Studies won't fix unintended consequences

Bob Tippee

What does a government do when unintended consequences highlight its mistakes? It conducts a study.

Democrats in the US House of Representatives adopt this approach to problem-solving in draft energy legislation they're circulating while Congress is in recess.

They want to act on energy despite the growing likelihood that disparate bills passed by the House and Senate won't be reconciled.

One of many problems of those bills is a wildly prescriptive approach to fuel choice, a matter best left to markets.

One version of the draft legislation is even more prescriptive and therefore worse.

It mandates sales volumes higher than current levels for renewable fuel, advanced biofuels, cellulosic biofuel, and biomass-based diesel.

Confusion doesn't end with the multiple categories. The requirements include market share thresholds and tests for greenhouse gas abatement. There are tradeoffs and a system for earning and trading credits in years when supplies don't meet target levels.

In short, the legislation is a formula: target volumes and secondary requirements growing as a function of time.

That 21st-century adults think fuel markets can be managed this way is astonishing. That anyone thinks they should be is appalling.

In less than 2 years, formulaic renewable-fuel requirements of the Energy Policy Act of 2005 have made a mess. Leaping demand has raised the price of corn while a government-sponsored building binge brought too much corn-based ethanol to market too fast.

So corn farmers are getting rich, while distillers and taxpayers are getting squeezed. Food prices are soaring.

Except for the enrichment of corn growers, these are unintended consequences—market distortions born of government activism.

And the House would respond with more activism—higher and more complex mandates. It thus answers a mistake with a bigger mistake of the same species.

The discussion draft, though, offers something new. It calls for periodic studies of the legislation's market and environmental effects.

That way, lawmakers can have a record of their handiwork's consequences. There will be many of them if Congress passes an energy bill like the one now making the rounds, all costly—unintended, perhaps, but not unforeseen.

(Online Nov. 30, 2007; author's e-mail:

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