Distorting the Energy Market

The government is hurting our ability to develop new sources of energy; and both the Republicans and Democrats are to blame.

In the most general terms, Republicans support continued tax breaks and subsidies for the oil and gas industry, and Democrats support grants, subsidies, and tax breaks for such new forms of energy as wind and solar. Neither party has a good energy policy. Both are blocking the path of innovation.

To create a fossil fuel alternative we must find an energy source that is cheaper, easier, and better than fossil fuel. But when government is picking which alternatives are worth pursuing, in addition to funding traditional energy sources, our view of what energy sources may work out becomes clouded. As long as government provides subsidies and tax loopholes to oil and gas

companies, they will hold an advantage in the market. Not only does government intervention in this manner make fossil fuels a highly lucrative industry, thus attracting many bright businesspeople, engineers, and scientists, but it makes the introduction of alternatives more difficult, since potential new competitors find working in an unbalanced market nearly impossible. Even if there were an energy alternative that consumers would want, the alternative would not be able to seize enough market share to turn a profit, because the coalition of government and big oil cannot be challenged by a newcomer.

With few exceptions, people agree we need to move away from burning fossil fuels if we want to meet future energy needs with as little disturbance to existing ecosystems as possible or beyond what we might consider desirable. And because oil and gas receive government benefits, the conventional thinking goes, so too should alternative energy exploration, in order to “level the playing field.” But what the best alternative might be is still unclear. One reason why it is unclear is that government involvement clouds the picture.

Think of ethanol. For years, because of Iowa's importance in the presidential nomination process, ethanol was highly subsidized by the government. Now we discover that it was not a workable, standalone alternative to fossil fuels. Consider all the resources that were misallocated because of this pursuit. Private resources, such as time and expertise, were focused on making ethanol work — in order to procure government money. If there had been no government money in ethanol research, engineers and scientists in the energy industry would have had a greater incentive to look elsewhere for a good alternative. But when the government creates a market there is no need to look elsewhere. The only problem is that the government lacks anything like a good record as a venture capitalist.

If it is true that necessity is the mother of invention, then the government is stripping us of that necessity. What is necessary for every company to operate is money, and if it doesn’t have a strong need for money, because government is supplying all it needs and then some, its incentive for invention is stripped away. If we want to find the best energy source, both long-term and short-term, the government needs to stop trying to control which sources come to market, or stay in the market.The government needs to divest itself of all financial interests in the energy industry.