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Another Energy Policy

by Thomas G. Donlan
Barron's - August 15, 2005

This one is no more sensible than any of the others

ONCE A DECADE, MORE OR LESS, the American government gets energetic. Like a person who sees another decade go by without improvement in his physical fitness, the government rededicates itself to energy fitness. It passes an energy policy act and congratulates itself on its exertion.

President Bush said the other day as he signed the Energy Policy Act of 2005: "The bill I sign today is a critical first step. It's a first step toward a more affordable and reliable energy future for American citizens."

It's hardly a first step. Whether you start counting from the whale-oil crisis of the 1850s, or the energy crisis of 1974 or one of the other national rededications to energy, the new policy is one of many futile steps to control energy markets.

Bush admitted: "This bill is not going to solve our energy challenges overnight. Most of the serious problems, such as high gasoline costs or the rising dependence on foreign oil, have developed over decades. It's going to take years of focused effort to alleviate those problems."

There is, however, very little focus in the Energy Policy Act. It sets self-contradictory goals, just like President Bush's desire to lower gasoline prices and reduce dependence on foreign oil: One or the other may be possible, but all the cheap oil comes from overseas and all the possible domestic substitutes are expensive.

The Energy Policy Act promotes conservation and greater exploitation of existing fuel resources. It favors coal and nuclear energy. It seeks greater production of oil and natural gas and rejects development of resources in Alaska, California and the Florida Gulf Coast. It pays for research into oil from tar sands and oil shale, and for renewable energy substitutes such as wind, ethanol and biodiesel.

In the new America of the National Energy Policy, there are things the government likes and supports, and things it doesn't like and will try to suppress.

It likes oil drillers and refiners, and substitute forms of petroleum natural gas. All are worthy of subsidies, even though the market is providing generous incentives already. It likes farmers, too: Its favorite substitute continues to be ethanol from corn, which generates generous subsidies for producers and processors; now the government adds diesel fuel made wholly, or in part, from vegetable oil. Both alternative fuels cost about a dollar more than the equivalent gallon of gasoline, but the National Energy Policy subsidizes the market for them and mandates refiners to provide them.

The government likes coal, but it wishes it weren't so dirty to burn, so it will pay for more research into ways making "clean coal." Some day, if all goes better than it ever has before, it will build a coal-fired electric generating plant that has no more harmful emissions than an atomic power plant. While we are waiting, it is going to subsidize the construction of nukes, also.

The government likes daylight-saving time, and it will give us more of it. Starting in November 2007, we'll be switching the lights on later in the evening. Maybe having to keep them on later in the morning won't offset all the savings.

The government likes imported liquid natural gas, and Congress isn't going to let any Not-In-My-Backyard neighbors get in the way: The Federal Energy Regulatory Commission will have exclusive jurisdiction to decide where LNG shipping terminals can be built. Same goes for electric transmission lines. But not power plants, especially not nuclear power plants. It likes them, but not that much.

The government likes energy efficiency at home, so we will give a 10% tax credit to homeowners for investing in saving energy -- but only in 2006 and 2007, and only investments up to $5,000, and only $2,000 can be for improving windows.

The government dislikes appliances that use too much energy, so there will be new efficiency standards for refrigerators, ceiling fans, torchiere lights and space heaters. The government doesn't like to make us pay full price for efficient appliances, so it gives us tax credits to offset the cost of improving home energy efficiency through the purchase of better central air conditioners, water heaters, storm windows, insulation thermostats and other equipment. Some of these will attract 30% tax credits, some not. Some in 2006 and 2007 only, some not. The government likes accountants and tax lawyers even more than it likes energy efficiency.

The government doesn't like restraints on the use of inefficient automobiles, so it will not countenance any increase in Corporate Average Fuel Economy standards. Nor will it raise any fuel taxes. Conservation and efficiency can go too far.

The government does like efficient automobiles, really it does, but it knows we don't like to pay for them, so we will get tax credits for diesel cars, fuel-cell cars, electric-gasoline hybrid cars and cars that can use more ethanol. But not too much: The tax credits are capped at $3,400 per vehicle, and they are reduced for vehicles that are successful in the market, phased out for any model after 60,000 are sold. That's because the government likes American car companies, which are unlikely to sell as many favored cars as Toyota and Honda.

As this brief sample of our officials' energy likes and dislikes makes all too clear, what the government really likes is wishful thinking, and what it really doesn't like is taking the heat for higher prices. The government isn't really sure if it likes profits or not. It sure doesn't understand them.

But higher prices are what we need if we want to use energy more wisely. And profits are already creating more fuel supplies.

Thomas G. Donlan
Another Energy Policy
Barron's, August 15, 2005

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