Misunderstanding typical of past energy mistakes is pushing triumphant congressional Democrats to the brink of new error. Americans do not need to worry about this unless they use modern forms of energy or pay taxes.
Giddy as they are with their recovery of power, Democrats can be forgiven a few days of rhetorical excess. But they really should try to be correct.
“For too long, our country’s energy policy has had only one concern: oil company profits,” declared new Senate Majority Leader Harry Reid of Nevada (OGJ Online, Jan. 8, 2006). This is quite a condemnation of energy policy. Until extraordinary events-strikes in major producing countries, wars, hurricanes-combined with relentlessly rising demand to push up prices for crude oil and natural gas in the past 4 years, oil industry profitability languished well below levels of most other industries for at least a decade and a half. If energy policy really were as concerned about oil company profits as Reid alleged, it failed spectacularly.
Whose profits?
In fact, the only major energy initiative enacted during the recent spurt in oil profitability was the Energy Policy Act of 2005 (EPACT). With it, Congress clearly was more concerned about profits of farmers, grain distillers, biodiesel producers, and makers of alternative-fuel vehicles than it was about those of oil companies. Why aren’t Reid and his colleagues holding profit margins in those industries up for public scorn?
The answer, of course, is that oil companies are unpopular in the US, largely because of the unavoidable association of their profitability spikes with fuel prices that consumers find distressing. This is a simple business reality. Exploiting it for political gain is tawdry practice. But it always works. And it too frequently leads to policies costly to energy consumers and taxpayers.
The Democrats can’t wait to pick American pockets on energy. The Senate already has a bill that the new leadership claims will reduce US dependence on foreign oil and the risks of global warming. Here, as described by Reid and reported by OGJ Washington Correspondent Nick Snow, are the key provisions:
- Require reductions in emissions of greenhouse gases.
- Diversify and expand the use of “secure, efficient, and environmentally friendly”-which means congressionally specified-energy forms.
- Reduce the burdens of rising energy costs on consumers.
- Eliminate “tax give-aways” to large energy companies.
- Prevent energy “price-gouging, profiteering, and market manipulation.”
This list contains striking contradictions. While addressing the build-up of greenhouse gases is a righteous aim, requiring emissions reductions as called for in item 1 would raise energy costs in conflict with item 3. Whatever hope item 1 leaves for the achievement of item 3 will be dashed by item 2. To win market acceptance of its favorite energy types, the government must resort to subsidies and mandates, which are very expensive. An example is EPACT’s fuel ethanol program, a breath-taking tax give-away unlikely to receive much attention in item 4. And item 5 just shows how effective propaganda can immortalize repeatedly discredited fiction. As a market cop, Congress can only duplicate enforcement mechanisms already in place and, if it gets carried away, discourage sales during fuel shortages. Item 3 takes another blow.
The US needs a better energy policy than it has now. It doesn’t need high-cost futility. Lurches like this happen when politicians think they can disengage from markets. Sen. Ken Salazar (D-Colo.) last week encapsulated American wrong-headedness on energy with this observation: “The only thing lacking, really, has been the will of the leadership of America to move forward to get us to that energy independence.”
Innovation and markets
In fact, energy progress comes not from political will but from technical innovation applied within the discipline of robust markets. And energy independence is just an illusory goal with which politicians seduce Americans into subsidizing uncompetitive energy and wasteful government programs.
There’s hope, though. Congress didn’t plan to take up energy until Jan. 18. Energy consumers and taxpayers can hope that, sometime during the few days until then, Democrats quit partying and get serious.
