The Best Energy Policy
A recent House Committee1 hearing discussed diversity in electricity supply. Perhaps the most important aspect of the hearing was the chart showing how the mix of fuels used for power generation varied around the country.
Without reading all the captions, it’s possible to see how the fuel mix changes, region to region, by observing how the predominant color in each region changes; where, Purple = Coal; Orange = Natural Gas; Green = Nuclear; Black = Oil; Blue = Hydro.
- The West North Central region relies predominantly on coal, while New England relies predominantly on natural gas.
- Nuclear is a significant factor in the East, but not so much in the West.
- Hydro predominates in the Pacific Contiguous region, i.e., Washington, Oregon and California, but is far less important elsewhere.
- Oil is used in Hawaii, and, though not shown here, to a much lesser extent, in Alaska. (Islands, such as Hawaii, Guam the Marianas etc., lack other fuels and therefore rely heavily on oil, primarily diesel fuel.)
Any energy policy that attempts to impose the use of specific fuels, including wind and solar, across the entire nation, ignores economic differences, as well as differences in the availability of various fuels. Wind is largely not available in the South, while hydro is largely not available in the East North Central region.
This Congressional hearing was focused on diversity of supply, but others in Congress are supporting legislation to cut CO2 emissions. A national energy policy focused on cutting CO2 emissions 80%, basically the rationale behind Renewable Portfolio Standards legislation, would also distort the nation’s economy.
Former Senator Bingaman, NM, proposed Renewable Portfolio Standards (RPS) that would have mandated the adoption of renewables across the nation, and, though not passed by Congress, RPS regulations have nearly become a de facto national policy with 26 states having adopted RPS in one form or another.
RPS increases the cost of electricity and distorts the economics of every state where it has been adopted.
A few states have initiated programs to cut CO2 emissions, and these programs are also beginning to distort the economics of the states involved.
The above chart demonstrates that each region has adopted a fuel mix that is economically best for it.
Most regions have allowed market forces to establish the “energy policy” for that region. Top-down regulations in California have distorted its energy mix and, according to the Wall Street Journal, are threatening its supply of electricity.
A national energy policy, possibly focused on diversity, the subject of the House hearings, or on cutting CO2 emissions, would distort the economic forces that have resulted in the United States having an abundant supply of low cost electricity.
General Jones, former head of the Marines Corps, has said we need an energy strategy. He has reiterated the statement: “Energy in the United States is like an orchestra without a conductor.”
As former head of the Marine Corps, it’s understandable that he should propose a top-down policy, but the energy sector has worked best without interference from the government. The recent development of fracking by private industry is a good example of market forces orchestrating dynamic improvements.
Perhaps a jazz combo would be a better analogy than an orchestra, where the jazz combo makes terrific, creative music without a conductor.
In view of this, a national energy policy based on top-down diktats from Washington would be a bad idea.
Based on experience, an energy policy that relies primarily on market forces, and not legislation, has, until now, been the best energy policy2.
- The Committee on Energy and Commerce memorandum announcing the hearing is available at http://1.usa.gov/Y4RKgP
- Market forces can be distorted through legislation, which is a threat to a free economy. An example would be the establishment of a carbon tax that would make electricity generated by coal and natural gas more expensive than electricity generated by using wind and solar.
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