The energy shortage

National Review, June 30, 2008

THE U.S. Commodity Futures Trading Commission announced that it has opened an investigation into whether futures traders conspired to drive up oil prices. We doubt the investigation is necessary; when one considers breakneck economic development in India and China, the weak U.S. dollar, and the Organization of the Petroleum Exporting Countries (OPEC), one hardly needs the services of the CFTC to solve the mystery of the oil-price spike.

But there is a group of people conspiring to make energy more expensive for Americans. That group is the U.S. Congress. By refusing to open domestic lands and coastal waters for energy exploration, Congress is keeping billions of barrels of oil off the market. OPEC would be proud, and must be pleased.

Critics of proposals to open these areas for business argue that it would take up to ten years to bring any new supplies online. Of course, they were using this same argument ten years ago, and if they hadn't prevailed then the U.S. would be less dependent on foreign oil today.

They also argue that Congress should be encouraging renewable energy sources such as solar power, wind power, and biofuels rather than opening the spigots on new sources of petroleum. But the simple fact of the matter is that solar power and wind cannot take the place of nonrenewables in the U.S. economy. As for biofuels such as corn ethanol, the 2007 mandate requiring the production of 36 billion gallons by 2022 has exacerbated an increase in world food prices without doing anything to lessen the pain at the pump.

Superior U.S. technology has made it possible to drill in the environmentally sensitive areas off our coasts with minimal disturbance to the surrounding ecosystem. It is better to increase production in the U.S. than to allow high prices to spur increased production in countries with worse environmental track records. With oil nearing $140 a barrel, there are no good arguments for keeping this supply off the market.

Nor are there any good arguments for artificially making energy more expensive, though congressional Democrats (and a few Republicans) recently attempted to do just that. First, the Senate tried to pass a cap-and-trade bill. By rationing the use of fossil fuels, the bill would have led to higher coal, natural-gas, and petroleum prices, even though the prices of those commodities are already at historic highs. Fortunately, an adequate number of GOP senators banded together to kill the bill. Even some Senate Democrats reportedly began to wonder about the political wisdom of pushing through higher energy prices.

Undaunted, Senate Democrats proposed a windfall-profits tax on U.S. oil companies. The Congressional Research Service found that the last time Congress imposed one, it reduced domestic production.

Republican senators stymied the windfall-profits tax, also, but with several Senate seats in danger and a presidential nominee who supports energy rationing, whether the GOP can continue to fight effectively for a cheap-energy agenda remains an open question. The CFTC is investigating oil-price fixing, but where is the agency that will protect Americans from Congress?