the past decade, growth in the nation's demand for energy has
outpaced production. The U.S. Department of Energy's Energy
Information Administration (EIA) projects that by 2025, consumption
will increase by 43 percent and production by only 23 percent.
the Senate resumes floor debate on a comprehensive energy bill (S.
14), its members have the opportunity to adopt responsible policies
that enhance domestic energy supplies. They also, however, could
pander to special-interest groups and pass measures that exacerbate
the gap between supply and demand, aggravate an already sluggish
economy, and jeopardize national security.
14 includes helpful provisions that would boost domestic energy
supplies, such as sensible improvements in the hydropower licensing
process and repeal of the antiquated Public Utility Holding Company
Act. Other measures, however, would interfere with energy markets,
reward special-interest groups, and prolong the existing imbalance
between supply and demand.
Market-distorting provisions and
energy-suppressing amendments have no place in a responsible energy
policy. For example:
When a project is deemed economic by the marketplace,
there is no need for any special government incentive or subsidy.
Conversely, if market conditions do not support a project, the
financial risks should not be shifted to taxpayers.
- Alaska Natural
S. 14 provides a federal loan guarantee for construction
of a pipeline to deliver natural gas from Alaska's North Slope to
the lower 48 states. It also places restrictions on the selection
of a route for the pipeline. Market forces, not political
interference from Congress, should determine the pipeline's
- Nuclear Power
Loan guarantees are also provided for up to seven new
nuclear power plants. The Congressional Budget Office (CBO)
estimates that a plant could cost up to $3 billion. The CBO also
considers the risk of default to be above 50 percent. The financial
risk of a new plant should be shouldered by the private sector--not
shifted to taxpayers.
Encouraging energy development projects on Indian lands is
laudable. Forcing taxpayers to bear the financial risk is not. The
CBO estimates that this loan program would cost taxpayers about $30
million in 2004, $140 million over the 2004-2008 period, and $200
million over the next 10 years.
The Senate approved a floor amendment that would nearly
triple the amount of ethanol in the nation's fuel supply by
mandating that refiners use 5 billion gallons of ethanol by 2012.
Disguised as a bill to help struggling farmers and enhance
environmental quality, this mandate is nothing more than a
"corporate welfare" scheme that will enrich a few large
agribusinesses and burden consumers with a hidden tax. The Senate
should remove this misguided taxpayer subsidy.
Market-Distorting Floor Amendments
Senators plan to offer amendments during consideration of
S. 14. Some of these measures are very ill-advised.
Despite two decades of billion-dollar funding from
taxpayers, renewable energy is projected to remain a minor
contributor to U.S. electricity supply. EIA estimates that
electricity generation from renewables will increase to only 8.5
percent in 2025, and only 3.3 percent if just non-hydroelectric
renewables are counted.
Despite this dismal record of market
penetration, some Senators want to force retail electricity
suppliers to generate a specified portion of their production from
new renewable energy resources. Families and businesses need
reliable--not intermittent--sources of electricity. The
marketplace--not big government mandates--should decide the most
efficient way to generate electricity.
James Schlesinger, Secretary of Energy in the Carter
Administration, in a recent article in The Washington Post noted
that the current scientific knowledge of climate change is not
settled and uncertainties "must be reduced." Notwithstanding major
scientific uncertainties, some Senators want to adopt radical
regulatory policies on climate change.
One expected amendment would force U.S.
electricity, transportation, industrial and commercial sectors to
drastically reduce their greenhouse gas emissions. This proposal is
nothing more than a stealth energy tax on the use of fossil fuels.
It would raise the price of energy for consumers, cause job losses,
and undermine the nation's economic and national security.
Another amendment may create a so-called
voluntary registry for greenhouse gas emissions. It would become
mandatory, however, after five years under an automatic trigger
provision. A mandatory program would be particularly burdensome for
small businesses, which would be required to record and report
their emissions or face stiff penalties. Moreover, this provision
is redundant. A voluntary greenhouse gas program already exists and
is being improved as ordered by the President.
- CAFE (Corporate
Average Fuel Economy)
Amendments to statutorily raise fuel efficiency standards
for vehicles are also expected. Instead of trying to improve this
ineffective program, the Senate should repeal CAFE and let
consumers respond to market signals. That is the effective way to
foster energy conservation.
An energy tax "incentives" package of over $15 billion
will be considered as a separate amendment. Many of these so-called
incentives distort the marketplace and give taxpayer subsidies to
special interests. A particularly onerous provision would guarantee
a price floor for natural gas from Alaska's North Slope. Taxpayers
should not be burdened with assuring the profitability of energy
producers. Such taxpayer giveaways distort the market and send the
wrong price signals to consumers.
Abundant, reliable, and affordable energy is essential for
a strong economy and national security. Instead of passing more
market-distorting mandates, Congress should enhance domestic energy
supplies by removing impediments to oil and natural gas production
on federal lands, including the Arctic National Wildlife Refuge
(ANWR), streamline bureaucratic regulations, and let the
marketplace--not political interference--determine the nation's
energy winners and losers.
Coon, J.D. , is Senior Policy
Analyst for Energy and Environment in the Thomas A. Roe Institute
for Economic Policy Studies at The Heritage Foundation.