By John Rowe and Alex Flint
March 8, 2018 - Federal energy policy is unnecessarily complex and costly, designed to solve problems that no longer exist. It attempts to solve the emerging problem of carbon pollution through subsidies and mandates, rather than through more market friendly and less costly interventions. Policymakers should overhaul energy policies to simplify and reduce unnecessary regulations and subsidies in place since the 1970s, while optimizing the market to reduce carbon emissions.
Energy in America today is cheap for three reasons: since the 1970s, federal energy policy has diversified U.S. energy sources by encouraging oil production around the world; we have subsidized the development and deployment of new energy technologies; and the shale revolution dramatically increased domestic natural gas production.
Those subsidies and regulatory incentives are now so diverse and prevalent, and have driven energy prices so low, that all energy technologies and fuels now receive and are dependent upon some amount of subsidy.
Those subsidies are uncoordinated, costly and generally a mess. For example: we observed that, when the Congress wrote the Energy Policy Act of 2005, the House and Senate authorizing committees and tax-writing committees each spent months developing their contributions to that law, but the provisions were separate and largely uncoordinated. It wasn’t until years later that we really began to appreciate how the myriad of research, loan guarantee, tax-credit, regulatory requirements, and production incentives for varying technologies would materialize and affect markets.
Similarly, the regulations faced by energy companies; and those include federal requirements by agencies like the Federal Energy Regulatory Commission, the Environmental Protection Agency, the National Electricity Reliability Council, and state requirements such as renewable portfolio standards are a maze of uncoordinated policies.
The system of tax incentives and regulatory requirements is so complex that policymakers are at a loss to understand their interactions and consequences. Only companies, in an effort to advance their commercial interests, have the resources to fully understand this Gordian knot. Their experts, who really understand the interaction among all these disparate policies, rightfully seek to exploit those tax and regulatory requirements to their commercial gain. In turn, they have become invested in this byzantine system.
Policymakers today are fortunate that low-priced natural gas has driven prices down even further, masking the unintended compliance costs that energy companies face navigating Federal energy policies.
What we need is a new approach to energy tax and regulation that advances our strategic policy objectives and recognizes that the period of scarcity that began in the 1970s is over. We no longer need to subsidize energy production. In fact, we now have so much energy that those subsidies are occasionally driving energy prices negative and making all technologies dependent upon subsidies as prices race downward.
Instead, the next great energy challenge is how to address carbon pollution – something that our current system was not designed to do.
That is best achieved by getting rid of — literally repealing — a host of tax subsidies and regulatory requirements and replacing them with a carbon tax. Such a tax will much more efficiently than the current mess achieve a clear federal policy objective; the deployment of numerous clean energy technologies while also raising significant revenue that the federal government can put to good use reducing other taxes.
The 1970s were almost 50 years ago. Today, our energy landscape and our priorities are very different. It’s time to stop making incremental changes to those policies and do a fundamental rethink about our priorities for the next 50 years and the most effective means to achieve them.
John Rowe is Chairman Emeritus of Exelon Corporation. He previously served as CEO of the New England Electric System and Central Maine Power Company, chairman of Edison Electric Institute, co-chairman of the National Commission on Energy Policy and serves as an advisor to the Alliance for Market Solutions.
Alex Flint is the executive director of the Alliance for Market Solutions. He previously served as staff director of the U.S. Senate Committee on Energy and Natural Resources, senior vice president of governmental affairs at the Nuclear Energy Institute, and as a member of President Trump’s transition team.
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