Repeating errors-again

Oct. 23, 2017
Governments should refrain from making energy choices because they make poor energy choices. History is clear about this. Yet the Trump administration is repeating errors of its predecessors.

Governments should refrain from making energy choices because they make poor energy choices. History is clear about this. Yet the Trump administration is repeating errors of its predecessors.

Government choices about anything are inescapably political and subject to manipulation by special interests. Saying so reflects no excess of cynicism or ideological antagonism against state institutions. Saying so simply asserts the need for caution against unbridled governance generally and in matters affecting energy especially.

Misfiring policies

Energy decision-making must be informed and nimble. With energy, governmental decisions can be neither. When at their best-meaning least influenced by businesses trying to profit from unprofitable schemes-governments base energy decisions on assumptions about market conditions decades in the future. Those decisions become laws and regulations intended to last and thus made difficult to change.

Usually, alas, they prove wrong. Governments can accurately predict neither energy-market conditions nor political moods decades-or even years-into the future. No one can. Energy markets and political moods are too changeable, too subject to too many unpredictable and often unforeseen influences. From predictions destined to be wrong flow policies sure to misfire.

In the 1970s, for example, the US government committed to the expenditure of tens of billions of dollars on synthetic fuel technologies that remain commercially hopeless to this day. It also passed laws preferring the combustion of coal instead of natural gas in electric-power generators and industrial boilers, unable at the time to foresee concern about climate change, the consequent political aversion toward coal, and huge new gas supply from unconventional resources.

The 1980s and 1990s gave national energy welfare a respite as lawmakers and regulators exercised comparative restraint. While they didn't quit passing laws or enacting regulations about energy, they mostly let markets work, leaving individuals and businesses free to make their own energy choices. Those choices weren't always right, of course. Because markets, unlike governments, adjust quickly to errors, however, overall energy judgment was sound-appropriately shaped by regulation for public concerns for safety and health, competitive fairness, and the environment.

The Energy Policy Act of 2005 (EPACT) reasserted governmental energy choice by requiring sales of renewable fuels, mainly ethanol in gasoline. The Energy Independence and Security Act of 2007 (EISA) expanded the program, which now includes technically unachievable requirements and phased increases in the ethanol mandate based on flawed assumptions about gasoline-demand growth.

With the renewable-fuels fiasco, lawmakers achieved what presidents have not been reluctant to try. EPACT became law during the administration of George W. Bush, whose DOE championed hydrogen as the end of all energy worries. Before Bush, DOE under Bill Clinton sought legislation creating a renewable portfolio standard for electricity generators. Congress wisely left that idea to states, where energy choices at least are made closer to voters affected by the distortion. And, of course, the administration of Barack Obama discarded hydrogen, along with nearly everything else associated with Bush, and enshrined solar and wind as energy forms worthy of official generosity.

History thus makes governmental energy choice, with presidents and lawmakers selecting one form or another like dessert from a restaurant menu, seem capricious at best. Indeed, it is. Governments have no special insight enabling them to make energy decisions better than those emerging from free markets. And they have institutional encumbrances that render their choices suspect.

No exception

Still, they try, and the Trump administration proves to be no exception. Late last month, the DOE issued a notice of proposed rulemaking designed to underscore the value to power grids of generator reliance and reliability. The measure guarantees cost recovery for generation units with 90-day supplies of fuel stored on site. It addresses a genuine problem: the growing challenge to generation reliability as intermittent solar and wind capture power-market share. But it amounts to official preference for investment in nuclear and coal-fired plants.

Problems solved by problems are never solutions. And energy choices made by governments always become problems.