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135 IRET Congressional Advisory 1 (2002)

handle is hein.taxfoundation/iretcgadv0132 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. September 23, 2002 Advisory No. 135 NATIONAL ENERGY POLICY: IN NEED OF A MORE DYNAMIC APPROACH Executive Summary Recent changes in national security, as well as concerns about environmental degradation and the stability of foreign energy sources, led President Bush to establish the National Energy Policy Development Group in January 2001. Its report, in May 2001, focused on demand management, production and supply, and infrastructure issues in energy. The approach recommended in the report includes subsidies for research and development, administrative action through Executive Orders, and collaborative cross-agency efforts. While the Bush approach appears innovative and less prescriptive than traditional command and control energy and environment regulation, it retains too much government manipulation of markets, and does not recognize the range of institutional approaches available to address energy challenges. Many of the Bush proposals and methods, including its flaws, are reflected in the energy bills passed by the House and the Senate. Substantial disagreement exists between the two bills, and, if the very best features of each bill were selected, and the rest dropped, the result would be worthwhile. However, given the pervasive subsidies, government management of economic activity, and inadequate attention to market processes common to both bills, and hence most likely to survive the conference, the best possible bill may be no bill at all. The Bush national energy policy addresses energy demand management by focusing on increasing energy efficiency and conservation. The recommended approaches, including expanded EnergyStar certification, efficiency standards for appliances, and revised CAFE standards, are neither innovative nor market-oriented. Instead they rely on setting static, fixed, arbitrary targets and using political processes to determine them. The proposals also ignore both the information content of prices, and the related ability of prices to discipline consumption and to lead to efficient conservation. The recommendations for supply and production focus on domestic drilling and exploration, particularly on federal land. Contrary to the recommended increased leasing on federal lands, sale of these lands to private owners would go a long way toward encouraging economically efficient investment, exploration, and drilling.