Conflating Markets and Source Preferences in the Energy Sector

Forbes blog about Business in the Beltway today discusses energy policy, and quotes an energy policy analyst at the Competitive Enterprise Institute, who says the government should get out of energy policy. Although I don't agree fully that such a position is sensible or feasible, the argument starts out reasonably enough. He says the United States should, "Get the government out of the electricity industry." Deregulation is certainly an option, and reasonable people can think that's the best policy.

However, one also needs to keep in mind the issue of stranded costs and who pays them. Utilities have invested money -- often shareholder money -- with an expectation of a return based on the current market structure. Without a process for assessing those already committed costs, it would punish the utilities and their shareholders. Full-scale deregulation might improve the market (and that's a significant "might"), but it's not as simple as just stepping out of the way, as we saw in the 1990s when partial deregulation of the industry took place at both the state and federal levels.

Furthermore, the analyst then goes on to argue that renewable energy incentives should stop. He argues that if people are “so confident that renewable energy can compete on the merit of price of alone, then let’s revoke the mandates.” It's fine to say government should get out of the way, but this implies that oil, gas, and coal companies shouldn't get any incentives, either. It's often forgotten that the incentives in those industries far outweigh renewable industry incentives.

Removing renewable incentives in the name of free markets means we should remove ALL incentives related to energy sources. Only then can we have any idea what "the market" actually wants. Otherwise, this is simply a market-based argument cloaked in a source-based argument (e.g., a preference for coal over wind). And, while perhaps valid, that's a very different argument.

--Joshua Fershee