TCS Daily

How to Cut Energy Prices

By James Freeman - September 18, 2000 12:00 AM

With electricity prices climbing in California and gasoline prices still close to their summer highs, media reports have focused on the usual villains - deregulation, overconsumption, corporate America, and OPEC. For some reason, you rarely hear about the costs that government and the environmental movement add to our energy bills.

Speaking of OPEC, how much leverage do you think this crazy cartel would have if we encouraged energy production in the United States? These guys can't stick to their production quotas for five minutes before somebody starts cheating. If we're dependent on foreign oil from these clowns, it's in large part because we choose not to produce cheap energy in this country.

You can argue that environmental regulations have benefits, that we shouldn't drill in certain areas, or that communities should fight the arrival of a nuclear plant, but let's understand the consequences when we make energy costly and difficult to produce.

If we think high energy prices represent a problem, then let's examine the obvious contributors to this problem. Start with government. According to the Potomac Electric Power Company, which serves Maryland and Washington, DC, taxes from the various levels of government add up to more than 20% of the average customer's bill. Bob Burns of the National Regulatory Research Institute at Ohio State University reports that in some states, taxes represent more than 25% of the average electric bill.

For gasoline, the costs may be even higher. According to the American Petroleum Institute, state, local and Federal gasoline taxes add up to 42 cents per gallon for the average customer. That doesn't even include all the income and property taxes paid by oil companies, many of which are passed on to drivers.

Then you have the costs of regulation. It's tough to estimate the total amount that companies spend to comply with government rules, and the lost opportunities resulting from various laws, but we know that we're talking about huge numbers. The US Environmental Protection Agency estimates that it costs Americans $150 billion each year to comply with Federal environmental laws. "A big part of that relates to emission controls on the production of energy," says Paul Portney of Resources for the Future, a Washington think tank.

Then you have economic regulation - for example, when a local utility receives a government-protected monopoly. Various studies at the US Department of Energy have estimated that electricity prices would fall anywhere from 6% to13% with deregulation of the industry.

But wait, you say. We saw deregulation in California and prices are rising. Yes, they deregulated the sale of energy, but not the creation of it. Try building a new nuclear plant in California right now. With a growing economy and more people using information technology, electricity demands are rising, so in the absence of new supply, prices will rise. "Californians would have this problem with or without competition. They haven't built any new power plants in a decade," says Jerry Ellig, an economist at George Mason University in Virginia.

On top of regulation, I can't even begin to guess how much we spend on the costs of delay, obstruction and litigation when neighborhood and environmental groups protest new plant construction or seek to tear down existing facilities.

Of course, many environmentalists like high energy prices because they discourage consumption. But they're fighting a losing battle. There's no way to reduce energy demand in a growing, high-tech economy. So environmentalists should embrace the one technology that provides cheap, reliable energy with no strip mines, no smog, no polluting emissions, no salmon shredded under dams, and no clear-cutting of forests to make room for windmills.

Personally, I'm skeptical of the notion that your SUV is destroying the planet, but for those who believe in the doomsday theories, it's time to go nuclear.

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