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From Detroit to New York, last week’s blackout plunged millions of Americans into darkness. President Bush said it was a wake-up call to modernize the aging infrastructure of the power grid. But the sudden loss of power serves as an important reminder that all energy—not just electricity—is critical to the American economy. Energy has been an abundant, low-priced resource that today many in America take for granted. As the blackout made clear, without the necessary investments and without sound energy policies, there is no guarantee that the lights will stay on.
Unfortunately, energy policy remains mired in special interest politics. For two years, Congress has quarreled over energy legislation rife with subsidies, credits, and mandates that distort energy markets and play to favored interests. In a last ditch effort to break the gridlock, the Senate dusted off and approved last year’s energy bill, leaving the closed-door House and Senate conference to sort out the details. As part of the deal, Sen. Frist agreed to allow Sens. Joe Lieberman (D-Conn.) and John McCain (R-Ariz.) to introduce their global warming legislation this fall. Beyond the mandates and special interest favors in the broad energy legislation, efforts to cap greenhouse gas emissions may leave consumers facing higher prices.
Despite the scientific uncertainty surrounding theories of human-induced global warming and mounting evidence suggesting the Kyoto Protocol would have little effect on the global climate, proponents of global warming continue to pursue policies that could cost the U.S. economy up to $400 billion annually.
Ironically, the recent recession provides a taste of what caps on emissions can mean for the economy. The economic slowdown meant less energy consumption and, therefore, fewer emissions. But the slowdown also meant there were 2 million fewer jobs. One alternative to energy rationing that proponents of capping greenhouse gases point to is changing the fuel mix, replacing fossil fuels with renewable fuels such as wind and solar power. Advocates are pressing Congress to mandate greater use of renewables in energy production.
While such alternatives may reduce greenhouse gas emissions, the reality is that the technologies are not developed to the point where they can be deployed on a large scale. As Jerry Taylor of the Cato Institute notes, wind and solar energy combined account for only l0.15 percent of all electricity generation. Moreover, given the intermittent power supplied by wind energy (winds are not necessarily blowing as demand peaks) and the limited applicability of solar energy east of the Mississippi River, the application of such technologies will be limited. And siting “wind farms” generates the same “Not In My Back Yard” debates as siting transmission lines. Other technological advances, such as hydrogen-based fuel cells, will provide important alternative sources of energy, but more research is required before they become economically feasible. In the meantime, legislative mandates and tax credits continue to distort the energy market.
Congress has left energy markets in a lurch. As the blackout demonstrated, regulatory and legislative morass is straining the capacities of the existing system. Our population and economy are growing, and energy markets need to keep pace. Currently, there are few incentives to invest in the power grid. Red tape and legal challenges stifle attempts to build new transmission lines, and environmentalists mobilize against new generation capacity in all but the most exotic and expensive sources of fuel. Beyond electricity, domestic exploration has been thwarted and the mix of fuels tilted in politically inspired directions, leaving energy markets little room to expand and adapt. Mandates on greenhouse gas emissions go even further, restricting energy use in order to meet decade-old levels of emissions.
Energy is an input to all the goods and services we consume. It heats and cools our homes, and fuels our transportation system. Affordable and reliable energy is an important component to continued economic growth. Yet politics, not markets, continues to drive energy issues in the United States. Washington, and, increasingly, state governments are imposing costly mandates on energy providers. At the same time billions of dollars in taxpayer subsidies have done little to make alternative energy sources more practical. Unless Congress can move beyond its parochial views on energy, this fall’s energy deal is likely to offer more of the same, and the potential for new global warming mandates poses a real threat to consumers.