Commentary

Stop that Energy Bill!

By Jerry Taylor
November 3, 2003

A House/Senate energy conference committee is preparing 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 to one part cynical politics. It is so wholly without merit that even we — policy analysts from the Cato Institute and the Sierra Club respectively, who rarely agree about anything — can agree that the bill is a shocking abdication of our leaders’ responsibility.

The centerpiece of the bill is a nearly $20 billion package of tax breaks and production subsidies designed to further rig the market to favor well-connected energy producers (almost all of which already enjoy plenty of federal handouts) at the expense of others. The biggest winners will include nuclear power (a technology investors have shunned for over 20 years), small domestic oil producers (source of the among 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 over the past couple of decades), 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. Apparently, the lavish subsidies bestowed on that industry over the past couple of decades haven’t been enough to placate farmers given that the price of corn has dropped by nearly 50 percent since 1985 even while ethanol production has doubled. So Congress and the administration are preparing to put the hammer down to further artificially increase demand for corn with a combination of new ethanol subsidies and preferences.

Make no mistake — the ethanol program is about nothing other than fattening ADM and other ethanol producers 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 and only uses slightly less oil to manufacture than it displaces upon use. Still, the Midwest is a region that throws its presidential and congressional votes to those that 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 highest profile example is President Bush’s $1.7 billion “Freedom Car” initiative, which promises commercially viable hydrogen powered fuel cells in a couple of decades, though it fails to require that Detroit actually make any vehicles with these new engines.

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.

It’s hard to dismiss the suspicion that the “Freedom Car” initiative would be more aptly titled the “Symbolic Diversion” initiative, particularly because an article in Science reported last July that we could secure the same degree of pollution abatement promised by the Symbolic Diversion Car at 1/100th the price by adopting conventional, off-the-shelf technologies — all of which the president (oddly enough given his enthusiasm for hydrogen powered fuel cells) opposes if secured through regulation.

Finally, the bill slows down but ultimately forces the restructuring of the electricity sector along increasingly dubious lines. This, despite the fact that the deterioration of the transmission system is directly related to the brave new world of managed competition endorsed by this bill. So, at the end of the day, the bill establishes a new regulatory scheme that won’t solve the system’s problems and won’t prevent blackouts.

In sum, for those who are concerned about such things, 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 symbol of 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 — not add to them — so that energy technologies could compete based on their merits, not their political merit. Unfortunately, that’s asking more than either political party seems willing to deliver. That’s what leads these two odd bedfellows to call for Congress and the White House to start over. Come up with an energy plan that actually takes us forward. And the current energy bill? Put that in the only place it belongs: the recycling bin.

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.