Tuesday, April 12, 2011

"From Nixon to Obama"

That was the title of a staff editorial in last Thursday's edition of the Wall Street Journal. It's ironic, because every time I've heard some pundit wail about the lack of a US energy policy, I think back to my youth, watching Nixon unveil his "Project Independence," or whatever it was called, which promised US energy independence by, I believe, 1980. Back then, it seemed like a good idea, and 1980 seemed a long way off.

Since this isn't my political blog, I'll leave aside the parts of the editorial dealing with the president's lies involving current energy options.

Rather, it occurred to me that something which eight presidents have promised over more than 40 years may well be something that isn't going to, and shouldn't, happen.

For example, the new, promising, large-scale US energy source is shale oil. In Canada, tar sands oil has made remarkable progress in terms of being affordable and reasonably environmentally friendly.

How would the US Department of Energy have foreseen these developments 40 years ago? Aside from dedicating a substantial amount of what could be food supply for animals or people, and thus driving up food prices, how has ethanol beneficially affected the US?

When you subsidize a specific technology, you'll get a lot more of it, regardless of its standalone economic rationale.

Better, it would seem, for the federal government to simply offer a standing bid for energy on a btu or some other energy-equivalent basis, relative to markets, and declining over time. Thus, any new energy source developer would have maximal knowledge of the size and duration of federal subsidies for its products. If, over some timeframe during which it would qualify for subsidies, it cannot improve the economics of its energy source to make economic sense on its own, it would die.

But the US has never done this. Instead, whole industries have grown up around technology-specific subsidy boondoggles, like wind, solar and ethanol. I learned this weekend that GE actually owns a substantial portion of a Texas wind farm. Somehow, the company has managed to wade into the federal subsidy trough to a degree it has kept hidden from the general public. It doesn't simply sell wind turbines. It seems to be making some more money, or garnering extra subsidies, by dint of its unpublicized ownership position. And, of course, having that position goes a long way to explain GE's large-scale involvement with alternative energy. Nevermind that most of them can't compete without subsidies, meaning that taxpayers are funding uneconomic projects which provide corporate welfare.

Over 40 years after Nixon's first bogus federal energy policy, I not only remain sceptical of such efforts. I'm more jaded and pretty much disbelieve that any of these campaigns will do US consumers and taxpayers any good whatsoever. There's always a corporate boondoggle angle to them. Whenever the public sector, with its ability to coerce via laws, enters into the economic arena, you can bet that favors will be bought and sold. That uneconomic decisions will be made due to graft, corruption and the usual things which occur when government funding are available through hard-to-measure programs.

Just the fact that government departments are choosing wind and ethanol, while casting doubt on natural gas, coal and shale oil, makes me sense that the reverse is probably the way we ought to go. But with as few directed subsidies and laws as possible.

Let's face it. Our best and brightest don't generally work in Washington. Not for long, anyway. And, if and when they do, it's typically to be in a position to be hired afterward for much more money by firms with which they had dealings, and probably dispensed favors, when they were in government.

In that sense, the only energy source I can see always being favored in Washington should be solar, i.e., sunlight , transparency and total public disclosure of energy policy subsidies and deals.

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