May 26, 2020 at 5:00 am ET
The Texas Railroad Commission spent much of April considering mandatory production cuts for oil producers across the Lone Star State. The commission ultimately decided not to enact cuts and in the meantime, the oil market returned to relative stability from the ‘“contango” that drove oil futures deep into the negatives.
Government manipulation of the market, be it through production cuts and quotas or bailouts and subsidies, often does not have the intended results. Unexpected side effects often outweigh any anticipated benefits. Therefore, the free market – particularly when it comes to energy – is the ultimate arbiter to best serve consumers in domestic and international markets.
Nevertheless, administrations and agencies continually weigh the merits and methods of alleviating temporary industry pains that are abundant right now.
The commission was wise to recognize that instituting forced production cuts in Texas alone would do little to offset a variety of factors that roiled the energy market, including: a global supply glut and storage shortage, much larger price implications born out of Saudi and Russian producers’ feud, and crippled demand from the novel coronavirus pandemic. This goes to show the breadth of factors at play when it comes to energy markets. While cutting production may benefit a select few companies, the majority would have faced negative repercussions – punishing an industry that is already in trouble.
More recently, E&E News reported that up to 56 percent of Americans support bailing out the clean energy industry. The article continues on to discuss difficulties characterizing a “bailout” for the American electorate and politicians themselves. At this point, “bailout” seems to be more a partisan tool to describe opposition spending than a concrete set of government measures.
Before others join in clamoring to pour money into renewable companies and give the government a green light to assess and predict the companies of the future, Americans must consider the following:
The last large-scale cash injection for energy companies from the government came under the Obama administration as “green loan guarantees” that focused on dozens of companies believed to be on the cutting edge of renewable energy technologies. Perhaps the most infamous recipient was Solyndra, which quickly defaulted on a $535 million government loan after going bust.
Since the rollout of these loans, taxpayers are picking up the pieces of the program at a cost of $2.2 billion with little progress made by companies that received these loans. This goes to show that when the government gets in the business of picking winners and losers, it seems to miss more than hit.
Second, taxpayers must be diligent in assessing the value or benefit they receive from the deployment of tax revenues by the federal government. Should the 56 percent get their way and a bailout of the clean energy industry be deployed it would likely do little to better the large picture and, instead, may simply speak to the “warm glow effect,” or emotional satisfaction consumers and voters receive from supporting policies they deem to “do good.”
In reality, renewables and clean energy are still cutting their teeth in efficient energy generation. The Energy Information Administration found renewables to be the tertiary contributor to the nation’s electricity, behind a number of fossil fuels and nuclear plants. Wind and solar are responsible for less than 10 percent of American electricity generation but are being championed somewhat prematurely.
While renewables make gains in efficiencies and grid share, supporters should be truthful about the benefits of the domestic natural gas development and root for its success. Huge reserves in Texas’ Eagle Ford and the Marcellus and Utica shale reserves in Appalachia, along with production innovations, have made natural gas cheaper and (dare I say) cleaner.
In fact, data from the Energy Information Administration has shown that natural gas’ rise in electricity generation contributed significantly to a 27 percent decrease in carbon dioxide emissions from 2005 to 2018.
All said, this should be a reminder that what looks good on paper and what actually works in practice are two very different things. Fortunately, the United States benefits from a long history of investing in energy infrastructure, leading the research and development of new energy innovations, and a wide breadth of natural resources that have brought us energy security. Bailouts and energy market interventions are best reserved for paper, not practice.
Craig Stevens, a former senior adviser to U.S. Energy Secretary Sam Bodman, is the spokesman for Grow America’s Infrastructure Now.
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