The Points of Energy

Prime Buzz reports:

Missouri 6th District congressional candidate Kay Barnes today released a major policy stance on energy, a 5-point plan to deal with rising gas prices.

Naturally, I have a point-by-point response.

The 5 points of her new plan are:

• Increasing domestic drilling, by compelling oil companies to use the leases they currently have to drill on federal lands.

Increasing domestic drilling is a good idea to help alleviate the effects of the high price of gas in the short term. However, compelling oil companies to drill more is the wrong way to go about this. I’m not sure about the details of the leases to these federal lands, but I can suggest one way to structure them: If the leases were tradeable commodities (perhaps they wouldn’t be leases anymore) then we can expect whoever values the lease the most to purchase it — which probably would be whoever is willing to drill now. On the other hand, the oil companies may be betting that there is no end in sight, and holding oil in the ground until the price rises even more. If that is the case, a bit of pain now is much better than extreme pain later.

• Repealing tax breaks and subsidies for big oil companies, or redirect such subsidies toward renewable energy sources such as biofuels.

I’m all for making the tax system less complicated by removing exceptions, and I’m in favor of eliminating subsidies — but redirecting them toward biofuels is a bad idea. The incentive to develop alternatives is already huge, and not likely to be affected by government action. Attempts to manipulate the market may end up doing more harm than good.

• Supporting House-passed legislation directing the Commodity Futures Trading Commission to curb speculation in the energy markets. A so-called “Enron loophole” had previously exempted electronic energy traders from U.S. regulation.

Speculation actually eases the pain of economic change. When speculators bet on future price changes, they either prematurely increase or decrease the price, depending on what they think the future holds. This eases the pain of economic change because it makes price changes more gradual, rather than arriving as sudden shocks. These speculators also probably know more about future price movements than anyone else. After all, they are the ones with money on the line.

• Lowering federal trade and budget deficits, which would strengthen the value of the dollar when buying foreign oil, thus indirectly lowering the cost of oil.

A surefire way to strengthen the value of the dollar would be to raise interest rates by slowing the growth of the money supply. Barnes wouldn’t have control of that, however, so it’s hard to fault her for leaving this out. However, the high price of oil isn’t the only concern when it comes to manipulating exchange rates. A more favorable exchange rate means less foreign investment in the U.S., and fewer exports.

• Increasing fuel economy standards for cars and trucks, something that Congress started doing again for the first time in three decades when it passed higher fuel economy standards six months ago.

This will either be irrelevant or raise the cost of cars for the average consumer. It will most likely be irrelevant, because consumers are voluntarily choosing to buy more fuel-efficient vehicles. It’s amazing how well markets coordinate action.

This policy bundle seems rather questionable to me. There is some merit to at least part of some of the five points, but I have trouble throwing my hat behind any single policy on the list. I wonder what Kay’s opponent, incumbent Sam Graves, is proposing.