April 15, 2005

April 15, 2005 | WebMemo on Energy and Environment

The Good and Bad of the Energy Bill

The energy bill is getting older, but it isn't getting any better. Congressional debate over energy legislation has dragged on since 2001 and is starting up again in the 109th Congress. The House has marked up its most recent version of the energy bill, and the Senate will follow soon. If both bodies pass their bills, the many differences between them will have to be ironed out in conference. Though late in the game, Congress still has the opportunity to improve what remains a flawed approach to addressing the nation's energy challenges.

Energy markets work better than central planning-this simple fact is too often lost in the energy debate. A sensible federal energy policy should reflect the market approach. Decades of central planning, in the form of energy and environmental laws, have left energy markets considerably less than free. Virtually every major element of the nation's energy infrastructure-oil and natural gas wells, pipelines, refineries, electric power plants, and transmission lines-has been saddled with federal red tape. The feds have even gone to such micromanaging extremes as dictating specific recipes for gasoline.

As a consequence, our energy system is barely able to meet current demand, much less deal with future growth. What we need now from Washington is not an affirmative energy policy but an end to the current anti-energy policy.

The energy bill is at its best when it tries to streamline or eliminate government meddling in energy markets. Unfortunately, the bills before Congress work more in the opposite direction.

One example of energy policy done right is the proposed streamlining of federal provisions that have hampered oil and natural gas production both offshore and on federally owned lands. Many promising areas off the coasts and in the Rockies are off-limits, and the rest are subject to years of administrative delays and lawsuits by environmental groups. Granted, the proposed provisions would only make a dent in the many unnecessarily restrictive laws delaying or prohibiting domestic energy production. Nonetheless, the energy bill would allow America to use at least a little more of the energy that we have available in this country.

Another good idea is repeal of the Public Utility Holding Company Act. This law places restrictions on investment in electricity. Removing these restrictions will increase investment in the electric grid and allow more private-sector upgrades to the system.

The energy bill would also eliminate a few of the regulations that make gasoline more expensive, and it contains other provisions that chip away at federal anti-energy rules. This is the right approach to make energy more affordable, but much more could be done.

For every provision that would take energy policy in a free market direction, however, there are several others that reek of central planning. For example, while eliminating some unnecessary gasoline regulations, Congress also wants to mandate the use of ethanol, an expensive fuel additive made from Midwestern corn.

The energy bill also tries to pick winners and losers among sources of energy. It contains many targeted tax breaks designed to encourage certain alternative energy technologies and to promote energy efficiency and conservation, as well as billions of dollars for research. Solar and wind energy systems, fuel cells, alternative vehicles, and nuclear and clean coal research are among the beneficiaries. This is nothing new, but decades of such efforts have yielded few results. Programs that funded research on electric cars and synthetic fuels demonstrate that the federal government does a poor job and wastes money when it tries to steer the energy market. Washington would do better to stay on the sidelines.

Congress has already removed several of the worst provisions that were in earlier versions of the energy bill, but they could come back. Previous versions included a requirement for a certain percentage of electricity be generated from so-called renewable sources, such as wind, solar, and biomass. This measure, of dubious environmental worth, would increase the cost of electricity; it has no place in a bill that is intended to make energy more affordable, not less. Earlier versions also included measures that would begin the regulation of carbon dioxide, the ubiquitous by-product of fossil fuel consumption, on the ground that it contributes to global warming. Again, measures to fight global warming do not belong in a pro-energy bill. To the extent the energy bill is allowed to morph into yet another anti-energy environmental bill, it will be part of the problem rather than part of the solution.

If past is prologue, debate over the energy bill debate will be relatively quiet in the House but much more contentious in the Senate. There will be opportunities to make the bill much better and much worse. Those interested in creating a bill that helps solve the nation's energy problems should put more free market ideas and less federal micromanagement into the final version.

Ben Lieberman is Senior Policy Analyst in the Thomas A. 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

Related Issues: Energy and Environment