Pushing forward with energy plan is waste of money ... and energy

May 27, 2001|By Steve Chapman

CHICAGO - The Bush administration usually stresses its faith in the market, in contrast to those meddlesome Democrats who want the government to run our lives.

But when it comes to energy, the president thinks nothing could be better than a flurry of activity in Washington. What he doesn't seem to notice is that the market is already doing its job well enough to make you wonder why we need his new energy program.

This is one of those occasions when we could use some leaders brave enough to deserve the adjective Harry Truman once flung at a Republican Congress: Do-nothing. Doing nothing may not be the only solution to our energy ills. But it beats whatever's in second place.

The president insists on doing something, anything. His plan includes no fewer than 105 different proposals: opening up the Alaskan wilderness and other federal lands to oil and gas exploration, spending $2 billion to develop clean-coal technologies, making it easier to build nuclear reactors and handing out a slew of tax credits to subsidize gas-electric cars, solar heating, energy from organic waste and other "renewable" sources.

The reason George W. Bush sees the need to offer this grand package can be summarized in two words: prices and shortages. Gasoline prices have jumped above $2 a gallon at the pump in some places. Heating your home with oil or natural gas was an expensive ambition in much of the country last winter. Californians are unhappy at the prospect of having to pay ransom to electric companies to keep the lights on.

Mr. Bush suggests that without his program, we're in for a long spell of misery. He rolls out figures purporting to show that domestic consumption of oil and natural gas will rise faster than domestic production in the next two decades.

But it doesn't really matter if we get our oil from domestic or foreign sources, since we pay the same price either way. What's more, his projection is based on the experience of the last 10 years - which until recently, was shaped by low prices, not high ones. When fuel is cheap, consumers consume a lot of oil and gasoline, and producers cut back output because some of it no longer pays.

When prices are high, they have the opposite effect. People reduce their demand, and energy companies increase their output. In due time, high prices lead inexorably to lower prices. That process is already well under way.

Jerry Taylor, director of natural resource studies at the Cato Institute in Washington, notes that the amount of money invested in oil and gas exploration in North America soared by 40 percent last year and is expected to rise another 20 percent in 2001. The number of drilling rigs operating in the United States has jumped by nearly 50 percent in the last year.

Gasoline production in April set a record for the month, while demand was comparatively tepid. The American Automobile Association expects a decline in prices after Memorial Day.

Much of the blame for current prices lies with the Organization of the Petroleum Exporting Countries (OPEC), which has been deliberately limiting output. But OPEC may find its power short-lived. The Energy Department says OPEC members are already exceeding their production quotas by some 600,000 barrels a day, while supplies from non-OPEC nations have also climbed.

The same story holds in the electricity market. "The nation is currently experiencing a power plant construction boom," says Mr. Taylor, with a lot of new generating capacity due in the next couple of years.

The administration proposes to pour billions of dollars into conservation and alternative-fuel technology, but it's trying to force something that shouldn't need forcing. Higher prices are already fostering conservation, by encouraging every consumer to turn down the thermostat and avoid driving to Yosemite and back.

Higher prices may also boost the fortunes of unconventional sources like solar energy and wind power, which are dear to environmentalists. But if they are economically viable, they won't need government assistance, and if they are not economically viable, the federal help will merely be wasted.

Drilling in the Arctic National Wildlife Refuge (ANWR) and other federal lands, on the other hand, is a favor to the president's and vice president's innumerable friends in the oil business. It may eventually yield oil and gas, but hardly enough to justify the priority it's been given.

At best, notes Mr. Taylor, ANWR might supply a little over 1 percent of world demand, which would lower crude oil prices by perhaps 10 percent - except that OPEC might very well reduce its output by an equal amount. In that case, we'd end up damaging wilderness here so the Saudis can extend the life of their oil fields.

That's no bargain, and neither is most of the rest of what the administration proposes. Sitting back and letting the market work - now, that's a bargain.

Steve Chapman is a columnist for the Chicago Tribune.

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