JETS AND SPEED LIMITS

An important difference between the sky and U.S. highways, as media of transport relate to energy policy, is that federal regulators never made airplanes slow down to conserve fuel. The much-scorned and mostly ignored 55 mph highway speed limit is one of two figments of federal energy policy that belatedly cease this month. Also ending is the ban on exports of crude oil from Alaska's North Slope.

Dec. 4, 1995

4 min read

An important difference between the sky and U.S. highways, as media of transport relate to energy policy, is that federal regulators never made airplanes slow down to conserve fuel.

The much-scorned and mostly ignored 55 mph highway speed limit is one of two figments of federal energy policy that belatedly cease this month. Also ending is the ban on exports of crude oil from Alaska's North Slope.

Both measures made intuitive sense when they were adopted in the political frenzy following the Arab oil embargo of 1973-74. A slowing of vehicle travel to no more than 55 mph was thought to improve overall fuel use efficiency. And the ban on export of North Slope crude reflected a natural impulse to hoard oil from an environmentally controversial development project.

INEFFECTIVE POLICY

Neither measure amounted to effective energy policy. The 55 mph speed limit was difficult to enforce. It never could have reduced petroleum consumption to the extent that consumers did by simply responding sensibly to leaping prices. And the export ban, by precluding natural trading patterns, compromised efficiency.

The U.S. committed energy policy errors more serious than these in response to the embargo. The federal speed limit and export ban are just new additions to a scrap heap of energy policy failures attesting to the need for governments to trust markets.

For governments, this concept is difficult. Trusting markets means not governing, which conflicts with governmental inclina- tions. Lately, for example, the U.S. Department of Energy has felt compelled to promote natural gas, as though markets weren't already doing the job. Who can fail to be amused by the jolt DOE gives habit every time it refers to fluid hydrocarbons as "gas and oil"?

The rhetorical gimmick is harmless. More threatening are prospects for policies attempting to push gas into markets that favor other fuels. Like all other manipulations of markets by the state, policies like that would do more harm than good.

Gas needs no official push. It's doing fine for basic market reasons-one having to do with the absence of a heavenward equivalent of the 55 mph speed limit.

Fuel price jumps of the 1970s raised costs of airlines and generated incentives to use jet fuel more efficiently. This created demand for jet engines able to deliver needed levels of thrust at diminishing levels of fuel consumption. A new generation of highly efficient turbine engines emerged. It was a response not to government mandates but to basic market pressures.

Turbine design improvements didn't just increase fuel use efficiencies of jet engines, of course. They also improved thermal efficiencies of turbine generators of electricity. Gas- fired turbines linked with secondary thermal generators in combined-cycle schemes now successfully compete with older, all- thermal plants. Increasingly, they are the first choice for new base-load capacity.

So a technological advance in the aviation industry, prompted by fuel price jumps of the 1970s, has expanded the growth potential of natural gas markets. That potential is greater than anything DOE can hope to deliver through regulation. Markets beat mandates every time.

FULFILLING POLICY GOALS

In fact, the most useful energy policy actions since at least the embargo have been steps toward deregulation: decontrol of oil and gas prices and relaxed regulation of gas transportation. With markets replacing mandates, oil and gas trade as commodities do, electricity is following suit, and an active spot market is developing for coal. Fungibility and flexibility ensure security of supply. And price trends are down.

Markets and market-driven technologies thus are outperforming federal officials in the fulfillment of energy policy goals. The government's triumph is allowing the progress to occur. It should keep up the good work. Where markets thrive, governments should govern as little as possible.