Almost every bad energy policy idea circulating around
Washington has found a home in the Renewable Fuels, Consumer
Protection, and Energy Efficiency Act of 2007 (S. 1419). The list
- an expanded renewable fuels mandate that would boost both fuel
and food prices;
- new home appliance standards likely to raise prices and
adversely affect performance and reliability;
- new fuel economy standards for cars and trucks that would
reduce vehicle safety and consumer choice while increasing sticker
- price-gouging legislation that could bring back the spot
shortages and gas lines of the 1970s.
As it stands, S. 1419 is so counterproductive it would need
substantial improvements just to be ineffective. If this misguided
measure becomes law, the American people can expect few, if any,
tangible benefits, but can count on higher energy prices and other
More Renewable Fuels, More Consumer
It isn't easy coming up with something that will cost consumers
dearly at the pump, at the supermarket, and at tax time, but
the Senate is considering an increased renewable fuels mandate that
will do all three.
Only Congress would take the biggest energy policy failure in
recent years--the renewable fuels mandate--proclaim it a success,
and then try to expand it. The 2005 energy bill required that
agricultural-based renewable fuels, mostly ethanol made from corn,
be mixed into the gasoline supply. The mandate has hurt drivers
because ethanol usually costs more than gasoline and it reduces
fuel economy. The Government Accountability Office recently
concluded that "in 2006, the average wholesale price of ethanol was
33 percent more on a per volume basis than the wholesale price of a
gallon of regular unleaded gasoline and about 102 percent more
expensive on a gallon of gasoline equivalent basis." The
cost of ethanol relative to gasoline varies and the difference has
been lower thus far in 2007 compared to 2006. But since the mandate
took effect last year, it has boosted prices by between a few cents
to over 50 cents per gallon. Ethanol has also failed to deliver on
its promise to appreciably reduce greenhouse gas emissions and
decrease dependence on oil imports.
At the same time, the competition for corn between fuel and food
uses has led to higher corn prices, in turn leading to higher
prices for food items such as corn-fed meat and dairy products.
Current ethanol use is much lower than that required in S. 1419,
but an Iowa State University study estimates that food prices have
already increased by $47 annually per capita, or $14 billion
S. 1419 would increase the current mandate 5-fold, from 7.5
billion gallons by 2012 to 36 billion by 2022. Meeting this mandate
will require not only more corn-based ethanol, but also other
renewables, like cellulosic ethanol, that are even more expensive.
The price increases for food and fuel, already significant under
the current mandate, would likely skyrocket.
While Congress is proposing greater usage of renewables, it has
not removed the restrictions on one potential source of
them--foreign ethanol, especially the sugar-based variety from
Brazil. Protectionist tariffs limit these imports, creating a
guaranteed market at higher prices for domestic suppliers. S. 1419
makes no effort to lift these tariffs.
In addition, the heavy government subsidies for renewables,
including a 51 cent per gallon tax credit, would rise commensurate
with the mandate. They would soon reach $10 billion and eventually
exceed $20 billion annually. In effect, taxpayers would be paying
nearly $200 per household for the privilege of higher fuel and food
Appliance Efficiency Standards:
Washington's Real Dirty Laundry
Energy efficiency is a worthy goal, but not when Washington
steps in and tries to mandate it. The energy bill would set federal
efficiency standards for a number of home appliances, such as
refrigerators, clothes washers, and dishwashers. The goal is to
reduce energy use by setting arbitrary limits on how much
electricity these appliances are allowed to consume.
Those who think energy-efficient appliances will lower electric
bills should keep in mind that these measures also impose costs,
and consumers benefit only if the energy savings outweigh the
costs. For one thing, mandatory improvements in efficiency usually
raise the purchase price of appliances; sometimes the increase is
more than enough to negate the energy savings. In addition, the
forced reduction in energy use can come at the expense of reduced
product performance, features, reliability, and longevity--i.e.
appliances use less energy in order to meet government standards
but do not work as well or last as long.
Such regulations are not new. Many home appliances have been
subject to federal efficiency standards since 1988, and in some
cases several rounds of progressively tighter ones. The track
record for these measures is decidedly mixed. Consumer
Reports has documented some of the technical glitches in high
efficiency appliances. Most recently, Consumer Reports
found that several new ultra-efficient clothes washers "left our
stain-soaked swatches nearly as dirty as they were before washing,"
and suggested that "for best results, you'll have to spend $900 or
There is no need for government regulations to advance the goal
of energy efficiency. Appliance makers and appliance buyers are
perfectly capable of determining for themselves the proper balance
between energy efficiency and other product attributes. Rigid
federal standards simply give efficiency priority over everything
else, often to the detriment of consumers. Yet, S. 1419 would give
us more of the same.
A "Crash" Program to Raise Efficiency
Standards for Cars
Though many of the above-mentioned problems with appliance
efficiency standards are also true of motor vehicle efficiency
standards, safety is the biggest problem with vehicle regulations.
In theory, we can all save big at the pump by switching to more
efficient vehicles, and at the same time reduce greenhouse gas
emissions and oil imports. But in order to meet any tough new
Corporate Average Fuel Economy (CAFE) standards, cars and trucks
need to be made lighter, which also makes them less safe in
collisions. According to a 2002 National Academy of Sciences study,
vehicle downsizing has cost 1,300 to 2,600 lives per year. The
tougher miles per gallon requirements in S. 1419 would likely add
to the death toll from vehicle crashes.
Beyond the safety concerns, there is also the consumer choice
issue. A variety of smaller but more fuel-efficient models are
already on the market for those who want them, including hybrids.
In other words, there is no market failure justifying federal
intervention. Does the American car-buying public--from soccer moms
to seniors--really want or need Washington stepping in and
essentially forcing smaller vehicles on everyone? The new rule
would also raise sticker prices perhaps by thousands of dollars,
according to the auto industry.
Price-Gouging Measures Would Raise the
Pain at the Pump
The most direct way to attack high gasoline prices is to make
them illegal, and S.1419 takes this approach by making it a crime
to charge an "unconscionably excessive price." These price-gouging
provisions would kick in during declared emergencies such as the
period after Hurricane Katrina.
Like most of the other measures in S. 1419, this idea has a
track record for backfiring and harming consumers. The market price
for gasoline is the price where supply and demand are in balance.
Trying to force the price below market levels only means that
demand will outstrip supply, resulting in shortages. This is why
price controls in the 1970s led to gas lines, rationing, and
stations running dry.
The proposed price-gouging measures in S. 1419 would act in the
same way, discouraging fuel suppliers and virtually assuring
shortages. In one sense, the bill's price-gouging measures could be
worse than explicit price controls. By using the vague and
subjective phrasing of "unconscionably excessive," combined with
heavy fines and prison terms of up to 5 years, S. 1419 could have a
severe chilling effect on supplies.
Ironically, the Federal Trade Commission (FTC), the very agency
charged with implementing the price-gouging measure, is on record
stating that such legislation is a bad idea. The FTC has stated
that "our examination of the federal price gouging legislation that
has been introduced … indicates that the offense of price
gouging is difficult to define." The FTC adds that "the lack
of consensus on which conduct should be prohibited could yield a
federal statute that would leave businesses with little guidance on
how to comply and would run counter to consumer' best interest."
The FTC concludes that a price-gouging law that does not account
for market forces would be counterproductive. "Holding prices too
low for too long in the face of temporary supply problems risks
distorting the price signal that ultimately will ameliorate the
problem," and that such laws create a risk that "wholesalers and
retailers will run out of gasoline and consumers will be worse
off." Congress should not ignore FTC's concerns
about price-gouging legislation.
S. 1419 would likely accomplish little of benefit, but would
come at a great cost to consumers. Missing from this bill is the
real solution to high energy prices--increased supply. Washington
could do much to increase access to restricted sources of domestic
oil, and streamline the many regulations that have created refining
bottlenecks. Unfortunately, S. 1419 does nothing to increase
supply, focusing instead on misguided, anti-market measures that
will likely add to the nation's energy problems in the years
Ben Lieberman is Senior
Policy Analyst in the Thomas A. Roe Institute for Economic Policy
Studies at The Heritage Foundation.
Government Accountability Office, "Biofuels:
DOE Lacks A Strategic Approach to Coordinate Increasing Production
With Infrastructure Development and Vehicle Needs," June 2007, pp.
Consumer Reports, "Spin City: Ratings of Washing Machines
and Clothes Dryers," July 1999, pp. 30-33; Consumer Reports,
"Way Cool: A Guide to Buying Air Conditioning," June 1998, p. 37
("Mid-efficiency models . . . may be the least expensive to own
overall because they're cheaper to buy and less likely to need
repair."); Consumer Reports, "Product Updates," January
2001, p. 46 ("Maytag front loaders [a more efficient type] were
among the less reliable brands and less reliable than Maytag
top-loaders [a less efficient type]."); Consumer Reports,
"Sears Recalls Some Calypso Washers," March 2001, pp. 55.
National Academy of Sciences, "Effectiveness
and Impact of Corporate Average Fuel Economy (CAFE) Standards,
2002, p. 3.
Federal Trade Commission, "Investigation of
Gasoline Price Manipulation and Post-Katrina Gasoline Price
Increases," Spring 2006, p. 196.