What’s this?
US fuel prices are plummeting while members of Congress—aside from Republicans staying behind to speak on energy in an empty House chamber—are away on vacation.
How can this be? Haven’t lawmakers spent months telling voters that they know the way to relief, that they in fact wield the power to lower gasoline prices?
Of course they have. They’re politicians. It’s an election year. And their declarations of influence over prices have been wrong, thoroughly and dangerously wrong.
The market sets gasoline prices. Pretensions to the contrary lead to mistaken policies, which always hurt consumers.
The energy problem in the US is not that the government hasn’t acted on energy. It’s that the government has acted too much in ways that limit supply. And the problem is not, as some observers keep asserting, that the US has no energy policy. It has a very discernible energy policy.
The US policy
The US energy policy as it relates to oil and gas is to hoard crude in strategic storage, limit domestic production with land-use policy, stimulate with tax policies and mandates the manufacture and use of uncompetitive fuels, err on the side of high fuel cost in environmental regulation, and treat oil companies like criminal enterprises when fuel prices rise. This is, in fact, a comprehensive energy policy. It’s a poor one—but comprehensive, nonetheless.
Energy policy is poor because much of it was fashioned during a price-induced political uproar. Hysteria seldom produces constructive policy in any area, least of all energy. Yet energy receives scant attention when oil prices are low. So 10 years ago, when the initiative might have eased the price pain of 2008, Congress didn’t expand federal oil and gas leasing. Because oil prices were low, public concern about future energy and the compulsion to act were negligible.
When the market cycled away from a long period of surplus earlier this decade, of course, popular attention to energy returned with a vengeance—literally—in response to the inevitable price increases. Along with subsidies for uneconomic energy have come calls for special taxation of oil companies, criminalization of “price gouging” during supply emergencies, and restrictions on energy trading. These moves would hurt oil consumers by constricting supply and bridling the market. They’re the type of mistake consumers should expect when politicians feel urgent pressure to act—to do something, anything—on energy.
Policy in this area doesn’t have to be a spiral of expensive mistakes. A sound energy policy is not beyond hope. And the characteristics of such a policy do not lie beyond the limits of popular comprehension. They are, in fact, quite simple.
A sound energy policy relies to the maximum possible extent on the market. It eschews fuel selection by the government. It helps emergent energy forms by preparing them to compete—with research assistance, for example, and loan guarantees—not by forcing them into the market with mandates and subsidies, which can only hurt them in the long run.
Because of its reliance on the market, a sound energy policy imposes and rigorously enforces antitrust and trading regulations.
A sound energy policy acknowledges the need to expand supply from all energy sources that make commercial sense and doesn’t orient itself to the inevitably corrupt promotion of some sources at the expense of others.
A sound energy policy works to reconcile the imperatives of energy supply and environmental protection.
Domestic supply
And a sound energy policy favors domestic supply over foreign supply as long as domestic supply can compete. It does so less out of fear of foreign supply, which the US will continue to need, than from practical recognition of the manifold economic benefits of domestic production.
Obviously, implementation of sound energy policy would require the reconsideration of recent moves away from the market-based approach that serves consumer and national interests best over time. The current plunge in oil prices is discrediting many of the assertions underlying those mistakes. Maybe it will enable politicians to calm down and begin giving energy the rational treatment it needs.
