Americans are hoping and praying for relief from rising gasoline, oil and electricity prices. We are uncomfortable importing so much of our raw energy supplies from unstable parts of the world. Many of our compatriots, not understanding the minuscule impact that carbon dioxide has on global warming,[1] desire energy sources that don’t emit carbon dioxide. Congress, acting on the widely held but mistaken notion that all problems, real and imaginary, can be solved with more laws, is hatching a new energy bill right now.
In my book, that means it’s time to get worried. Think about it: What has Congress done in the past to inspire our confidence that its energy policies will be helpful? It was Congress that regulated the domestic energy markets so heavily in the 1970s that we suffered unnecessary long lines and high prices at gas stations until Ronald Reagan convinced Congress to deregulate in 1981. Congress has repeatedly increased our dependency on foreign imports by thwarting the development of nuclear power and perennially blocking the development of domestic oil and gas reserves in the Rocky Mountain region, Alaska, and on the continental shelf.
“OK,” you may say, “but we have different people in Congress now than we did 30 years ago.” True, but it is the current crop of legislators who have given us the most recent energy fiasco—the corn-based ethanol boondoggle—which does nothing to increase our energy independence but does much to exacerbate a host of other problems.[2]
Let’s examine the proposed energy policies on their own merits. A primary proposal is to phase in a 35 mile-per-gallon fuel standard for cars and light trucks. Proponents claim that this would reduce U.S. oil use by 2.5 million barrels per day. The problem with this calculation is that it employs a static rather than dynamic analysis. In the real world, people alter their behavior in response to changes in costs. Improved fuel economy in cars lowers the per-mile cost of driving. As a result, total miles driven increases, resulting in no net reduction in fuel consumed. On the negative side of the ledger, the lighter cars built to improve gas mileage don’t provide as much protection as heavier cars. The result has been an increase in the number of fatalities and severity of injuries suffered in car crashes. We should doubt the wisdom of a policy that may not reduce fuel consumption but certainly will increase human loss and suffering.
Another principal feature of the pending legislation would mandate U.S. utilities to produce 15 percent of their power from renewable sources (e.g., wind, water, solar). A few days ago I heard a radio ad supporting this proposal on the grounds that such a shift in energy sources would save people money. Look, if you believe in the carbon dioxide bogeyman, then I can see why you might prefer electricity to be generated from renewable sources instead of fossil fuels, but don’t kid yourself that a congressional mandate for utilities to switch to these energy sources is guaranteed to save you money. If anything, your total energy bill is likely to go up. Let me explain.
Periodically, electric utilities adjust their mix of coal, oil, gas, nuclear, hydro, etc., switching to lower-priced energy sources from higher-priced sources whenever they can in order to keep costs down. If renewable sources of energy should ever become less expensive than other sources, utility companies will use them without any prodding from Congress. To the extent that congressional mandates compel utilities to use less economical sources of energy, the natural result will be electricity that is more expensive than it would be without such mandates.
There is an added wrinkle to the renewable energy proposal. Some members of Congress want to impose additional taxes on U.S. oil companies and use that revenue to subsidize the development of competing energy sources. Ethically, this is no fairer than taxing pro-football to finance a subsidy to pro-basketball. Politically, members of Congress would love to create another group of subsidy addicts, like corn farmers and ethanol producers, because this would channel a steady flow of funds into congressional election campaigns. Economically, increasing the tax burden on oil companies would be stupid. Part of such new taxes would be shifted to consumers (Hello—that means us!) in higher prices for fossil fuel products. The rest would impair the efficiency of capital and labor in the oil industry. Why do we want to penalize an industry that has been and will remain so valuable and vital to our economic well-being? This is ideological malarkey, not economic sanity.
No rational person could believe that mandating the use of more costly sources of energy and raising taxes on less expensive sources of energy is going to lower our energy bills. Let’s hope that the light of reason dawns before congress cripples our energy markets yet again.
Footnotes:
[1] See archived editorial dated 2/22/07:
“Questions About Global Warming”
[2] See archived editorial dated 7/6/07:
“Corn-Based Ethanol: Your Tax Dollars at Work”
