Empowering the Free Energy Markets

Once again, Congress is poised to play the "winners and losers" game in energy policy, by extending various tax advantages to subsidize wind power, solar power, biofuels, and various "energy efficiency" standards.

Meanwhile, the Obama administration has implemented a virtual moratorium on exploration and production of additional domestic oil and gas, and the White House is already sowing doubt in capital markets about whether America will be able to exploit the massive reserves of shale-gas and shale-oil that we can now produce with new technologies. These policies are, simply put, foolish. If we want our economy to flourish, we need our energy to be two things: abundant and affordable. And only free energy markets can provide that.

Because bringing on new sources of energy is slow, a policy of maintaining abundance, and not simply "sufficiency," is important to allow our economy to grow when conditions favor growth. And we're going to need more energy in the future--a lot more--to preserve economic health. The Department of Energy projects that the U.S. will need to increase its total energy supply by 15 percent over the next 30 years. That's a vast quantity of energy we need to be getting into the pipeline now.

For America to thrive, we need energy policy that favors the development of abundant and affordable energy . . .

And we need that energy to be affordable--as cheap as we can find it. The United States, like all developed countries, is an energy state. Energy is a fundamental input to economic productivity. The price of energy radiates through the economy into the prices we pay for goods and services, and the prices we can offer the world to buy our exports.

Unfortunately, we're not pursuing a policy of abundance and affordability. Instead of favoring development of new domestic fossil fuels, our leaders are walling off domestic development of reliable fossil fuels, while steering taxpayer money into "renewable" energy technologies. But the green technologies of the present won't get us where we need to be. Wind, solar and biofuels--are less abundant and more expensive than fossil fuel energy. Wind and solar power are unreliable for providing baseload electricity, and even with lavish (and likely unsustainable) subsidies can't be scaled up enough to reduce fossil fuel use significantly. In fact, greater penetration of the so-called renewables threatens grid stability and makes our electricity supply less reliable.

Adding insult to injury, the so-called renewables may actually cause more environmental harm. Corn ethanol is an environmental fiasco. Wind power destabilizes backup generation and may produce more pollutants (and greenhouse gases) rather than less. Solar plants threaten endangered species in fragile desert ecosystems.

But, we're told, we have to get off oil. We're subject to price shocks, and oil money funds those who hate us around the world. There's some merit to that argument, but (a) there really is no suitable replacement for oil, and (b) the cures can be worse than the malady. As a source of portable liquid fuel for transportation, it is hard to match the attributes of petroleum fuels.

Ethanol from corn, switch grass and other biomass are not very promising. And again, alternative fuels can cause pollution equal to that of fossil fuels, while consuming arable land, driving up food prices, and consuming forests and other ecosystems. As for price shocks, no liquid alternative would shield us from that--whatever alternative we came up with would rise to the world price of other liquid fuels.

Some suggest electrification as the answer, but current technologies just aren't up to most people's transportation needs: That's why GM's Volt and the Nissan Leaf need subsidies--up to $8,500 for car and charger--to persuade even the well-off to consider buying one. And unless the electricity is produced cleanly, electrification could worsen pollutant emissions.

For America to thrive, we need energy policy that favors the development of abundant and affordable energy, not one focused on scarce and expensive wind and solar energy or unaffordable electric cars. The Obama administration should be working to strip out all of the market-distorting subsidies in the energy arena and striving for regulatory streamlining to let energy markets work more efficiently.

Kenneth P. Green is a resident scholar at AEI.

Photo Credit: iStockhoto/Andrew Penner

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