RALEIGH – A conference committee is Washington is reportedly trying to reconcile differences between the House and Senate energy bills. The measure could certainly be worse. For example, apparently it will not contain a requirement that electric utilities purchase at least 10 percent of their power from “renewable sources,” a rule that would not only be idiotic but also extremely costly for consumers and workers. But the energy bill is still largely premised on shallow thinking and shoddy economics.
I listened to some of the earlier Capitol Hill debate on the bill. Virtually every senator or representative made some silly statement about how America had to “reduce its reliance on foreign oil,” and that without federal action the percentage of imported oil would rise from 60 percent to 70 percent in just a few years. In reality, oil is simply oil. As a commodity, it knows no nationality. For the most part, oil from Arabian burns like oil from Nigeria or oil from Venezuela.
Because oil is traded on world markets, the price of gasoline at the pump here in North Carolina has little if anything to do with how much oil is imported from abroad. If the current import share were 30 percent, the gas price would be roughly the same as it is now. If it were 80 percent, the gas price would be roughly the same, too. If surging economies in China and India create a significant increase in the global demand for oil, then its price will rise. Supplies that would have gone to the U.S. at $45 a barrel will to go China or India at $55. To purchase oil, U.S. refiners will have to pay $55. Indeed, if the U.S. imported no oil whatsoever, if it were a net exporter, precisely the same thing would happen. American refiners would have to pay the market price or see oil exported to other customers.
Politicians and special-interest groups understand this, or at least I think they do. But they’ll say whatever they need to in order to demagogue the issue for voters or scam taxpayers out of subsidies. And make no mistake, the energy bill likely to emerge from conference will be chock-full of subsidies to power producers and retailers of all sorts. Just about the only useful provisions involve easing some regulations that inhibit oil production and refining in the U.S., but even here the potential benefits should not be oversold. Freer markets are greatly to be desired, but they are unlikely to change the mix of energy sources and suppliers much on a worldwide basis.
Another common thrust of the bill is the notion that the federal government needs to create more incentives for energy conservation. I can’t think of a more effective incentive for people to consume less fuel than a rising market price! Indeed, political talk on conservation often sounds like jabberwocky. Prices facilitate conservation. They reflect ever-changing demands, tastes, and technologies. If fuel efficiency is mandated by government, consumers may buy less fuel and use the savings for other goods – or they may use the savings to buy more fuel to travel or produce more.
I’d pick on this bill some more, but I haven’t the energy.
Hood is president of the John Locke Foundation.