The Supply-Side Cure to the Energy Crisis

Liberals and regulations caused it . . . conservatives and the free market can fix it.

By Peter Ferrara
Liberals say oil companies are responsible for today’s high price of gasoline. But, actually, it is the liberals who are responsible. Over the past thirty years, extreme-left liberals have successfully shut down new energy production in the United States. Hyping technologically outdated concerns over coastal oil spills, they have won bans on new oil drilling in the very promising outer continental shelf. Excessive and high-cost regulation has effectively shut down new drilling on the continental inland as well. Ditto for new oil from extensive deposits of oil shale and tar sands in the western U.S. and Canada. And let’s not forget drilling in the all-ice-covered, mostly dark, virtually uninhabitable tundra in the far north of Alaska. Liberals have stopped that, too.

Years ago, the American Left won a continuing moratorium on development of new natural-gas supplies, which caused the price of gas for home heating to soar along with the price of residential oil. Hysterical, uninformed, liberal-left agitation has also long shut down the development of new nuclear power plants in the U.S., even though nuclear power has been used quite extensively for decades in France, Japan, and elsewhere. The U.S. now runs the risk of becoming technologically backward in this area.

The liberals also have stoked “Not in My Backyard” concerns in order to stop the building of new oil refineries. More, those refineries that remain have been heavily regulated, with the requirement that they produce alternative gas blends for different parts of the country. The refineries also have been required to blend-in increasingly expensive and scarce ethanol. All of this raises costs and causes shortages, with no significant gain for the environment.

Finally, we now hear liberals screaming loudly about oil-company profits. But according to the Tax Foundation, the government takes about three-times as much in taxes from what you pay at the pump than the oil companies take in profits. Federal, state, and local gas taxes alone total about 46 cents per gallon, on average. Corporate income taxes, property taxes, sales taxes, and other taxes tack on much more.

Liberals, in fact, have been saying for years that American gas prices are too cheap, and that we should have to pay $4 to $5 a gallon, as is the case in Europe. That would lead to so much wonderful conservation, they say. But now we have just what they wished for. How do you like it?

Frankly, the liberals now have you exactly where they want you: on your way to riding mass transit or even walking miles to work with no individual transportation freedom. Many on the left are simply opposed to modern industrialization period, and see shutting down all energy sources one by one as the way to achieve their extremist goals.

Republican politicians, oddly quiet on all these facts, need to aggressively explain to the public exactly what the causes of the currently catastrophic gas prices really are: liberal foolishness. But even more important, conservatives and Republicans need to campaign on an aggressive program to solve the problem.

Ronald Reagan very openly campaigned in 1980 on solving the last energy crisis by “unleashing the power of the free market” to produce energy. That is exactly what we need now. Indeed, increased energy supplies are the only way to bring down the prices of oil and gas. Windfall profits taxes will only reduce supply and raise prices further by sucking up the capital and incentive to produce new oil and gas. Breaking up American oil companies into smaller and supposedly more competitive pieces will also do nothing to bring down the world price of a barrel of oil. (Breaking up the federal government into smaller, more competitive pieces would likely be far more beneficial.)

Here is a specific agenda: Federal legislation should provide that half the royalties from offshore drilling in federal areas more than 3 miles at sea go to the states on whose coasts the drilling occurs. The other half should go into a pool to be distributed to the other states. This would give coastal states a sufficient incentive to overcome unreasoned local opposition to such drilling.

Of course, we also need to allow drilling in the far-north Alaska tundra. Current estimates (and these pre-drilling estimates always end up being too conservative) reveal that this effectively would add another Saudi Arabia to the world oil supply. More, there is no significant environmental threat attached to the drilling planned in Alaska.

Federal legislation also should seriously streamline the process for building new nuclear power plants. All new construction stopped on this front because the regulatory approval process was starting to drag out more than ten years. One big problem was that extremist groups were allowed to sue and become party to regulatory approval proceedings, at which point they followed a practice of trying to talk the approval process to death with scare tactics and uninformed claims.

Federal legislation needs to shut down the ability of these outside groups to sue in order to stop energy projects across the board. These groups should be allowed to submit comments and briefs in the regulatory proceedings, but no more. Just like the rest of us, they get their big day at the ballot box every two years, and they should not be entitled to an additional day in court to frustrate the public will expressed in those elections.

The approval process for new refineries needs to be greatly streamlined as well. Excessive regulation of existing refineries, which unnecessarily increases costs, should be eliminated. We also need to remove the moratoriums and excessive regulation that halts the production of new natural gas, new inland exploration and drilling, and the use of abundant tar sands, oil shale, and coal.

The market development of new fuels such as ethanol and hydrogen can also help. But there should not be government subsidies or mandates requiring their use. These fuels need to sink or swim in the marketplace on their own.

Of course, all of this needs to be done under requirements to protect the public health and safety and avoid real environmental harm. But such regulation needs to be based on real science, not hysterical, uninformed extremism.

The vast new energy supplies these policies would produce would eventually reduce the price of oil and gas dramatically. As late as 1998, the price of a barrel of oil was still only $13, compared to over $70 today. New nuclear power and natural-gas supplies would take some of the pressure off of oil, contributing substantially to the restoration of reasonable prices. While these solutions are more long-term, the market will see what is coming down the line — a process that will start to have an effect on prices much sooner than is now recognized.

If conservatives and Republicans aggressively pursue this strategy now, it will be a big positive for them in this fall’s elections — rather than the disaster liberals and Democrats now predict.