SOTU 2006: Dusting Off the Old Energy Policy

No doubt, President George W. Bush struggled to come up with something new on energy policy for his State of the Union address. After all, the massive 1,725 page Energy Policy Act of 2005 was passed only six months ago, and its wide-ranging provisions have just begun to be implemented. This energy bill contained a host of federal outlays, tax breaks, subsidies, and other inducements to encourage the development and use of alternative energy technologies and the upgrade of conventional ones. So rather than add something new, the President’s remarks on energy offered more of the same. Unfortunately, this is not a promising approach. Rather than expand government interference in energy markets and pick winners and losers from among emerging technologies, Washington should get out of the way and let market forces work. Streamlining energy regulations and removing federal restrictions on domestic energy production would have been a good place to start and should have been part of the speech.

Much of the energy focus in the speech was on America’s growing dependence on oil — especially oil from unreliable and unfriendly regimes. This is a legitimate concern, though the President‘s "addiction" rhetoric was excessive. The President’s solution is government-led research and development of petroleum alternatives that might one day meet the nation’s transportation needs. The favored technologies include hydrogen fuel cells and cellulosic ethanol. This type of research is nothing new. The federal government has spent billions on these efforts since the 1970s and made little progress. Invariably, the research reveals that these kinds of alternatives have serious problems of their own, such as costs that are often far higher than those of conventional fuels. Even after decades of research and development, commercial viability of alternative fuels remains elusive.

Oil remains the transportation fuel of choice, and nothing has yet to supplant it. That may change — and ongoing federal research could make a contribution — but the government’s research track record and the staying power of oil suggest caution in predicting the end of oil and the dawn of an age of alternative fuels.

The President outlined an approach on electricity that was much the same. He pledged to increase federal support for solar power, clean coal, and other generation options, though the history of such research is filled with many more disappointments than breakthroughs. Nonetheless, between the provisions in the energy bill and any policies that emerge from this State of the Union address, such research will be heavily subsidized for years to come.

In sum, Washington has never been good at picking winners and losers in technology markets, but it keeps on trying. The State of the Union address signaled that this approach still dominates.

America’s energy future is not an either/or proposition between current fuels and new ones. The research programs the President mentioned in his address will take at least a decade or two (at least) before anything useful results from them. Meanwhile, Americans will continue to be dependent on current fuels and technologies, and for transportation, that means petroleum. The age of oil will be with us for at least a while longer, and Washington has an obligation to ensure that oil is as affordable as market forces allow.

To that end, there is room for Congress to streamline or eliminate the regulations that make it harder to expand refineries and more expensive to refine oil into the many specialized gasoline blends required by law. Such unnecessary regulatory costs add to the energy prices that American consumers face. Congress should also pass legislation opening restricted areas in Alaska’s Arctic National Wildlife Refuge and off America’s coasts to oil and natural gas exploration and drilling. Expanding domestic oil and gas production, flat in recent years in the face of rising demand, is a long-overdue measure.

Despite the President’s past support for such ideas, he chose not to mention them in this State of the Union address. Americans can only hope that this omission does not discourage Congress from moving forward with such pro-energy measures in 2006.