Austin American Statesman, TX
08-15-07
Weinstein: By bashing the energy industry, Congress blocks real progress
Bernard L. Weinstein, UNIVERSITY OF NORTH TEXAS
The Baltimore pundit H.L. Mencken once opined that for every complex problem
there's a solution that is simple, neat and wrong. We have no better example of
that dictum than the energy bills passed this summer by the U.S. House and
Senate that will go to conference committee as soon as Congress reconvenes in
early September.
What's the complex problem? How best to provide for the nation's future energy
needs. What's Congress' proposed solution? Raise taxes on oil and gas
companies, repeal most of the incentives enacted in 2005 to encourage offshore
exploration and production, require utilities to generate at least 15 percent of their
power from renewables, and subsidize ethanol and other biofuels like crazy.
The Senate bill also would impose stricter efficiency standards for appliances
and lighting while mandating a 40 percent increase in automobile and light truck
fuel economy.
Apparently, Congress believes the best way to fulfill the nation's current and
future energy needs, while reducing our reliance on imports, is by punishing the
domestic oil and gas industry.
Congress is behaving just as it did in 1973 after the embargo by the Organization
of Petroleum Exporting Countries (OPEC). The same caterwauling over alleged
obscene profits and price gouging that is being sounded today was reverberating
34 years ago through the hallowed halls of the Capitol. Congress' response was
to pass a series of laws that did little or nothing to enhance the nation's energy
supply. Instead, the heavy hand of government intervention distorted the
marketplace and wasted billions of taxpayer dollars on impractical or
uneconomical alternatives to conventional energy supplies.
Sometimes referred to as a "travesty in five acts," our national energy policy in
the early 1970s actually increased rather than decreased our dependence on
foreign sources of supply.
Today's fashionable energy alternatives are biofuels (e.g. ethanol) and windmills.
Sure, these sources can provide some modest percentage of our motor fuel and
electric power needs. (They currently supply less than 3 percent.) But even with
their huge subsidies, they can't produce the billions of BTUs required to fuel
America's economic engine—regardless of how energy efficient we become.
What's more, the "law of unintended consequences" is writ large over the two
pending energy bills.
For example, the House provision calling for a 15 percent renewables standard
for utilities by 2020 fails to recognize there are significant regional differences in
the availability of renewable energy sources.
Subsidizing biofuels and forcing automakers to build more fuel-efficient vehicles,
often portrayed as the keys to countering high gasoline prices, will do little or
nothing to curb costs at the pump today or in the future.
With a growing share of the nation's corn production being diverted to ethanol,
the cost of animal feed, as well as most corn-based food products, has been
skyrocketing.
According to a recent study by Iowa State University, the increase in ethanol
production has raised food prices by $47 per person over the past year alone.
More grocery store and restaurant inflation is all but guaranteed if these bills
become law.
What's more, some oil industry executives no longer believe there will be
sufficient demand for gasoline over the next decade to justify the refinery
expansions they anticipated earlier this year. That could keep gasoline prices
high for years to come. As one executive put it, "Why would I invest in a refinery
when Congress is trying to make 20 percent of the gasoline supply ethanol?"
Because there is virtually nothing in either the House or Senate energy bill that
will help increase the nation's energy supply, President Bush should veto
whatever comes out of conference committee.
Then Congress can go back to the drawing board and come up with a bill that
restores and enhances incentives to expand, not reduce, domestic oil and gas
production, including opening up new areas for exploration and production on the
outer continental shelf.
Bashing the oil and gas industry doesn't produce a single additional BTU. It's
time for the congressional leadership to acknowledge that America's energy
industry isn't the problem — it's the solution.
Weinstein, an economics professor, is the director of the Center for Economic
Development and Research.