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Double A Energy Policy

Thursday, November 4, 2010

Policy makers should promote abundant and affordable energy, and oppose policies that raise energy prices and restrict energy access.

With the collapse of climate legislation in the Senate and a new GOP House certain to be hostile to the conventional wisdom about shoveling subsidies at or mandating the use of uncompetitive energy sources, American energy policy has once again been put on the back burner. The House Republicans' recent Pledge to America gives only passing mention to energy, promising to increase access to domestic energy sources and to continue opposing new energy taxes, while the White House probably never wants to hear the term "cap and trade" again. When prices are high, or environmental disasters occur, energy policy comes into vogue, but discussion is never serious. The typical epicycle of energy policy repeats itself once more.

Energy policy in the United States has primarily consisted of fantasies: fantastical claims of imminent energy independence or imminent technology breakthroughs that will banish all of our energy woes. Such fantastical thinking has led to more efforts at energy central-planning. This is a mistake, as there is no surer way of driving more manufacturing jobs overseas than to embrace costly, unreliable energy, or to ration access to energy. Yet that has been the policy focus for the last 30 years.

Energy policy in the United States has primarily consisted of fantasies: fantastical claims of imminent energy independence or imminent technology breakthroughs that will banish all of our energy woes.

America's energy policy should instead be grounded in realism, and should pursue the two vital "A's" of energy policy: keeping energy abundant and affordable. Because the fact is, we are going to need more energy in the future, and we will need to be more economically competitive. The Department of Energy projects that the United States will need to increase its total energy supply by 15 percent over the next 30 years. And simply put, the fashionable "renewable" energy technologies of the present will not get us there; wind, solar, and biofuels are less abundant and more expensive than fossil fuel energy. Wind and solar power are unreliable for providing baseload electricity and, even with lavish (and likely unsustainable) subsidies, cannot be scaled up enough to reduce fossil fuel use significantly. Greater penetration of the so-called renewables threatens grid stability and makes our electricity supply less reliable.

Adding insult to injury, the so-called renewables may actually cause more environmental harm. Corn ethanol is an environmental fiasco. Wind power destabilizes backup generation and may produce more pollutants (and greenhouse gases) rather than less. Solar plants threaten endangered species in fragile desert ecosystems. Environmental externalities should not be dealt with by techno-favoritism. If there is a real environmental externality, we should apply an appropriate eco-tax and be done with it.

To the extent that we do have a problem with our energy portfolio, its name is oil. Our reliance on oil—more than 60 percent of which comes from foreign sources—leaves the United States vulnerable to price squeezes from increasing demand in the developing world, not to mention potential supply interruptions from the politically unstable Middle East. Otherwise, America is in good shape: we have abundant domestic supplies of coal and natural gas for decades to come, and plenty of uranium if nuclear power can prove itself cost-competitive in an unsubsidized marketplace.

Wind and solar power are unreliable for providing baseload electricity and, even with lavish subsidies, cannot be scaled up enough to reduce fossil fuel use significantly.

Unfortunately, there are no good substitutes or replacements for oil on a large scale at the present time, and talking about substitutes is mostly a distraction. As a source of portable liquid fuel for transportation, it is hard to match the attributes of petroleum fuels. Ethanol from corn, switchgrass, and other biomass is not very promising. Algae biofuels may have greater potential, and algae research is attracting serious private-sector investment at the moment, but the research is in its very early days. Increased domestic production may offer economic benefits, but it will not do much to protect us from world price spikes because oil is a global commodity, and domestic prices would match world prices if any shortage caused a price shock.

Although electric cars may someday prove themselves a viable alternative to the internal combustion engine (requiring more electricity to be generated), the pursuit of better batteries has stretched for many decades, and will stretch for many more. General Motors, which is introducing the $41,000 plug-in hybrid Volt, recently downgraded expectations for battery life from 40 miles per charge to "25 to 50," where 50 is attainable on flat roads, without heating or cooling, by drivers with a feather touch on the accelerator.

America's energy policy has been a hodgepodge of technology favoritism and fantastical thinking. The Left loves wind and solar; the Right loves nukes and domestic oil. Neither loves free energy markets. This needs to end: subsidizing favored technologies only makes our energy less abundant and less affordable.

It is time for a coherent energy policy. We suggest a simple rule: stick to the two "A's"—support policies that promote abundant and affordable energy, and oppose policies that raise energy prices and restrict energy access.

Kenneth P. Green and Steven F. Hayward are resident scholars at the American Enterprise Institute and co-authors of AEI's Energy and Environment Outlook.

FURTHER READING: Green discusses “Who Should ‘Go First’ on Greenhouse Gas Control” with Aparna Mathur, questions “A Green Future for Just Pennies a Day?” and outlines “Our Energy Society.” Hayward gives “Two Cheers for the Clean Air Act,” describes “Environmentalists as Battered Spouses,” and contributes to an evaluation of “Post-Partisan Power.” Hayward and Green explain “The Dangers of Overreacting to the Deepwater Horizon Disaster.”

Image by Darren Wamboldt/Bergman Group.

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