the electricity grid and make transmission more reliable by rolling back regulatory burdens to investment and expansion. The blackouts of the summer of 2003 across the North and Northeast demonstrated clearly that having sufficient power means little if it can't be delivered.

The President's plan could use a little editing as well. Items such as taxpayer subsidies or "incentives" for research on clean coal technology, renewable energy sources, and hybrid cars, for instance, should be deleted. If it's more investment for research that we want, fine. But let's not have government choose the winners and losers. Instead, let's immediately expense all research investment to spur development of the best solutions possible, not just the ones government selects.

A century ago, oil replaced coal as the predominant source of energy in America because it was less expensive and more efficient. Before that, coal replaced wood for similar reasons. If the price of oil and the costs associated with acquiring it continue to rise, other remedies will emerge. We'll search elsewhere for oil, produce more from existing wells, and see alternative sources increase their share of the market - all without any "help" from government policy.

Alison Acosta Fraser is director of the Roe Institute for Economic Policy Studies at The Heritage Foundation (heritage.org).

About the Author

Alison Acosta Fraser Senior Fellow and Director of Government Finance Programs
Domestic and Economic Policy

Related Issues: Energy and Environment

First appeared in The Philadelphia Inquirer