Energy outage

Rich Lowry
Posted: May 02, 2005 12:00 AM

President Bush said the other day that he wishes he could wave a magic wand and make gas prices go down. That sounds like a plan that would almost be as effective as his misbegotten, long-languishing energy bill. Bush relentlessly touts the legislation as a potential salve for high gas prices, but it won?t be, because it runs afoul of a force with which Bush should be familiar ? the free market.

Bush?s latest proposal is to allow oil refineries to be built on former military bases. This is clever, since the bases are isolated ? away from immediate neighbors who might object to refineries ? and no one knows what to do with them otherwise. Why hadn't anyone thought of this before? Because no one wants to build refineries on military bases.

Bush argues that regulations and community opposition have kept any new refineries from being built since 1976. But the refinery industry has been upgrading existing refineries that are conveniently located near oil terminals and pipelines (and, notably, not on military bases). In contrast, the expense of building a new refinery is a risk in a highly competitive business with narrow profit margins. In other words, it doesn?t make economic sense. Ain?t the market inconvenient, especially for a politician trying to ?solve? high gas prices?

Take nuclear energy. Bush is touting incentives for energy companies to build more nuclear power plants, something that hasn?t happened since the 1970s. He cites bureaucratic roadblocks to building plants, but the main obstacles have been economic. Financing a new nuclear power plant is a massive, risky investment. It?s much safer to build relatively cheap, smaller natural-gas fired plants, which technology through the years has made as efficient as large-scale plants.

Then, there?s the Alaska National Wildlife Refuge (ANWR). Allowing drilling there is the most controversial part of Bush?s energy plan. Overheated environmentalists claim it will despoil pristine wilderness. Actually, ANWR is a vast, desolate bog. But put that aside. ChevronTexaco, ExxonMobil, BP and ConocoPhillips all have backed off their support for drilling.

Let it never be said the administration is slavishly beholden to Big Oil. The proceedings of Vice President Dick Cheney?s notorious energy task force might have gone something like this. Cheney: ?We want to drill in ANWR.? Cigar-chomping oil executive: ?Mr. Vice President, there might not be as much oil there as first thought, and when you consider the costs of drilling through permafrost and the long distances involved, it probably makes no economic sense.? Cheney: ?Well, tough.?

The main backers of drilling are the state of Alaska, which will get oil royalties; unions, which will get jobs; and conservatives for whom sticking it to hyperventilating enviros is a matter of principle. But oil companies aren?t in the mix. ?If the government gave them the leases for free they wouldn?t take them,? an administration official recently told the New York Times.

The rest of Bush?s energy bill is a grab-bag of subsidies for new technologies ? for ?clean? coal, fusion energy, hydrogen-powered fuel cells, etc. ? that are likely dead-ends, or the people interested in developing them wouldn?t be so needful of the federal teat. The reason that gas prices are up now is supply and demand. Economic growth around the world, especially in China, is creating more demand. Eventually, the market will adjust. High prices will force people into more fuel-efficient cars, thus relieving demand and the upward pressure on prices.

That?s how the market works. As energy expert Jerry Taylor of the Cato Institute points out, the Bush administration first came up with its energy bill in 2001, when the California energy crisis prompted predictions of electricity shortages and skyrocketing prices everywhere. The energy bill never passed, but investors moved to capitalize on the high prices by building more generating capacity, creating a current glut in electricity supply. Bush can either wait for the market to take hold again, or try waving that magic wand.