I'm
not one of those self-flagellators who think Americans
are "plundering" the planet because we, with
only five percent of the world's population, consume 25
percent of the world's energy. I don't see anything
morally wrong with being the energy fat boy on the
global block. With oil selling at $60 a barrel these
days, our massive appetite for energy props up the economies of a lot of other
countries. You
want to see misery in the world? Just imagine what would
happen if Americans suddenly stopped buying all that oil
and natural gas from other countries!
My
objection to our energy-extravagant ways are purely
pragmatic. Energy dependence on foreign countries sucks
a lot of wealth
out of ours. Every barrel of oil we import
represents $60 shipped to
Mexico, Venezuela or Saudi Arabia and not spent here at
home. The Mexicans,
Venezuelans and Saudis may be buying some American
products and services in return, but they're not buying $60 worth.
That's
why I'm heartened to see that Virginia's state senate is
thinking seriously about Virginia's energy future. Sen. John
Watkins, R-Powhatan, has been appointed to lead the
development of a "long-term energy policy" for
the General Assembly's consideration.
Virginia
could benefit from the right kind of long-term energy policy.
Virginians spend billions of dollars a year on oil,
natural gas, electricity and other forms of energy.
Helping keep energy prices stable and affordable will do
more to protect our living standards than most things
that state and local government can do. However, the wrong
kind of energy
policy could well make difficult matters worse. There's
a lot at stake.
Judging
by an op-ed piece he published in the Richmond
Times-Dispatch Sunday, Watkins is focusing on
natural gas -- a legitimate area of concern. In 2004, he
notes, Virginians consumed 272 billion cubic feet of
natural gas. With the price of gas doubling over the
past year, the spike in price will vacuum roughly $1
billion a year out of our wallets.
By
knocking out Gulf Coast gas wells and pipelines,
Hurricane Katrina demonstrated Virginia's vulnerability to short-term supply
disruptions. But the spike in natural gas prices
reflects long-term imbalances between demand and supply
that have been building for years,
Watkins says. Virginia has been expanding its electric
generating capacity largely through the addition of
midsized, gas-fired power plants, adding to the demand
for natural gas faster than natural gas producers across
the U.S. have been able to increase supply. Watkins recommends
importing natural gas from abroad through Liquefied
Natural Gas terminals, specialized facilities equipped
to handle natural gas in liquid form.
Says
Watkins: "The addition of a major LNG terminal ...
would provide the Commonwealth with long-term energy
stability and economic development resulting from a
clean and reliable energy source. We would also gain
natural gas supply diversity to provide price
competition and serve as a cushion against future
disruptions in the Gulf of Mexico."
Importing
more natural gas is all fine and well: It's better to
gain access to imported gas than not to have access any
gas at all. But it's hard to work up enthusiasm for a
policy that would increase Virginia's dependence upon
foreign energy supplies. At the end of the day, we'd
wind up siphoning more dollars from Virginia's economy
to other countries.
Ideally, I would like to see a state energy policy that
encouraged production of energy locally or, better yet,
conservation of energy. Both approaches would provide
income to local businesses and jobs to Virginians.
At
the same time, I am very aware how easy it is for government
policy to go astray when it tries to influence economic
activity. It is vital, I would suggest,
that any energy policy follow the following
principles.
-
Don't
mess with prices. The price mechanism is a
remarkable thing: Rising prices encourage people to conserve energy or find substitutes, thus putting
a damper on demand. Higher prices also send a signal
to entrepreneurs, who will endeavor to find new
supplies or new conservation techniques and it puts money in their pockets to fund
those efforts. By short-circuiting price mechanisms,
government generally succeeds only in creating more
scarcity and causing more hardship.
-
Don't
grant subsidies, don't hand out tax incentives.
Fuels and technologies need to compete on their own
merits. Subsidies and tax breaks come at the expense
of the taxpayer. In other words, the government
simply robs Peter to pay Paul. Inevitably, Paul is
the guy with the better lobbyists and bigger
Political Action Committees.
Biodiesel
fuels are a case in point. In addressing the Virginia
Farm Bureau in September, gubernatorial candidate Tim
Kaine noted that biodiesel fuel, which can be
distilled from locally grown soy beans, is a renewable,
environmentally friendly fuel that can substitute for as
much as 20 percent of diesel fuel in the gas tank. Increased consumption
of biodiesel fuel would increase incomes for Virginia
soy bean farmers and create business opportunities for
entrepreneurs to extract the fuel from the beans and
distribute it.
It
sounds like a win-win, especially for Virginia's
hard-pressed agricultural sector. But there's no way
that government can know for sure that it will be. If
the economics are sound, the private sector will make it
happen without tax incentives. If it turns out that
biodiesel enthusiasts are hyping the potential and
underestimating the obstacles, the state could get stuck
with a tax credit that drains resources from the
treasury. If there's one thing that's certain, it's that
once a tax break is enacted, the farm lobby and the newly created soy bean-distillery lobby will
move heaven and earth to protect their perk forever. The
beneficiaries of a tax credit will always have more to
gain by defending it than members of the general public
will have to gain by getting rid of it.
If
the state shouldn't pick winners or losers, shouldn't grant
subsidies and shouldn't hand out tax incentives, what can
it do? Here are some appropriate roles. The state can
act as:
-
Information
broker and catalyst. The state can take the lead
in publicizing new opportunities, organizing conferences, and bringing together private-sector
players in the hope of igniting something
worthwhile.
-
Early
adopter. If the state wants to encourage, say,
the production of biodiesel fuels, it can
legitimately, in one of
Tim Kaine's better ideas, begin buying the fuel for
its own automobile fleet. As an early adopter, the
state can demonstrate the value of the fuel and take
out a lot of the risk for private
sector consumers.
-
Regulation
buster. If Virginia wants
to host a LNG facility, it can take the lead in
identifying a potential site for the facility,
clearing regulatory hurdles and soliciting potential
investors. More broadly, energy requires a
large infrastructure to support it -- oil and gas
pipelines, storage tanks, power plants, electric
transmission lines and so on. These facilities
require lengthy permitting processes and, typically,
public hearings. The state can help by streamlining
those processes, shortening the lead time and
ameliorating some of the risk for investors.
Another
example: Dominion has indicated an interest in some day
expanding adding more nuclear units to its
power-generating facilities at Surry and South Anna. If
the state chooses to encourage the production of more
nuclear energy, it should convene with Dominion to
identify all potential regulatory hurdles that the
power company must go through, and then begin diligently
crunching through the
necessary permits and reviews. If there are
concerns about the storage and disposal of nuclear
waste, the state can act aggressively to address them -- perhaps even
proactively drafting new laws and regulations that will satisfy safety and environmental
interests.
At
the other end of the spectrum from massive,
multi-billion dollar nuclear plants,
there is growing interest in micro
power sources -- solar power, windmills, biomass and
micro-turbines operating at the level of individual
farms, businesses and households. There are many
advantages to promoting small-scale production capacity. Solar energy
and micro-turbines running on waste heat are green --
they don't pollute. Furthermore, advocates argue, an
energy system built on widely distributed but small
energy sources, is less vulnerable to power outages from
failure at a single point. Remember the blackouts a few
summers ago?
Any long-term energy policy
in Virginia should explore how to encourage the spread of these
micro-energy sources -- short of subsidies or tax
credits. Among the critical issues: how to
tie these mini power sources into the larger power grid.
One big step that could improve the economics of
micro-power is empowering households and small
businesses to sell excess capacity to the electric power
distributor. Power companies are less than eager to deal
with a multitude of little guys, who may or may not
prove to be reliable energy sources over the long run. Without regulatory clarity, this energy option will
never take off. Providing that clarity is a legitimate
role of the state.
Finally,
a long-term state energy policy needs to consider
conservation. Economically, a BTU saved through
conservation is as worthwhile as a BTU generated.
From an environmental perspective, a BTU saved is
better -- a BTU saved does not pollute.
A
no-brainer for the state is to accelerate the adoption
of conservation measures at its own buildings and
facilities. Private sector businesses typically show
a three to four year payback on investment in automated
building systems that fine-tune the performance of HVAC
systems and lights. As part
of the ongoing management of its own office properties,
the
Commonwealth needs to look for opportunities to
hold down its utility costs through such conservation
measures.
The
most spectacular opportunity for conservation, however, will
require major institutional change: the scattered,
disconnected and low-density pattern of land use. Over
the past 50 years, state and local policies have
colluded to create an auto-centric society in which
every citizen needs an automobile to participate.
Furthermore, the increasing scatteration of housing,
offices and stores means that people must drive farther
-- and consume more gasoline. On
average, Virginians were driving 70 percent more miles
per year in 2001 than they were in 1980. Over the years,
Virginians have become more vulnerable, not less, to
surges in the price of gasoline.
Mr.
Watkins' energy task force can't do much to influence the
supply of gasoline in Virginia, but it can certainly
influence the demand for gasoline by initiating
fundamental change in human settlement patterns. While
preserving the freedom of people to live where they want
-- as long as they pay the full cost of providing
government services to those locations -- Virginia's
state and local governments need to rethink their zoning
codes, comprehensive plans and allocation of highway
construction dollars. Virginia needs to evolve to a
pattern of development that (1) emphasizes in-fill and
redevelopment over extending development farther into
the rural hinterlands, (2) permits jobs, housing and
retail to reside in closer physical proximity to each
other, thus cutting down on the length of trips, and (3)
incorporates urban design standards that create inviting
places for people to walk, ride bikes or avail themselves of
mass transit.
According
to the Department of Motor Vehicles, Virginians consumed
more than 5 billion gallons of gasoline in 2003, the
most recent year for which figures area available. At
today's prices, we're paying more than $12 billion a
year at the gas pump, and shipping maybe half that sum
to foreign oil producers. Conserving energy through more
rational human settlement patterns could save Virginia
consumers literally billions of dollars a year -- and
keep billions of dollars circulating in the local economy.
That,
I would submit, is a goal every bit as worthy as Sen.
Watkins' plan to diversity our natural gas supply. Let
us hope that the good senator takes a broad-minded view
of what constitutes energy policy.
--
October 31, 2005
|