Commentary

A Complete Waste of Energy

By Jerry Taylor and Daniel Becker
This article appeared in the Los Angeles Times on October 29, 2003.

A House-Senate energy conference committee is about to disgorge a 1,700-page legislative abomination that should cause both the left and right to choke. Although the bill has yet to be released, enough is known to conclude that it will be three parts corporate welfare and one part cynical politics. The bill is a shocking abdication of the administration and Congress’ responsibility.

The centerpiece of the bill is a $16-billion package of tax breaks and production subsidies designed to further rig the market to favor well-connected energy producers (almost all of which enjoy plenty of federal handouts) at the expense of others.

The biggest winners will include nuclear power, small domestic oil producers (which dispense some of the highest-cost oil in the world market today), “clean coal” technology (which has yet to produce a commercially operable plant despite billions in public subsidies) and various exotic energy technologies that can’t attract much private capital from skeptical investors.

In an unrigged market, a technology with economic merit needs no subsidy. Likewise, if a technology were without economic merit, no public subsidy — no matter how large — would turn an ugly market duckling into a beautiful economic swan.

Ethanol producers are another bunch that will make out like thieves. Ethanol, for the uninitiated, is distilled grain alcohol generally blended with various amounts of gasoline, ostensibly to reduce oil consumption. Apparently, the lavish subsidies bestowed on that industry over the last couple of decades haven’t been enough to placate farmers. So Congress and the administration are preparing to further artificially increase demand for corn — the main ingredient for ethanol today — with new ethanol subsidies and preferences.

Make no mistake, the ethanol program is about nothing other than fattening ethanol producers — with agribusiness giant Archer Daniels Midland being the biggest corporate winner — at the expense of others. And ADM counts on the farmers who grow the corn to provide the political muscle. Ethanol does nothing to improve air quality. Making ethanol requires almost as much energy as you get from burning it, and using it increases smog-forming emissions.

Still, the Midwest is a region that throws its presidential and congressional votes to those who promise farmers the biggest sack of federal loot, so ethanol we shall have, regardless of its merit as a fuel source.

Various energy fads also find their way to the federal trough. The example with the highest profile is President Bush’s $1.2-billion “Freedom Car” initiative, which promises commercially viable hydrogen-powered fuel cells in a couple of decades, though it fails to require Detroit to actually make any vehicles with such engines. This initiative is surprising given the president’s opposition to requiring auto manufacturers to adopt conventional off-the-shelf technologies to clean up cars.

Is it a bold new idea? Hardly. The same initiative, accompanied by the same promises, was part of President Nixon’s “Project Independence.” Unfortunately, hydrogen-powered fuel cells are only marginally closer to commercial viability today than they were 30 years ago.

Finally, the bill forces the restructuring of the electricity sector by requiring utilities to fully integrate into a centralized, interstate electricity system. This despite the fact that the deterioration of the transmission grid is directly related to botched deregulation. So the bill establishes a new regulatory scheme that won’t solve the system’s problems and won’t prevent blackouts.

In sum, this bill will not substantially increase energy supplies, will not reduce dependence on foreign oil and will not accelerate the development of viable new technologies. It will, however, provide a politically useful but ultimately dishonest symbolic action while dispensing a stunning amount of pork for the well-connected at taxpayer expense.

A good energy bill would remove subsidies and market distortions so that energy technologies could compete based on their merits, not political expediency. Unfortunately, that’s asking more than either political party seems willing to deliver. That’s what leads us — two odd bedfellows who rarely agree on anything — to call for Congress and the White House to start over.

Jerry Taylor is director of natural resource studies at the Cato Institute. Dan Becker is director for the Sierra Club’s global warming and energy program.