Does the U.S. Have a Realistic Energy Policy?

First, I'd like to thank Jane Bonvillain and the Construction Industry Round Table for inviting me to speak today. As it happens, I have very intimate ties to the construction industry.

I married one of Tim Psomas' Executive Secretaries away from him about 15 years ago.

If the people from Psomas are here, well, all I can say is you can't have her back. So there.

So, the title for this speech is, "Does the U.S. have a realistic energy policy or plan?

Mmmm, no.

Thank you for your attention, I'll be glad to take your questions now.

Seriously though, this is a profound question, because energy is the master resource of modern technological civilization.

Energy is one of the prime factors of economic productivity. You fuse that with capital, labor, and natural resources in order to produce goods and services. You can still be economically productive with little in the way of natural resources, but it's impossible to be economically productive without energy to power devices to multiply the productive capabilities of labor.

The fact is, without abundant, affordable, reliable energy the United States will not remain an internationally competitive, high-technology country.

Indeed, as I wrote in a primer on energy that I just finished drafting, we are not simply an energy civilization, we are in many ways an energy species.

A great deal of anthropological evidence suggests that it was the harnessing of fire by primitive man that facilitated (and may have driven) the evolution that produced modern human beings.

It's really fascinating stuff, involving the influence of cooking on food and nutrient availability, extended daylight and the hormones that control sleeping and breeding, and more.

And, understanding it could actually help some of us lose weight, but that's for another speech, and perhaps another monograph.

But back to today's topic, regarding U.S. energy policy.

The answer to the topic question of this presentation really is no. There's no coherent energy policy or plan in the United States, and there never really has been.

At least, as far as I know, after a great deal of reading on the issue, I've never seen a coherent formulation of exactly what the U.S. wants to achieve with our energy policy.

Of course, as a believer in free markets, and a profound disbeliever in the ability of governments (or anyone else) to reliably foresee the future well enough to plan even smaller parts of the economy, I don't think we need one or want one. The last thing we need is a governmental master plan for the master resource.

What we do need, however, is for the politicians to stop mucking things up.

Because that's mostly what they've done.

Politicians, abetted by an ever-growing army of regulating bureaucrats, have instituted crazy quilt of politically driven policies that attempt to address one or another element of energy policy, frequently at cross purposes with other elements of energy policy, or its inevitable companion, environmental policy.

So, politicians claim they want energy independence, yet they lock vast swaths of our own fossil-fuels away on environmental grounds, many of which have been made irrelevant by new technologies such as directional drilling, and blow-out proof well technology.

Politicians claim they want affordable transportation fuels (especially when gasoline prices approach $4.00 per gallon), and yet they subsidize corn ethanol, a more expensive fuel to begin with, to the tune of $1.00 per gallon, and insist it be blended into our gasoline, currently at 10 percent, and soon 15 percent.

Politicians pass new automobile efficiency standards that might save you a little on gasoline each week, but that will actually raise your transportation costs on net because of the initial cost of the technology, and the taxes you pay to subsidize other people's purchases of the new fuel-sippy cars. Oh, and as a side-effect, smaller, lighter cars are more dangerous. Yes, that's going to help control costs under ObamaCare, alrighty, more harmful traffic accidents.

Politicians claim they want "clean energy," such as wind and solar power, but those same politicians often turn around and block such projects because of interest group politics in their home state.

Wind farms off Cape Cod? That might interfere with the view of the regatta from the Kennedy Compound. Sorry, not acceptable.

Solar power stations in California's desert? That would harm tortoises and kangaroo rats, require a lot of fresh water (not commonly found in deserts), and besides, you have to run hundreds of miles of new power lines through delicate ecosystems. Worst still, you might have to run the power lines through, enclaves of wealthy constituents who have the ear of the state Senator or Congressman.

Politicians claim they want to make "clean energy jobs that can't be exported." First, there is no decent definition of what a clean job is. Is the guy who makes the concrete for the foundation of a wind turbine doing a "green job?" What about the one trucking the turbine to its site in a diesel truck? But for this discussion, let's accept the current political trope that wind and solar power are "green technologies that create green jobs." They don't, but let's pretend. The same politicians and parties pushing renewables now are the ones who've made mining so onerous here in the United States that we've virtually lost the ability to mine and refine the rare earth elements needed to build wind turbines and solar cells. China controls 95-100% of the world's supply of rare earth elements, and they're implementing export controls to make sure that all those green energy jobs are in China.

Politicians claim they want to stabilize the energy grid, and make it smart. But they ignore warnings that making the grid "smarter" will make it more vulnerable to hacking.

And most of their focus is on giving them the ability to turn your air conditioning down if they think you're using too much.

Politicians say they want more nuclear power, but they long ago shut down the breeder reactors we could have used to recycle nuclear fuel. And adding insult to injury, they recently ended the plan to create a waste repository in Yucca Mountain. If you were looking to invest in nuclear power, but had nowhere to put the waste, would you invest? No? What a surprise.

What would a better energy policy look like?

I would argue that better energy policy is mostly a matter of slapping the government's hands away from things it is incompetent to manage.

First, we should strip out all subsidies to energy and energy-related technologies, that politicians love so dearly, and yes, that includes subsidies to fossil fuels. All the government does when subsidizing a particular type of fuel or technology is steer capital to a use that is less efficient, and less productive, harming the economy on the whole. This would also, by the way, be good for the environment. The wealthier people are, the more they purchase the luxury of environmental quality. Even at the level of preserving a neighborhood park, one has to have discretionary income, much less if you want to restore a damaged watershed.

Second, we need a massive effort to streamline and rationalize environmental regulations. Right now, the insane regulatory system we have is distorting market prices severely, raising the costs of doing virtually everything, and introducing massive uncertainties about energy development that has to be keeping a great deal of capital out of the energy investment space.

Specifically, the government should put an immediate end to discussions of cap-and-trade and additional energy regulation via the Clean Air Act and the Endangered Species Act. Yes, we want to protect people from harm transmitted via the environment, and protect cherished wilderness and wildlife. And to the extent that we find environmental externalities where the cost of remediation is lower than the benefit of ignoring it, those should be handled with revenue-neutral eco-taxes. If politicians can't stomach the T-word, I'm sure they can come up with something creative, like, "Ecosystem Services Consumption Fee."

I want to re-iterate, I am talking about externalities that are proven to be genuine, rise above the level of simple nuisance, and where the benefit of eco-taxing it away is more than the cost of doing so. It is unclear, at this point, that greenhouse gas emissions qualify for this treatment. It's even more unclear that this government is capable of doing anything that would be revenue-neutral. We can discuss that in the Q&A.

Finally, we should open our own country to energy exploration and development. I put last for a reason:

Until there is something like a free-market functioning in the energy sector, with some rational approach to managing environmental externalities there's no way to judge whether it's actually more logical to use our own oil now, or use someone else's cheaper oil, and save ours for later, when scarcity will make it still more valuable than it is today. It's just as possible that we'd make worse economic and environmental mistakes by opening everything up to development in the current distorted markets and regulatory environment as that we'd make things better.

The same is true for figuring out whether we want more or less nuclear power, wind power, solar power, or any other kind of power, which is why I'm not recommending any particular sort. Until market signals dominate, and regulations are pruned back to what is necessary to protect human and environmental health and welfare, it's not possible to say which form of energy is better than another.

So there's the Green energy plan: get the government out of the way, and let markets do what they do best, supply a good to a market at the price consumers are willing to pay, and with the trade-offs they are willing to accept.

Is that likely to happen? No.

Because by controlling the master resource, government controls many other activities, and government is all about control.

And, to be honest, government does have some legitimate role in the energy space. I did say that the Green energy plan was mostly about slapping away the hands of government.

That's because there are, in fact, military considerations.

To the extent that people want their government to intervene militarily to ensure oil and gas supplies to ourselves and others, government has a legitimate role in policymaking.

The same is true of controlling the spread of nuclear materials.

And, the military itself is a prodigious consumer of energy, and has a legitimate R&D role, as well as a security-related interest in ensuring its own uninterruptable supply of fuel for its operations. Some of the military's research into algae fuels shows promise, as does some of their research into advanced, small, sealed nuclear power cells.

So the Green energy plan may be unlikely to happen, but then, I have the good fortune of working at a place where I can at least point to what would be the best policy, and set aside the politics.

Kenneth P. Green is a resident scholar at AEI.

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