Fans of energy regulation might regret a rare success rooted in the US government's expansionism of the 1970s. Some of them are suggesting the decade wasn't so bad. Maybe they're too young to remember the service-station lines, daisy-chain corruption, and unseemly contortions of a government trying to fix its mistakes without admitting to having made any.
At a Resources for the Future forum recently in Washington, DC, historian Meg Jacobs regretted that the 1970s made Americans skeptical about their government's management of energy. Discussing her book Panic at the Pump: The Energy Crisis and the Transformation of American Politics, Jacobs acknowledged widespread reluctance to cut energy use in response to climate change. "Telling [Americans] that they still need to cut back is politically difficult," Jacobs said. Yet they can be urged to "go green," she enthused, pointing out that last year renewable energy accounted for more new jobs than coal. "The hardest challenge in Paris [concerning the 2015 climate treaty] and America now is overcoming the sense that governments can't be trusted to fix energy problems."
Grounded in history
Yet that sense has firm historical grounding. US regulation of oil and gas in the 1970s created more problems than it solved. Price ceilings imposed to combat inflation in 1971 and left in place for oil, compounded by allocation controls legislated in response to the Arab oil embargo of 1973-74, caused physical shortage. Predictably, price regulation discouraged production and encouraged consumption. Allocation controls kept supply away from local markets that needed it most.
While the oil fiasco ran its course, Congress turned its attention to natural gas, which was becoming scarce in price-regulated interstate commerce while abundant in unregulated intrastate markets. The Natural Gas Policy Act of 1978 spawned dozens of price tiers for a single commodity. The companion Power Plant and Industrial Fuel Use Act discouraged investment in gas-fired boilers to boost coal.
By the end of the decade, Congress was correcting its oil mistake by removing market controls and the egregious and misnamed Windfall Profit Tax. In 1985, it killed the Synthetic Fuels Corp., to which it had committed $88 billion only 5 years earlier. That boondoggle imploded before damaging much more than confidence in the ability of politicians make sound energy choices.
Gas decontrol was more complicated, requiring industry restructuring and the unraveling of NGPA's skewed incentives. Contrary to warnings from politicians still mistrustful of markets, gas prices did not "fly up" when the last controls disappeared in 1987.
Deregulation of oil and gas lifted a heavy burden from energy consumers and taxpayers. Yes, unregulated energy prices fluctuate, sometimes distressfully. But free markets cycle out pain quickly. Motorists in the modern, free market can buy gasoline or diesel when they need it without waiting hours in line.
Activists might argue times have changed since the 1970s. But economic principles have not. Alas, market freedom is under new attack. Congress reestablished political energy choice when it created the Renewable Fuel Standard in 2005 and expanded the program in 2007. The product is a costly system of unachievable targets and inescapable penalties benefitting only grain growers and distillers. And the "market" for compliance chits has fallen victim to fraud. Whoever would have guessed?
A success
The lone rose in the 1970s weed patch was federally supported research and development, consolidated first in the Energy Research and Development Administration and later in the Department of Energy. Technologies for deepwater work and for development of unconventional resources could not have progressed as they did without the help. By making oil and gas production possible from subsurface realms out of commercial reach in the 1970s, federal research, combined with industry capital and enterprise, extended the Age of Petroleum by decades.
For Americans who like their energy abundant and affordable and who aren't frightened because the climate changes, the reward is great. But it's probably not the preferred outcome of activists nostalgic about the 1970s.
