In this post, I comment on President Bush’s remarks, in the State of the Union address, about energy. Although a few nods to the old supply-side emphasis of Bush’s first term remain, the speech is heavy on political correctness, corporate welfare, and central planning.
President Bush: “Extending hope and opportunity depends on a stable supply of energy that keeps America’s economy running and America’s environment clean. For too long our nation has been dependent on foreign oil.”
Comment: Energy independence as a goal of public policy is a dangerous delusion. Petroleum is a global commodity, with prices set in a global marketplace. The only way America will ever cease to be “dependent on foreign oil” is if we cease to depend on oil, period. That will happen only as a result of fundamental transformations in technology and economics. Such transformations are either market-driven, or they do not occur. Technology transformations do not come from government.
Consider the transitions from the stone age to the bronze age, from the bronze age to the iron age, from wood to coal as the dominant fuel of the early industrial revolution, and from a horsepower civilization to an automotive civilization. These shifts did not come about because governments taxed stones or bronze, set mandatory targets and timetables for substituting coal for wood, or capped equine emissions. Attempts to push industrial society “beyond petroleum” before the marketplace has actually moved us there, must fail.
Such policies would, however, transfer enormous wealth from unorganized consumers and taxpayers to politically-favored special interests like the ethanol lobby. No surprise there.
President Bush: “And this dependence leaves us more vulnerable to hostile regimes, and to terrorists — who could cause huge disruptions of oil shipments, and raise the price of oil, and do great harm to our economy.”
Comment: Again, oil is a global commodity with prices set in a global marketplace. Thus, a disruption in oil supplies anywhere affects oil prices everywhere. For example, the oil price shock from the Iranian Revolution in 1979 hit Britain just as hard as it did Japan, even though the U.K. got most of its oil from North Sea wells and Japan was 100% dependent on foreign oil.
On the other hand, domestic disruptions in petroleum infrastructure can dramatically increase domestic gasoline prices. Gas prices surged when hurricanes Katrina and Rita shut down much U.S. refining capacity in 2005. But that should have taught our policymakers that America is too energy-dependent on one region of the country—the hurricane-prone Gulf of Mexico. The politically-imposed moratoria on oil and gas exploration and production in the Atlantic and Pacific Outer Continental Shelves are self-inflicted injuries to U.S. energy security. Neither the State of the Union address nor the energy Fact Sheet accompanying it indicates any intention to challenge those policies.
President Bush: “It’s in our vital interest to diversify America’s energy supply — the way forward is through technology. We must continue changing the way America generates electric power, by even greater use of clean coal technology, solar and wind energy, and clean, safe nuclear power. (Applause.) We need to press on with battery research for plug-in and hybrid vehicles, and expand the use of clean diesel vehicles and biodiesel fuel. (Applause.) We must continue investing in new methods of producing ethanol — (applause) — using everything from wood chips to grasses, to agricultural wastes.”
Comment: If these technologies are so promising, why does government need to subsidize and mandate them? In Energy Aftermath, a retrospective on the Carter-era energy policies, MIT professors Thomas Lee, Ben Ball, Jr., and Richard Tabors conclude: “If an energy technology is commercially viable, no government support is needed, and if it is not commercially viable, no amount of government support can make it so.” Too bad there isn’t a mandate requiring our leaders to recite those words before they make other pronouncements on energy policy!
President Bush: “We made a lot of progress, thanks to good policies here in Washington and the strong response of the market. And now even more dramatic advances are within reach. Tonight, I ask Congress to join me in pursuing a great goal. Let us build on the work we’ve done and reduce gasoline usage in the United States by 20 percent in the next 10 years. (Applause.) When we do that we will have cut our total imports by the equivalent of three-quarters of all the oil we now import from the Middle East.”
Comment: I have yet to hear a politician explain in specific terms how a reduction of petroleum imports would enhance our security or prosperity. Today we import about 66% or our oil. In 1973, we imported about 36%, according to the Energy Information Administration. Was 1973 a good year for peace in the Middle East? Was it an era without hijackings, bombings, and other acts of terror? Was it a time when OPEC was timid and weak? No, no, and no. Even if Bush’s initiatives perform as advertised, we will still be importing a larger share of our oil than we did in 1973.
President Bush: “To reach this goal, we must increase the supply of alternative fuels, by setting a mandatory fuels standard to require 35 billion gallons of renewable and alternative fuels in 2017 — and that is nearly five times the current target. (Applause.)”
Comment: Government-mandated production quotas to be accomplished in two five-year plans! And I thought Soviet-style central planning was defunct. Silly me!
President Bush: “At the same time, we need to reform and modernize fuel economy standards for cars the way we did for light trucks — and conserve up to 8.5 billion more gallons of gasoline by 2017.”
Comment: Significant research, including a study by the National Research Council, shows that fuel economy standards restrict the production of larger, heavier, vehicles that provide occupants more protection in collisions. The NRC estimates that the current fuel economy standards caused 1,300-2,600 auto fatalities. Tightening the existing standards will only put more innocent lives at risk.
President Bush: “Achieving these ambitious goals will dramatically reduce our dependence on foreign oil, but it’s not going to eliminate it. And so as we continue to diversify our fuel supply, we must step up domestic oil production in environmentally sensitive ways. (Applause.)”
Comment: I’d be more enthusiastic about the second sentence of this excerpt if the President or the White House fact sheet indicated any willingness to advocate moratoria reform for the Atlantic and Pacific OCS areas.
President Bush: “And to further protect America against severe disruptions to our oil supply, I ask Congress to double the current capacity of the Strategic Petroleum Reserve. (Applause.)”
Comment: How would such a major acquisition program affect gasoline prices? Would the government buy the oil as soon as possible, wait until oil prices drop even further, or double the capacity even if oil goes back up to $70 a barrel? A Cato study by Jerry Taylor and Peter Van Doren finds that the SPR program has cost taxpayers $64.64 to $79.58 for every barrel of oil deposited therein. That does not inspire confidence in federal stewardship of our tax dollars.