December 29, 2007

December 29, 2007 | Commentary on Energy and Environment

Washington's big energy bill

More expensive cars running on more expensive fuels, plus a boost in food prices -- believe it or not, that's Washington's latest answer to America's energy woes.

Just about everything Congress' new energy bill touches will go up in price. And not by accident either. For example, the bill requires that cars and trucks be more fuel efficient by an additional 10 miles per gallon. But these government standards have a history of raising the sticker price of vehicles and there's no guarantee that the fuel savings from the latest increase will offset the costs.

Worse, the bill mandates that more ethanol be added to the gasoline supply. Of course, the only reason this supposedly eco-friendly alternative needs to be mandated in the first place is that it's too expensive to compete otherwise. In effect, Washington is forcing more expensive energy choices on a public already facing sky-high costs.

The proposed fivefold expansion of the ethanol requirements -- from 7.5 billion gallons to 36 billion annually -- is particularly inexcusable, considering the bad experience with the current mandate.

The 2005 energy bill required that so-called renewable fuels (chiefly ethanol derived from corn) be mixed into the gasoline supply. Not only has this requirement contributed to the high cost of driving but the diversion of corn from food to fuel use has raised prices not only on corn but on many related items, such as corn-fed meat and dairy. In other words, if the increase goes through, expect higher costs at the supermarket as well as at the pump.

It's not easy to determine what the final price tag will be -- these measures go well beyond anything currently on the books, so we'll find out the hard way what this unprecedented level of government meddling in energy markets will do.

But a National Academy of Sciences study suggests a $75 to $100 price rise for each mpg increase in fuel-economy standards. Thus the proposed 10-mpg increase here could add $750 to $1,000 to the cost of a new vehicle. Some auto-industry sources predict sticker-price shocks into the thousands for some models, especially since the fuel-economy increase is far steeper than past ones and may require costly technologies to be employed.

The increased ethanol mandate, along with other provisions in the bill affecting gasoline, could cause the price to increase by 50 cents per gallon or more within a decade. And that's just the hike at the pump.

An Iowa State study estimates that the current mandate has already raised food prices by $47 annually per capita, so a five-fold increase could easily cost several hundred dollars per household annually in higher food bills.

One industry-funded study by Charles River Associates puts the overall price of an earlier version of the energy bill at $1,700 per household annually by 2030. It also predicts the loss of nearly 5 million jobs, both those lost completely and those outsourced to other nations with relatively cheaper energy.

Washington's past energy bills have never been good news for the American people. But the latest one may be the most anti-consumer one ever.

Ben Lieberman is a senior policy analyst in the Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Ben Lieberman Senior Policy Analyst, Energy and Environment
Thomas A. Roe Institute for Economic Policy Studies