Tuesday, July 8, 2014

A Very Quick Case for Direct Regulation

A recent article discussing the American Society of Civil Engineers' Report Card on U.S. infrastructure explains:

Without adequate investment on infrastructure the US could face a $2.4 trillion drop in consumer spending by 2020, a $1.1 trillion loss in total trade and experience the loss of 3.5 million jobs in 2020 alone.

This is just a sliver of the doom and gloom the American Society of Civil Engineers predicted this week with the release of their final report in the “Failure to Act” series that focuses on the impacts associated with continued infrastructure deterioration. The latest installment of the ASCE reports focuses on specifically on economic impacts.

Under current investment trends, only 60% of the investment funding required by 2020 will be secured and this underinvestment in infrastructure will have a “cascading impact on the nation’s economy” and culminate in a “gradual worsening of reliability over time,” Gregory E. DiLoreto, ASCE President told the participants on a conference call.

Back in 2007, I published an article titled, Misguided Energy: Why Recent Legislative, Regulatory, and Market Initiatives are Insufficient to Improve the U.S. Energy Infrastructure (here). In that article, I argued: 

Soaring energy prices, natural gas supply shortages, and blackouts in major areas of the United States have led to a flurry of legislative and regulatory activity. Through this activity, lawmakers and regulators purport to resolve problems regarding natural gas and electricity supplies and service reliability.  A major goal of these actions has been to address the overall energy crisis by increasing investment in the U.S. energy infrastructure. However, as is often the case with political remedies for difficult problems, what is being done and what legislators and policymakers claim is being done are two entirely different things. Recent legislative and regulatory policies are simply ill-equipped to have any substantial impact on the nation’s energy infrastructure in the foreseeable future. Although some of the policies provide long-term hope for increasing the amount and sources of capital available for investment, they are not adequate solutions to a current, and progressing, energy crisis.

Little has changed, but Congress's lack of focus remains.  So here's the suggestion, for both energy infrastructure and business regulation:  If we're going to add new rules or policies, let's make them clear, transparent, and focused.  No 700-page laws or convoluted regulations.  If we want to reduce fossil fuel consumption, add a carbon tax.  If we want to get transmission infrastructure sited, give federal eminent domain authority for siting.  

For now, from the SEC to FERC, let's just give it a try. Otherwise, we don't tend to facilitate markets, we tend to create carve outs that entrench existing powers.  And we know how well that works.  

  

 

http://lawprofessors.typepad.com/business_law/2014/07/a-very-quick-case-for-direct-regulation.html

Joshua P. Fershee, Securities Regulation | Permalink

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