June 9, 2016 | Commentary on Energy and Environment, Energy Policy

Let Freedom Be the North Star for Energy Policy

When it comes to energy policy, lawmakers should let freedom be their North Star. Freedom to extract and develop all resources that provide affordable, reliable energy. Freedom to sell those resources in every market — at home and abroad. Freedom from job-crushing federal regulations that provide little or no meaningful environmental benefits. And freedom from corporate cronyism that rewards the politically connected and diverts the flow of investment to government-preferred energy sources.

Economic liberty has been the spark behind all successful energy development. We’ve seen this first hand over the last several years, as innovators used smart drilling technologies to unlock shale oil and gas reserves, generating tremendous economic benefits. 

These benefits accrue not just to the drillers and the pipefitters and the truck drivers but to the restaurant and other service employees in boom towns, who are now earning three times the minimum wage. Other beneficiaries are manufacturers, including those in the U.S. plastics and chemical industries, who have gained substantial competitive advantages thanks to cheap feedstock derived from natural gas.

And don’t overlook one of the biggest beneficiaries: the American consumer. Energy is a critical cost component of almost every product we buy: motorists are saving hundreds of dollars per year at the pump; homeowners are enjoying sharply lower heating bills; and shoppers save at the supermarket, the big-box and home-improvement stores, and elsewhere.

All these savings add up. A recent analysis from Merrill Lynch estimates that consistently low oil prices “will push back $3 trillion a year from oil producers to global consumers, setting the stage for one of the largest transfers of wealth in human history.”

Where economic freedom has prevailed, energy producers have lowered the cost of living for millions. That’s a good thing. But we can do even better. Increasing amounts of government intervention in energy markets still threaten to erode that freedom over time. To avoid that, Congress and the next administration should pursue three objectives.

First: open access. Regrettably, the federal government currently prohibits resource development in many parts of the country, including offshore. Opening access would give companies more opportunity to develop America’s energy resources, be they conventional or unconventional, such as wind or solar.

Opening markets is not just about energy exploration and development. Right now, laws that stymie exportation of liquefied natural gas and slap tariffs on solar technologies are preventing the buying and selling of energy. Borders shouldn’t prevent producers from selling their products to willing customers nor force consumers to pay artificially high prices.

Second, policymakers should eliminate favoritism in the energy sector. Subsidies, targeted tax credits, mandates and other forms of cronyism all have the same effect: government delivers benefits to a small, select group, pushing the costs onto consumers.

Even worse, these subsidies significantly obstruct the long-term success and viability of the very technologies they aim to encourage. Just as welfare payments create disincentives to work, corporate welfare creates disincentives to innovate. Rather than relying on competition to spur creativity and achievement, taxpayer subsidies distort the price point at which technology becomes economically viable. The result? Subsidized corporations become increasingly dependent on taxpayer-paid handouts, while providing less efficient products and services than they otherwise might.

We should eliminate all favoritism toward energy sources and technologies.

Third, Congress and the next administration should reduce the regulatory burden. Over the last few years, federal environmental regulations have become increasingly overbearing, with little to no benefit to show for it. Regulatory agencies commonly underestimate or ignore costs, exaggerate environmental benefits, and push constitutional boundaries.

A conservative energy agenda doesn’t mean freedom for businesses to pollute but recognizes that many of the federal government’s major environmental regulations are outdated and, increasingly, counterproductive — even to the point of stifling environmental improvements. For instance, a business may be reluctant to invest in a new technology or to upgrade a power plant to yield better environmental outcomes simply because of all the daunting regulatory obstacles to getting such a project underway.

Proper reform would not only eliminate burdensome federal regulations but also empower states to regulate energy and environmental activities without federal interference. State and local governments, working with private individuals, respond better to the unique interests and concerns of their communities.

Government interference in the energy landscape is a losing model for the taxpayer and for American innovation. Policymakers should pursue a freedom-based energy policy that works for all.

About the Author

Nicolas Loris Herbert and Joyce Morgan Fellow in Energy and Environmental Policy
Thomas A. Roe Institute for Economic Policy Studies

Originally published in RealClearPolicy