»  National Review Online

January 22nd, 2001

  Energy in the Executive

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We can congratulate ourselves on our good luck in having survived eight years without any national energy policy. The principal events in Bill Clinton's custodianship of the nation's energy have been as follows: the failure to get the job-killing "BTU tax" through Congress in 1993, the failure to foist ethanol on a reluctant public in 1994, the throwing open of nuclear-weapons labs to Chinese military intelligence, and the release of 30 million barrels of crude oil from the Strategic Petroleum Reserve last fall.

Only the first of these was a matter of actual policy. The others were aspects of those activities that dominated federal decision-making during the Clinton years: campaigning and fund-raising. The ethanol fiasco — Clinton's 1994 executive mandate was ultimately struck down by the federal courts — was driven by the need to appease the farm lobby and major campaign contributor Archer Daniels Midland. The collapse of security at Energy Department labs, though motivated in the first place by New Class disdain for defense-related issues, was also linked to Clinton's pro-Beijing policies and his fund-raising approaches to Chinese and overseas-Chinese donors. (The precise nature of the links is exposed in Bill Gertz's recent book The China Threat .) The September 2000 releases from the Strategic Reserve were not in response to any national emergency — the purpose for which the Reserve was established — but were an assist to Al Gore's election campaign.

At the time of writing, George W. Bush has yet to name his energy secretary, and has given few specifics about the direction his administration's energy policy will take. With serious people now in charge, though, it is reasonable to hope that we shall at least have an energy policy. It is only a little less reasonable to hope that the energy policy we get will be a conservative one. But what should a conservative energy policy look like?

Libertarians would no doubt say: it should not look like anything. Energy is a commodity, like potatoes. Let the market take care of it. There is something to be said for this approach. The current electricity crisis in California, for example, is due mainly to a half-hearted de-regulation of that state's electricity industry, in which wholesale electricity prices (charged by generators like Enron Corporation to local utilities) were freed, while retail prices (charged by utilities like Southern California Edison to consumers) remained under control by state regulators. This seemed like a good idea to the utilities when they signed on to it in 1996, with wholesale prices low and falling. Buy low, sell high — hey. When, four years later, a combination of weather problems and restraints on supply imposed by California's powerful environmentalist lobbies sent wholesale prices through the roof, the utilities discovered how short-sighted their calculations had been. Their wholesale suppliers were at one point last fall demanding $1,200 per megawatt-hour, while their consumers — and soon, of course, those consumers' representatives in the state legislature — were expressing fierce resistance to retail prices higher than $65 per mwh.

However, while energy perhaps should be left to the markets, the very political nature of energy generation and distribution ensures that at present it cannot be. In a free market, supply matches itself to demand. In the United States today, this cannot happen. In the matter of electricity supply it cannot happen because, as the case of California illustrates, public attitudes to electricity pricing are still dominated by Santa Claus economics and environmentalist zealotry. In the matter of the direct supply of fossil-fuel products — gasoline, heating oil — to the American consumer, it cannot happen because most (57 per cent) of our oil comes from other countries, so that its supply and pricing is tangled up with issues of foreign policy and national defense. It is not widely known, for example, that four per cent of our oil currently comes from Iraq, a nation we still drop bombs on when we feel inclined.

The administration therefore has no choice but to involve itself in energy policy. What should be the direction of that involvement? To take the first of the above issues first: in domestic electricity supply, a Republican administration should oppose all efforts by legislatures — both state and federal — to hide the realities of electricity pricing from consumers by regulation and market-rigging. It is quite understandable that people do not want to see big new power stations being erected in their neighborhoods. It is equally understandable that people do not want to pay high prices for electricity. The two things are connected in a rather obvious way, however. There is a cost for environmentalist squeamishness, and it should be brought to the attention of consumers. If they persist in their NIMBY attitudes, they are then at least doing so rationally, with full understanding of the economic realities.

In fossil-fuel management, we should make the most of our domestic resources. This certainly involves access to the deposits in Alaska's Arctic National Wildlife Refuge, which could provide peak output of 800,000 barrels a day — ten per cent of current U.S. production. George W. Bush indicated in the campaign debates that he will support opening the area to drilling, and his energy secretary should follow suit.

What comes out of the ground, however, is crude oil, useless until refined. The United States sorely needs more refining capacity. This is another issue that collides with environmentalist activism: an oil refinery is just as large, ugly and smelly as a power station. As with electricity, if consumers want to drive around town in 5,000-lb SUVs slurping up a gallon of gasoline every 12 miles, a conservative administration should shun regulation and price-fixing in favor of making plain to consumers what are the financial and environmental consequences of their choices, so that citizens can decide what is most important to them.

Above and beyond these considerations, the new administration needs to keep an eye on technological developments so that it can encourage, verbally and through federal purchasing policies, trends that might improve energy supply and reduce costs. In power generation, the most promising innovations are in "micropower" — small, clean, reliable and cheap generating technologies. This is now a great growth area, estimated to have taken in nearly a billion dollars of venture-capital investment in the year 2000 (up from 20m in 1995). It may be that, just as the big corporate mainframe computer of the 1970s gave way to a thousand desk-top PCs, so the massive, environment-blighting coal-, gas- or nuclear-fueled power station familiar to us today may yield to a myriad of small local facilities based on fuel-cell, "micro-turbine" or solar-power technologies. A one-kilowatt fuel-cell generator for household use is expected on the market this year. For industrial customers, with requirements in the megawatt range, Siemens Westinghouse hopes to have a fuel-cell generator available in 2004 that wll be price-competitive, kilowatt for kilowatt, with big traditional power stations.

Ours is a power-intensive economy, and becoming more so. The Internet, and all the devices attached to it, consume some ten per cent of all the electricity we produce, and this proportion is rising. That computer on your desk may have its system board marked up in milliamps and microvolts, but there are an awful lot of computers in the U.S.A., and vast power-hungry "server farms" connecting them together. A Palm Pilot, when conversing with the Internet, is using as much power as a household refrigerator.

Slip that Palm Pilot into your pocket, drive off down the street in your 12-mpg SUV, slowing down to admire your neighbor's Christmas lights (up to 300 watts for a full display), and contemplate your energy choices. Calmly, please: the world is not going to run out of energy in our lifetimes, nor for many lifetimes to come — proven oil reserves are sufficient for about 2,000 years at current rates of consumption. There is no cause for panic about energy. A prudent, conservative administration need only favor policies that make it clear to us what our energy choices will cost, in dollars and cents, in environmental degradation, and in freedom of foreign-policy action. We the people, and the ingenuity of our inventors and innovators, will take care of the rest.