Destructive Energy Policies

By David R. Henderson. Excerpt: 

"Why Regulation of Energy Uses is Such a Bad Idea

Where economists are united, whether or not they believe in carbon taxes, is on the issue of regulation. When the government dictates which fuels may be used, which fuel usages should be regulated or outright banned, and which technologies should be allowed, it imposes solutions that are costlier than even carbon taxes. The reason is that the government cannot know the value people place on various uses and cannot know all the unintended consequences that will result from its regulations and mandates.

The federal government and the California government, the two I know best, have gone far in the direction of regulation. I’ll highlight and point out some problems with a few of the most extreme regulations.

Furnaces, Water Heaters, and Gas Stoves

In 2022, California’s state government announced its plan to ban, effective in 2030, sales of new natural gas water heaters and furnaces. The government wants people to replace natural gas furnaces with heat pumps that are run on electricity. The stated purpose is to reduce emissions. As the article cited in this paragraph notes, though, one advocate of heat pumps admitted that installing his cost him a cool $27,000. Moreover, because it runs on electricity, which is very expensive in California, due in part to, you guessed it, regulation, running the heat pump can cost more than using natural gas.

Similarly, if we can’t buy natural gas water heaters, we are stuck with using heaters powered by electricity. Do you see a problem here? I do. What happens if your electricity is cut off? That’s not merely a hypothetical. In my part of California there are many trees. When we get a lot of rain, trees with shallow roots become unstable and a heavy wind can push them over onto power lines. Then our power goes down. This last winter, I calculated, my wife and I were without power for over a week’s worth of hours. At one point, we had no power for three days. If Pacific Gas & Electric had been allowed to cut down healthy trees near power lines, there’s a good chance that we would have had less outage.

This gets to a more general point: diversification, whether in the stock market or in fuel sources, is generally a good idea. Because we have a gas-fired stove, which regulators in California also want to ban, we could at least use a lit match to light the burner and heat soup and other foods. That made the difference between cold food (although less cold than if the refrigerator had been powered on) and warm food.

Electric Vehicles

I wrote last month about the problems with mandating electric vehicles. Both the California state government and the federal government have put themselves in the position of choosing what kind of vehicles we may have in the long run. Those governments don’t have information about our individual circumstances and so they cannot make a good choice for most of us. If they choose EVs for people who would buy them already, then they have no effect. But by choosing EVs for the rest of us, they are overriding all of our considerations and replacing them with their own preferences.

Also, EV mandates will substantially increase the demand for rare minerals that go into battery production. That will drive the cost of EVs even higher. In a market where people are free to choose, the higher price of EVs would discourage their purchase, causing people to buy more gasoline-powered vehicles than otherwise. But a mandate blunts that natural market constraint. It’s true that in a market where EVs are mandated, higher EV prices will cause fewer EVs to be purchased. But people won’t have good alternatives.

One issue I didn’t mention in my discussion of EVs is that a cheaper market alternative seems to be coming about naturally: electric bicycles. They cost a small fraction of what EVs cost and, going by the traffic I see in Monterey, are enormously popular for people who have short commutes. This is an example of how people come up with solutions that fit their circumstances, solutions that the government didn’t even think to come up with.

Energy Sources

In the United States and especially in California, governments have used regulation to reduce the role of coal, natural gas, and nuclear power to generate electricity and to increase the role of solar and wind power. Specifically, in 2006, the California legislature passed the Global Warming Solutions Act. This act required 33 percent of electricity consumption in California to be generated by renewable sources by 2020. In 2018, the California legislature upped the ante, requiring electric utilities to purchase 50 percent of their electricity from renewable sources by 2026. Under the 2018 bill, this will rise to 60 percent by 2030 and a whopping 100 percent by 2045. Of course, term limits on legislators’ times in their jobs mean that virtually none of the people who voted for this will be in office in 2045.

What do coal, natural gas, and nuclear energy have in common? They’re incredibly reliable. What do solar and wind power, the two main forms of renewable energy, have in common? They’re not. Solar works well during the daytime and not at all at night. Wind works well when there’s a lot of wind and works badly when there’s little wind. Those aren’t the only problems with solar and wind. Solar uses up a lot of land. Wind generators are a Cuisinart for birds. Moreover, because wind and solar are intermittent, we still need a substantial amount of standby capacity that uses natural gas to generate electricity.

A much better solution is to quit mandating how electricity is produced and, furthermore, to radically deregulate nuclear power. Nuclear power is very expensive now, but one of the main reasons is that it’s so highly regulated. The intensive regulation of nuclear power seems to be due to people’s fear of a nuclear accident. At this link you can see one example of how the Nuclear Regulatory Commission reacted to shut down nuclear power plants in response to a software error. Yet, the actual experience with nuclear power shows that it’s one of the safest forms of power."