The transition to a new team of Cabinet-level officials presents the opportunity for a useful course correction on US energy policy. The administration of President Barack Obama will not stray from its commitment to respond urgently to climate change and to promote energy sources devoid of hydrocarbons, of course. But it might abandon tactics that simply waste public money.
The nominee to one Executive Branch leadership position especially important to energy has been confirmed by the Senate. He's Jack Lew, former White House chief of staff and Citigroup executive, who will be Secretary of the Treasury. His department doesn't appear often on lists of those crucial to energy. It should. Energy is as much about dollars as it is about btus.
Other nominees
At this writing, other energy-related nominees were preparing for congressional appearances. They are Sally Jewell, chief executive of Recreational Equipment Inc., to be Interior secretary; Ernest J. Moniz, director of the Massachusetts Institute of Technology's Energy Initiatives, to be Energy secretary; and Gina McCarthy, assistant administrator for air and radiation at the Environmental Protection Agency, to be EPA administrator.
Welcome in their confirmation hearings would be hints that any or all of the nominees question the current approach to energy. That approach has two main thrusts. The first, in effect since before Obama took office, relies on subsidies and mandates to force noncommercial, politically preferred energy into the market. The second, which the administration has so far unsuccessfully proposed, would tax commercial energy such as oil and gas to discourage its use and offset the subsidies.
The subsidy-and-mandate approach is a formula for open-ended spending. It emerges through a patchwork of initiatives and legislative riders over which no central control exists. Its economic benefits inevitably flow to the politically well-connected. And its costs—taxes and energy prices higher than they should be—hit everyone else.
Europe followed this approach and now finds itself in an energy morass. Overbuilt solar and wind industries are struggling, and energy prices are zooming. Beleaguered energy consumers are pressuring governments for change. Support for once-popular innovations is flagging. The US should not want to follow the European example.
A better trail exists to futuristic fuels. The US can blaze it without surrendering on climate change or renewable energy.
The trail is research. The federal government helps energy most when it focuses spending on activities that markets don't yet support. That should be its role.
At present, fiscal pressure constantly threatens spending on energy research. Effectiveness of the effort therefore suffers. Research must be continuous. Its payoffs can take years or decades to materialize. Demands for quicker results are frequent yet unreasonable.
Energy research now essentially must compete for funding with energy subsidies. The competition yields compromise, waste, and failure. The approach has to change in favor of research.
The current system can't be unwound immediately. Investments have been made in good faith on the basis of incentives provided by law. To remove the incentives instantaneously for existing projects would be damaging and unfair.
Phasing out subsidies
The government instead should end subsidies for future projects and phase out subsidies now in effect to encourage existing projects to find their economic legs. It should shift funding to basic research and let all energy forms compete for federal assistance. It should further withdraw from energy choice by ending volumetric and energy-share mandates.
Environmentalists and advocates for renewable energy would howl about such changes. To them, the removal of targets and hard subsidies such as tax credits would weaken policy. But mandates and subsidies inevitably require judgments about future energy markets that politically motivated decision-makers never make well. That's why they so regularly fail.
A reorientation of energy policy toward basic research in support of the energy forms that one day must follow oil, gas, and coal would be a genuine sign of seriousness and leadership. Now would be an excellent time to make the change.
