So what's in the 1,200-page energy bill that emerged this week from months of backroom negotiations? Hundreds of pages of corporate welfare, symbolic gestures, empty promises, and pork-barrel projects. In the name of mom-and-apple pie goals such as increasing energy supplies, reducing energy prices, and curtailing oil imports, the bill does little but transfer wealth from taxpayers to well-connected energy lobbies.
Here are the highlights. The proposed legislation will cost about $80 billion over 10 years and deficits be damned. Government-funded research and development and other subsidies make up about $60 billion of that total. Turning the corporate tax code into a better approximation of Swiss cheese with a new flood of incredibly prescriptive tax credits for every energy firm with a lobbyist will cost the Treasury $16 billion. Higher prices imposed by a doubling of federal ethanol subsidies will cost motorists about $7 billion.
Republicans are making a great to-do over the tax preferences and subsidies for conservation. Putting on their best wool sweaters and Jimmy Carter masks, they brag that their initiatives will reduce the need to build 130 new 300-megawatt power plants by 2020. Environmentalists, however, are not impressed, primarily because that figure amounts to only about three months' worth of energy consumption over the next 17 years. Nor are economists impressed, because that boast implausibly assumes that consumers will not increase their energy use when the marginal costs of energy consumption decline because of energy-efficient technology.
There are a few (albeit very few) worthwhile policy related initiatives in the mix not driven by the congressional desire to hand over your tax money to good political friends. Most notable is the repeal of The Public Utility Holding Company Act (PUHCA), a 70-year-old law that tightly regulates the organizational structure of the electric utility industry. Many economists believe that PUHCA is partially responsible for reducing investment in that sector and imposing higher prices than necessary on consumers.
While the electricity provisions of the bill do no harm, they don't do much good either. Some regulatory authority over the electric transmission system is transferred from the states to the federal government, and today's voluntary operating guidelines for managing the grid are made mandatory. Neither reform, however, changes the current economic or engineering trajectory of the industry. The upshot is that the electricity system will, by and large, continue to operate as it has been.
President Bush has spent the last few weeks declaring that this energy bill is one of the centerpieces of his economic revival plan. If so, then God help us. Wasting more tax dollars on exotic fads like fusion energy, hydrogen-powered fuel cells, "clean" coal, and other technologies is a strategy right out of the Carter Playbook (remember Synfuels?). Tax breaks and handouts to more conventional energy industries aren't any better. Remember, if a technology has merit, no handout is necessary.
More ridiculous is the Republican boast that this is a jobs bill. Even if the tidal wave of subsidies in the bill induces investors to build an Alaskan natural gas pipeline, (and this is uncertain because investors say that the subsidies are not large enough), the 100,000 jobs that would be created would be at the expense of all the other jobs -- the ones lost because investment goes to the pipeline in Alaska rather than elsewhere in the economy where it would be more productive.
Contrary to popular belief in Washington, there's little wrong with energy markets that supply and demand won't fix unaided by Congress' heavy-handed planners. Moreover, it will work faster than any federal 10-year plan. Recall, for instance, that when Vice President Dick Cheney first wheeled-out the administration's blueprint for this bill some two-and-a-half years ago, he warned ominously that electricity generation capacity was disappearing and that, without a federal plan, we'd have skyrocketing power prices for as far as the eye can see.
Today, the shortage has disappeared and there's a glut of power generating capacity. What happened? Amazingly, unassisted by any federal blueprint, 10-year plan, or extravagant congressional handout, investors built new generating capacity because they saw that high prices offered profit opportunities. Markets corrected themselves just fine, thank you.
What's perhaps most depressing is that the bill provides further evidence that Republicans don't believe (or don't understand) a word they say when it comes to the appropriate role of government in the economy. The energy bill, after all, is nothing if not a monument to the discredited idea that politicians are better able to allocate resources than investors or consumers, and that politically rigged energy markets work better than free ones.