ENERGY MANHATTAN PROJECT-2: Energy policy principles

Aug. 21, 2006
To assert that the US government makes poor energy choices, as was done in this space last week, is not to argue that the government should do nothing at all with energy.

To assert that the US government makes poor energy choices, as was done in this space last week, is not to argue that the government should do nothing at all with energy (OGJ, Aug. 14, 2006, p. 17). Government always will have a role in this vital area.

The question is whether that role is constructive or destructive. It can’t be constructive when the government assigns itself the task for which it is least equipped-making energy choices for consumers. The central problem, in fact, is that the government seldom really makes energy choices for consumers; it makes them for energy producers on purely political grounds. This type of politically motivated fuel selection would rot the core of any Manhattan Project for energy, such as has been proposed regularly since oil prices began to climb. The “comprehensive energy legislation” that became the Energy Policy Act of 2005 (EPACT) took an ill-fated step in that direction.

Policy principles

So how does a government stay on a constructive course with energy? It does so by establishing and following principles. Political pragmatists cringe at such behavior. They dismiss anyone asserting principles as “ideologues” and, in the name of political pragmatism, fashion energy legislation by dispensing favors to special energy interests, the most politically aggressive of which tend to be producers of energy types no one wants to buy. The process yields results like EPACT, which already has caused so many problems for energy consumers that lawmakers are looking anew at energy legislation. It’s time to give principles a try.

The first principle is that energy policy should serve energy consumers first. That means it should put the interests of people who buy energy ahead of the interests of people who sell it.

The second principle of energy policy relates to the first: energy policy should promote market freedom. This sounds like ideology. But it simply reflects a practical lesson of history: People who buy energy fare best when left free to make their own energy choices in a freely functioning market; they fare worst when governments intrude. Even now, with prices uncomfortably high, energy consumers can anticipate relief as solidly grounded-as opposed to mandated-conservation takes hold and as new supply, including supply from untraditional sources, joins the energy mix.

Attention to the second principle automatically serves the third: Energy policy shouldn’t become a growing burden on taxpayers. It should neither tax them directly in an effort to sway purchase decisions nor load them with liability for subsidies for uncompetitive energy forms.

As a fourth principle of energy policy, environmental and safety regulation should focus on environmental and safety performance and not simply camouflage government fuel choice. The government should develop performance standards that account for the costs and benefits of compliance. It should enforce the standards. That’s all.

The fifth and final principle: Energy policy should be realistic. Energy policy can’t wish energy into existence. It can’t wish energy prices into being forever low. Natural and economic laws apply to energy, and governments only create cost when they try to contravene them. Similarly, zero-impact environmental regulation, however alluring, usually creates painful cost and isn’t necessary. Natural systems adapt harmlessly to some levels of some types of pollution. Environmental regulation as a component of energy policy should pursue naturally and economically realistic goals.

Panicky rush

To whatever extent the US ever has followed these principles, it is swerving away from them now in a panicky rush toward an energy Manhattan Project. Interests of energy consumers and taxpayers thus are in jeopardy. The need for coherent decision-making, guided by a clear view of whose interests the decisions will serve, has never been greater.

But defining and adopting principles are just first steps. Principles do energy policy no good if they don’t guide government behavior. Suggestions for specific policy moves will appear here next week.