Back to Basics on Energy Policy: For the Past 40 Years, Political Leaders Have Promised That Government Can Plan and Engineer a Fundamental Transformation of Our Energy Industry. They Were Wrong

Article excerpt

In June 1973, President Richard Nixon addressed the emerging energy crisis, saying that "the answer to our long-term needs lies in developing new forms of energy." He asked Congress for a five-year, $10 billion budget to "ensure the development of technologies vital to meeting our future energy needs." With this speech, the federal government set out to engineer a fundamental transformation of our energy supply.

All seven subsequent presidents have endorsed Nixon's goal, and during the past 40 years, the federal government has spent about $150 billion (in 2012 dollars) on energy R&D, offered $35 billion in loan guarantees, and imposed numerous expensive energy mandates in an effort to develop new energy sources. During this time, many talented and dedicated people have worked hard, done some excellent science, and learned a great deal. Yet federal energy technology policy has failed to reshape the U.S. energy market in any meaningful way.

The major failure has been in efforts to commercialize technologies, with many billions of dollars essentially wasted on loan guarantees, tax credits, and other subsidies that never produced results. We have failed to learn that commercialization cannot be forced and must wait until the technologies are competitive enough to support private investment on a market basis.

It's time to refocus the nation's efforts on what the federal government has traditionally done best: supporting conceptual and technical research. Commercialization should be left to the marketplace.

A rocky road

Fossil fuels (oil, coal, and natural gas) are the dominant source of energy today and will be for decades to come (figure below). The federal push to develop alternatives in the two other major energy categories--nuclear and renewables--has been rocky, to say the least.

U.S. energy consumption (in quadrillion Btus)

Year  Fossil  Nuclear  Renewable  Total (1)

1973      70        1          4         76
2010      81        8          8         98
2035      87        9         12        108

Source: Energy Information Administrauon
(1.) The discrepancy in the totals is due to rounding and
electricity imports.

The nuclear era began with the brilliant physics and engineering of the Manhattan Project and the subsequent development of nuclear reactors by the U.S. Navy for submarines and aircraft carriers. The road to civilian applications, however, has been less successful. The aftermath of World War II brought a wide range of ideas for the peaceful application of nuclear power, including nuclear-powered aircraft, rockets, and even cars (the Ford Nucleon). In 1959, the U.S. government launched the N.S. (Nuclear Ship) Savannah, a nuclear-powered passenger-cargo ship, to demonstrate the commercial potential of nuclear power. The ship was a technical success but an economic failure, and no other commercial nuclear vessels were ever built in the United States.

Electricity generation emerged as the best civilian application for nuclear fission. In the immediate postwar period, coal was the dominant source of electricity, but it created serious air quality problems. Beginning in 1965, electric power companies began building generating plants burning high-sulfur heavy fuel oil made from imported crude Nuclear power offered the potential for an almost infinite fuel supply with no pollution or dependence on foreign oil. Technically, nuclear power plants can be built almost anywhere and in any number, and can be operated with high load factors, often more than 90%. At first, the economics of nuclear power looked promising, prompting Atomic Energy Commission Chairman Lewis Strauss to hope that electricity would someday be "too cheap to meter." The federal government offered massive support. Since 1973, roughly 30% of federal energy R&D has been devoted to nuclear power. Billions of dollars were also spent on subsidies for plant construction and commercial and regulatory support. …