What Energy Policy?

Article excerpt

All arguments centering on energy policy generally fall into two camps--use and exploration of more fossil fuels or the encouragement of alternative energy sources usually defined as softer energy choices.

Recent blackouts and high gas prices have reminded Americans that our energy system is stressed and vulnerable. Businesses and communities realized after the New York to Detroit power outage in August that the system is open to disruption. Another problem is that its operation is not fully understood, leading to the demand that politicians do something, anything, now. It is important to remember that America's energy system is market driven, and that short-term disruptions are not grounds for radically altering what works 99 percent of the time.

Bush, Congress, and energy policy

In President George W. Bush's first few months in office, the administration pitched its energy policy to Congress. At the heart of its proposal rested greater production of petroleum from the Arctic National Wildlife Refuge (ANWR) and stronger economic incentives for research and development.

President Bush summarized his National Energy Plan at a May 17, 2001, speech in St. Paul, Minnesota: "The plan addresses all three key aspects of the energy equation: demand, supply, and the means to match them. First, it reduces demand by promoting innovation and technology to make us the world leader in efficiency and conservation. Second, it expands and diversifies America's supply of all sources of energy--oil and gas, clean coal, solar, wind, biomass, hydropower and other renewables, as well as safe and clean nuclear power. Third, and finally, the report outlines the ways to bring producers and consumers together, by modernizing the networks of pipes and wires that link the power plant to the outlet on the wall."

The administration demonstrates that America's energy policy takes a schizophrenic interventionist approach. Whenever a crisis develops, special interests and politicians claim legislation is necessary; ironically, however, government intervention results in downstream effects in the marketplace. For example, energy policy may run the gamut from subsidies and credits for energy development one year and supports for energy conservation the next. All the while, energy suppliers find smaller profits and fewer incentives for investing in infrastructure.

Anytime government interjects itself into the complex energy market, the outcome is more confusion, conflicting incentives, and zero recognition of the energy marketplace. Take the energy spot market in California two years ago. Electric companies that bought electricity in the marketplace did so based on anticipated demand. Prices were high and could spike as demand peaked, but the trading program is much cheaper than state-built or -owned power generation facilities.

California, like the nation's energy markets, has contended with a distribution problem, not a shortage in actual commodity. When the state faced droughts, hydropower became less reliable, as snowmelt did not reach reservoirs. On top of this, no new refineries have been built since the early 1980s, since California has strengthened its air-quality regulations. Interestingly, even conservation did not help California out of its energy deficit, though the state ranks number one when it comes to conservation measures.

Gov. Gray Davis has alleged that power companies were creating the problem, but California's legislature actually created the mess. In a Washington Post column of May 16, 2001, Davis opined that "the day before President Bush was sworn in, he stated on national television that the energy problem here was California's to solve. Well, we are moving aggressively to do our part to get it under control on both the generation and conservation fronts. But without just and reasonable prices for wholesale power, the crisis inevitably will spill over and damage the already-sluggish national economy. …