US President Barack Obama remains determined to keep the country on an energy-policy course that is worse than misguided. In the context of clear evidence from the US and elsewhere, it is just bone-headed.
Obama reinforced his flawed approach to energy in the State of the Union speech Jan. 25. To pay for "innovation" in "clean energy technology," the president said, Congress should repeal tax preferences for oil and gas companies. And he promised that, by 2035, 80% of US electricity "will come from clean energy sources."
Fatal problems
His program has three fatal problems. It asserts that the government knows best what types of energy people should use. It stipulates numerical energy shares for specific types of fuel based on—what? And it taxes commercial energy to support noncommercial energy.
Governments possess no special knowledge about energy. When they stray into fuel choice, a function best left to markets, they subject their initiatives to political influence. Governments legitimately can set standards for environmental and safety performance, and they legitimately can and should police competition. With fuel selection, though, the politicians who lead governments know mainly what kinds of energy their supporters want them to promote. During the administration of George W. Bush, the governmental blessing went to hydrogen. Now it has shifted to wind, solar, and other renewable energy forms. What's next?
And how does Obama know that 80% is an appropriate or even feasible share of the electricity market for renewable energy two dozen years from now? In fact, he doesn't. His target is arbitrary, expressed to make policy seem resolute. Politicians set numerical energy targets regularly and, just as regularly, fail. They fail because they know no better than Obama does how much of a given type energy consumers should use at a given time. They can only, very confidently, guess. And they are always, very expensively, wrong.
This process is well advanced in the US with fuel ethanol and increasingly evident in the sagging fortunes of investors in heavily subsidized solar and wind energy. In Europe, renewable-energy mandates are wrecking utility and national budgets, forcing governments to slash subsidies. When will politicians learn?
In the US, the facile funding mechanism for all this folly is economically toxic. Taxing commercial energy to support noncommercial energy destroys wealth. It can't do otherwise. And whatever destroys wealth destroys employment. Obama argues that spending public money on money-losing activities favored by the government creates jobs. He calls it investing. "We'll invest in biomedical research, information technology, and especially clean energy technology—an investment that will strengthen our security, protect our planet, and create countless new jobs for our people," he crowed in his State of the Union speech.
Events discredit this central assumption of the president's appeal. Obama has pawned America's economy on government-sponsored employment that's not materializing. The jobless rate remains above 9%. The reason? Government spending doesn't create jobs; it moves jobs from commercial to political activities while dissipating the profitability needed to sustain them.
Corrosive nature
The president's energy formula highlights the corrosive nature of this mechanism. His program would lower profits and, therefore, employment in oil and gas and boost activity and employment in wind and solar. The declining contribution from oil and gas to wind and solar subsidization would pull funds from elsewhere in the federal budget. Inevitably, the US would find itself under the same fiscal pressures now forcing countries like Spain and France to cut subsidies for economically hopeless energy. The overall outcomes are less energy, fewer jobs, and enormous cost.
This is folly. Republican control of the House of Representatives should stymie Obama's tax raid on the oil industry. But reports of bipartisan support for a "clean-energy" standard for electrical power should raise concern. What the US needs most with energy is long-overdue clarification of what the government should and should not do in a crucial dimension of the economy.
US President Barack Obama remains determined to keep the country on an energy-policy course that is worse than misguided. In the context of clear evidence from the US and elsewhere, it is just bone-headed.
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