December 11 2007
Time for Another Change: Energy Bill Is Another Failure
Carrie L. Lukas
When political analysts think back on what happened in the 2006 election, the most common narrative is that the Democrats were swept into power because of the public's frustration with the lack of progress in Iraq. Yet these anti-war sentiments were only part of the story. The public was also frustrated by Congressional corruption; several Republican Members retired in scandal having been found to have been abusing the public trust. Stories of runaway, wasteful spending were commonplace.
The Democrats promised a new direction. Not only did they vow to fight to end the war in Iraq, they also promised transparency, a return to fiscal responsibility, and to help American families struggling to make ends meet. Many Democratic Members have themselves expressed frustration with their inability to enact their agenda, in particular to force a timetable for troop withdrawal in Iraq. Yet even their victories might give some of their voters pause.
Consider the energy bill that was passed the House of Representatives last week and is now before the Senate. This bill (crafted behind closed doors during the Thanksgiving holiday to avoid any public scrutiny) doesn't offer any solutions to the problems of rising gas and heating prices, and in fact will make problems worse and consumer hardships more painful. Energy prices have been on the rise due to an increase in demand. To bring prices down, the United States needs to increase supply. Yet this energy bill does nothing to increase supply, which is why the Republican opposition dubbed the legislation the "no energy" plan.
In fact, according to an analysis by CRA International, the additional taxes on the oil and natural gas industry and restrictions on drilling contained in this legislation could lead to a decline in oil production of 4% from baseline levels and 2% decline in domestic natural gas production between 2010-2020. This would mean that consumers would be competing for a smaller pool of energy and therefore would see prices rise higher.
Higher fuel costs will have serious consequences for the broader economy. Increased energy prices ripple into just about every sector and daily staple of life since consumers would be bearing the increased costs associated with transporting goods across the country, keeping the factories running, and ensuring the office lights stay on. All told, CRA estimates that the proposed legislation would create a net loss of nearly 5 million jobs, decrease the average households purchasing power by $1,700, and cost the economy nearly one trillion dollars by 2030.
While this legislation does nothing to increase the supply of our primary sources of fuel, like oil, it relies heavily on the idea of increasing our use of alternative fuels, like corn-based ethanol. Undoubtedly, alternative fuels hold great promise. Yet government mandates that call for dramatic increases in the production of such fuels are unrealistic at present and will lead to a number of unintended consequences. The government push to encourage the use of corn for ethanol has already pushed up the price of corn, and many other food products along with it.
While the media commonly equates the increased use of ethanol with environmental progress, the environmental impact of ethanol is mixed. Growing corn requires significant amounts of water and fertilizers. Further, corn requires significant amounts of traditional energy to refine it (natural gas) and ship it (diesel). Add to this that ethanol is less efficient than regular fuel, meaning consumers must purchase more to go the same distances, and the economic and environmental benefits become less attractive immediately.
There are many potential sources of alternative fuel, but what ultimately becomes a major source of energy should be determined by its efficacy and efficiency. Yet government mandates skew the market and discourage out-of-the-box solutions that could be preferable to political attractive products like corn-based ethanol.
The House passed energy bill also contains many provisions entirely unrelated to energy production; they are exactly the type of earmarks and unseemly largess that the Democrats had criticized Republicans for passing in the previous Congress. House Minority Leader Boehner highlighted several earmarks that rival the infamous "Bridge to Nowhere": $161 million for the Plum Creek Timber Company, $2 billion for New York City to develop a rail line from J.F.K Airport to Manhattan, and $3 billion for unspecified "green" projects, that according to Boehner could be used for anything from financing "Al Gore's speaking tour" to "buying some energy efficient hybrid snowmobiles for Aspen." This kind of pork will hardly make Americans feel better when they open their heating bills come January.
The last election was about change. If their record next year is anything like this year's, Democrats might find voters want change again.
IWF Podcast: Allison Kasic and Carrie Lukas discuss the energy bill being debated in the Senate.