Public Policy: Energy in the Executive - Brief Article

National Review, June 11, 2001

Would that every nation were blessed with such an "energy crisis." Yes, California has a serious problem that, given a combination of circumstances, could also affect other parts of the country. But consider the big picture. Electricity rates nationwide have, according to the Mirant National Power Index, dropped from last year. New power plants are being built at a rapid clip. On the futures market, the price of gasoline is actually declining. Perversely, it may still make political sense for the Bush White House to talk up this supposed "crisis," because once everyone realizes that it doesn't exist, the administration can declare it solved-thanks, of course, to its comprehensive energy plan!

The hyperbolic attacks on the Bush plan by environmentalists (as an attempt to poison the air and kill the caribou) shouldn't trick conservatives into an exaggerated sense of its merit. The basic thrust of the administration's thinking on energy is sound: A growing economy requires more energy, which in turn entails more production. But the Bush plan itself is a political document, meant to placate corporate interests, environmentalists, and everyone in between, and so is festooned with an embarrassment of subsidies and incentives that will, at best, prove an irrelevance.

As Jerry Taylor writes elsewhere in this issue, the phantom energy crisis is already healing itself. Power plants are being built at a rate that outpaces Dick Cheney's benchmark of one plant a week. Altogether, almost 100,000 new daily megawatts of electricity capacity are scheduled to be available nationwide by next year. This is twice the amount of electricity that California now uses on an average day. While Cheney has been sitting with his advisers around a White House conference table, investors and entrepreneurs have been digging, building, and refining his energy problem into oblivion. By the time all the Bush plan's tax credits have kicked in, there may well be an energy glut. All of this is thanks to the most efficient energy plan known to man: market pricing.

This points to the negative, but nonetheless significant, advantage of the Bush plan: It is a way to stave off price controls, which would work both to squelch production, by making it less profitable, and to discourage conservation, by shielding consumers from the true cost of their consumption. It is interference with market pricing that accounts for most of California's dire situation, after a harebrained "deregulation" that froze retail prices. Gov. Gray Davis, who appears quickly to be fading all the way to black, still resists the logic of his state's situation, loosening prices in the most byzantine, hesitant way possible, lest the forces of supply-and-demand impinge on the Golden State's 20-year experiment in freeing itself from major new power-plant construction. It's no accident that other states in the West, where retail prices have been allowed to rise considerably, are not experiencing California's shortages.

There are other advantages to the Bush plan: It would correct Clinton- era regulatory excesses, for instance, by examining with a critical eye the extensions of the Clean Air Act that made it harder to upgrade existing refineries. But if you like the ethanol subsidy, you will the love the rest of the Bush program. Its collection of subsidies, tax credits, accelerated depreciation allowances, and the rest represents the worst sort of corporate welfare. Its subsidy for dubious "Clean Coal" technology is a valentine to red-state West Virginia. The bow to coerced conservation measures-such as considering whether to increase the fuel-efficiency standard on cars-seems an overreaction to the media strafing of Cheney's quite reasonable energy speech in Toronto, where he pointed out that America can't put a dimmer switch on its energy needs.

In sum, given the way markets defy prediction and depend on thousands and thousands of factors and decisions impervious to the calculations of central planners, the Bush plan will likely-and deserves to-fail in comprehensively plotting the nation's energy future. But the plan may be necessary political posturing. In which case: May it fail gloriously.