Americans curious about the costs of misguided energy policy should watch Europe, where governments aggressively promote energy from the sun, wind, and biomaterial. In the many countries where consumers pay the subsidies those energy forms need, electricity costs have become painful. The US government is making comparable mistakes—and others. While European governments have laden their economies with one layer of pain, the US would impose two.
In the US, costs are less clear, taking the form not of surcharges on energy bills but of diminished taxation of producers of favored energy. The costs of energy subsidization hit taxpayers rather than consumers and get lost in discussions of broader fiscal exigencies. Consumers pay more directly for other types of energy aid, such as mandates for fuel ethanol made from grain, which drive up food costs and distort markets. Again, however, attention dissipates amid other arguments, such as whether biofuels do anything for the environment. However camouflaged, the costs are as real as those driving up electricity bills in Europe.
Political volatility
In the UK, the price of energy has become politically volatile. Labor Party leader Ed Miliband has even dredged up the liberal nostrum of market controls, promising to freeze energy prices for 20 months if he becomes prime minister. Incumbent Prime Minister David Cameron came under new pressure this month when a major energy supplier announced a rate increase to cover its green obligations. Discussion of an easing of those obligations, especially a requirement that energy suppliers pay for efficiency measures in poor householders, is said to have alienated coalition partners.
Rising electricity prices in Germany, the government of which aggressively supports renewable energy while closing nuclear plants, have chased some companies out of the country, according to a study by IHS. The study warns of harm to the competitiveness of German exports of goods and services, which are crucial to the country's economy. In response to zooming costs, other European countries have trimmed subsidies for renewable energy or have discussed doing so.
The message is clear. Market interventions by governments promoting noncommercial energy impose costs that easily become unbearable. And unbearable costs become political issues.
Although tactics differ in the US, the intent is the same: Use renewable energy instead of hydrocarbons. The US government thus provides generous tax credits to producers of energy from the sun, wind, and most biological sources and mandates the use of renewable energy in vehicle fuel and the generation of electrical power. At the same time, it uses regulation to raise the costs of fossil energy, especially coal and oil. Examples affecting oil include Tier 3 gasoline regulations, which will slash the sulfur limit from its already low level, control of emissions of greenhouse gases from new refineries, and unnecessarily toughened standards on ground-level ozone.
The government adds the other layer of cost by discouraging development of commercial energy supply. Leasing of federal land during the administration of Barack Obama has been slower than at any time in the preceding 20 years. Permitting is slow, onshore and offshore. The government is developing regulations for hydraulic fracturing, which states already regulate. Inaction on approval of the Keystone XL pipeline border crossing clogs movement of bitumen produced in the Canadian oil sands to high-conversion refineries on the US Gulf Coast.
Foreclosed opportunity
These and other measures represent impediments to an energy-supply renaissance in North America and thus align with the categorical opposition to fossil energy espoused by environmental groups. That opposition influences the formulation of energy policy more than is merited by its scientific arguments, which always strain. The influence manifests itself as resistance to profitable work and to development of vast new supplies of secure and affordable energy. Its success, when it occurs, forecloses opportunity and imposes cost as burdensome as subsidization of economically deficient energy.
Americans should want less of both types of cost than their government wants to impose. Much less.
