House Passes Green Energy Bill, The

Proposal Will Not Do Enough to Roll Back Gas Prices

The House recently passed a bill purportedly for the purpose of improving our ability to produce energy. President Bush has called it "a good energy bill" and has urged the Senate to act so that Congress can send him a bill by this summer that he can sign into law. However, the proposal passed by the House makes many concessions to environmentalists and therefore won't achieve its purported end if signed into law. Why is this the case?

While the bill increases access to federal lands for oil and gas exploration and eases some regulations (such as speeding up the approval process for certain new refineries), it also provides billions of dollars in subsidies and tax incentives for various environmentalist-inspired endeavors, including the promotion of energy efficiency and the development of "alternative" fuels.

Profit Motive

It also adds a number of other environmental restrictions (such as eventually banning the use of the octanebooster MTBE and imposing stricter regulations on underground storage tanks). Banning MTBE alone will probably more than offset any gains from the positive aspects of the bill. One problem is the MTBE replacement, ethanol, must be trucked to refineries because it cannot be produced in refineries and doesn't travel well through pipelines. As a result, it's been predicted that removing MTBE could add 35 to 40 cents to the price of a gallon of gas. This prediction probably isn't too far off since gas prices rose almost 30 cents per gallon after MTBE was banned in some states.

Providing a candy store full of subsidies and tax incentives will indirectly lead to higher costs. For instance, subsidies promote wastefulness because those who receive them are usually less concerned with being efficient since their costs are covered, at least partly, by the subsidy. By subsidizing companies to develop alternative fuels, for example, we'll be encouraging the development of expensive energy sources that aren't economically feasible. If they were feasible, the profit motive would give companies the incentive to develop them without the subsidy.

One might think subsidies can be used to give companies an incentive to develop alternative fuels until the fuels become economically feasible. But given that politicians aren't even responsible enough to balance the federal budget (most of the time), why should we trust them with determining which sources of energy might be economically feasible in the future? Only the profit motive can provide the appropriate incentive to develop and exploit the most cost effective products, and right now gasoline is it in motor fuels.

What should the federal government do to make it easier for us to meet our energy needs?

It must consistently protect freedom in the energy industries to provide the maximum incentive for energy producers to be efficient and innovative, and make it as easy as possible for consumers to purchase energy products.

It can start to do this by eliminating the federal gas tax. That would reduce the price of a gallon of gas by more than 18 cents. If state governments join in, the price could be reduced, on average, by more than an additional 24 cents.

This tax cut could be partly financed by eliminating environmentalist-inspired subsidies. The rest could be financed by reducing other inappropriate government spending.

Requirements for different gasoline formulations used at different times of the year and in different geographic regions must also be abolished. Currently 18 gasoline formulations are in use across the United States, making it much more costly to produce and distribute gasoline. These blends aren't needed because of the requirements of automobile engines, nor are they required by oil companies. The blends are forced on Americans by environmental regulations. By eliminating these regulations, refiners won't have to incur costs to switch from producing one blend to another, including switching to a more costly "summer blend," which occurs every spring along with a sharp rise in gas prices.

Refiners produce much more inefficiently when they're forced to produce a multitude of blends, and supply deficiencies occur more frequently because local suppliers can't purchase gasoline from around the country, which also drives up prices.

While speeding up the approval process for certain new refineries and opening federal lands to oil and gas drilling are good, the bill needs to go further. The same applies to Bush's proposal to make it easier to build more nuclear plants and refineries. With regard to refineries', not one has been built in America since 1976, and there are no current plans to build any.

Environmental regulations (such as those on refinery emissions) make it prohibitively costly to build refineries. Such regulations must be eliminated. Furthermore, all restrictions on drilling must be lifted (including, ultimately, privatizing government land containing energy resources) and no new restrictions on gasoline production must be imposed (such as the ban on MTBE).