Wednesday, March 9, 2011

The Futility of Energy Policy

For some reason, people think that the government ought to have an energy policy.

You'd think we would have learned by now that politicians and political activists are clueless when it comes to anything in the economic sphere, but hope springs eternal.

But it's not just crazed lefties that fall for this folly.

Here is energy expert Nansen G. Saleri worrying about energy efficiency. He's right to suggest that there is little worry about $200 per barrel oil, for there is plenty of oil and plenty of natural gas (particularly given the new horizontal drilling technologies).

The problem is inefficiency.

According to a 2007 study by National Petroleum Council, at the request of the U.S. Department of Energy, approximately 61% of energy produced is lost due to factors such as poor insulation, gas-guzzling vehicles or suboptimal power plants. On average, only one out of three reservoir barrels is recovered, which translates to an overall efficiency of only 13% for oil that is converted to a usable form. Improving energy efficiency should be a top priority, not just in our surface usage but also at the point of extraction.

Then he calls for a national energy policy. The Obama administration is ambivalent about energy, he worries, and needs a clear strategy going forward.

This will require real leadership and the clear articulation of energy goals, costs and priorities. Ambiguity will not serve the best interests of future generations. The U.S. does not have an energy problem. It has an energy strategy problem.

Oh dear. Look, efficiency is not a problem. It just means that, all things being equal, we can afford to put off making vehicles and power plants more efficient. People are not fools; they weigh, instinctively, the advantages of continuing as usual and making investments in efficiency. And the problem right now is that the Obama administration, bowing to its liberal environmental base, is going flat out trying to force the nation into a post-fossil-fuel era with chimerical ideas like wind and solar power. God knows what the penalty in inefficiency will be from this hare-brained effort.

What's needed is a separation of economy and state. Let the state set forth environmental standards, even including the dreaded CO2 if they can get away with it. But when it comes to efficiencies and technologies, then the government should get out of the way.

Who knew five years ago, apart from industry insiders, that horizontal drilling and "fracking" would revolutionize oil and gas drilling? No national energy policy worth the name could have forecast this game changer.

The fact is that the market economy is the only way to combine the whole bundle of economic questions: future resource availability, efficiency, technology. It's not very good at it, but it recovers from its mistakes quickly.

But government is different. It doesn't learn from its mistakes. In fact it only changes policy after it's driven the country into the ditch. An example is the folly of ethanol subsidies. This energy policy has converted 40 percent of the corn crop to fuel production from food production, has raised the cost of food, and is a net loss, energy-wise, because of the energy cost of converting corn to ethanol.

It is admittedly not the case that every aspect of any national energy policy will suffer from the same problems as the ethanol program. The chances are that the ethanol scandal will look like a molehill compared to the mountain of problems and disasters that a real national energy policy will create.

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