Energy Dollars and Sense

Energy Dollars and Sense

Yeatman article in Townhall Magazine
March 01, 2008

Rising energy costs threaten the U.S. economy, and the GOP doesn’t seem to care. Last December, Congressional Republicans joined a Republican president in support of the 2007 Energy Independence and Security Act—an energy policy that ignores America’s energy crisis.

Americans everywhere are feeling the pinch of rising energy bills. The Labor Department reports that energy prices went up a whopping 18.4 percent in 2007. Heating costs have skyrocketed as the price of natural gas has doubled since 2000, and motorists are paying almost 3 times as much for gasoline as they were a decade ago.

The nation’s energy future looks even worse. According to the North American Electric Reliability Corporation, projected increases in electricity demand exceed projected increases in generation, which will push up utility bills even further. And experts say that increasing global demand for petroleum will keep oil at historically unprecedented prices.

Energy prices are increasing for a simple reason: demand is outpacing supply. Fortunately, a simple solution is at hand. The federal government controls the rights to vast mineral deposits that could be tapped to relieve America’s energy supply crunch.

For example, there are hundreds of trillions of cubic feet of natural gas under federal jurisdiction buried under the Rocky Mountain region and off the coast of Florida. And geologists say that 11 billion barrels of oil lie beneath the Alaskan National Wildlife Reserve, which is controlled by Congress.

Yet Congress failed to consider even a single provision to increase the nation’s energy supply while it deliberated the 2007 Energy Act. Instead, it adopted crude policy mechanisms designed to manipulate the energy market.

The centerpiece of the Act is a requirement that automakers build fleets that are 25 percent more fuel-efficient than they are now. But research shows that people drive more when they get better gas mileage, so the Act’s impact on fuel demand is ambiguous.

It is also true that the Act would harm motorists. Fuel-efficiency is inversely related to a vehicle’s weight, which means that the energy law forces automakers to build smaller cars. Smaller cars, however, are less safe, and a 2002 study by the National Academy of Sciences demonstrates that increased fuel efficiency standards like those in the 2007 Energy Act would cause 1000’s of additional traffic fatalities each year.

The law’s other major component is an effort to foster energy independence by requiring that the nation’s gasoline supply incorporate an increasing proportion of ethanol, a fuel distilled from crops that can be grown here in America. But increased ethanol use has significant costs that should be galling to conservatives. Ethanol production is heavily subsidized by the federal government, and the full implementation of the Act’s biofuel provision will cost taxpayers a quarter trillion dollars by 2022.

That’s not all, because Congress’ ethanol policy also increases the average American’s grocery bill. Ethanol is made from corn, so increased production means an increase in demand for that crop, which increases its price. And as more farmers grow corn, less grow wheat and soybeans, so their price goes up, too. These initial effects then work their way through the food chain (livestock eats corn; bread is made from wheat; etc.) causing food prices to inflate. Since Congress passed a 7.5 billion gallon ethanol requirement in 2005, the price of groceries has increased 4 percent. The 2007 Energy Act calls for the production of 15 billion gallons of corn-ethanol. Imagine what that will do to the price of food!

Clearly, these are flawed policies. That’s what happens whenever the government gets cute with market forces. Yet it’s the politics of the new energy law, no less that the policy, that should have true conservatives worried. By any measure, the GOP abandoned sound energy policy. Almost two-thirds of Congressional Republicans voted for the 2007 Energy Act, and President Bush, after signing the bill into law, actually challenged Democrats for credit for the law.

What does this portend? As bad as it is, the 2007 Energy Independence and Security Act only ignores rising energy costs. Currently, there is a climate change bill making its way through the Senate that would ration energy in order to reduce America’s carbon footprint. Such a bill is a clear and present danger to the American economy. Let’s hope the GOP—purportedly, the pro-business party—finds its bearing soon.