For conservatives seeking a major victory, a great place to start would be to fix the mess of energy subsidies and regulations that have accumulated over the past eight years. In the years since Barack Obama took office, there were $548 billion in energy and environment regulations finalized, and the projected budget currently estimates at least $250 billion in federal energy subsidies.
Attempts to eliminate these regulations and subsidies have been hampered by conservatives’ lack of an overarching vision for energy policy. While the Left is happy to use regulation to promote specific forms of energy they find ideologically appealing, the response from conservatives all too often has been to weakly offer the “all of the above” catchphrase as a counterweight.
Even worse, conservatives sometimes have played the Left’s game in reverse, using government to promote their own favored forms of energy, rather than to promote competition and markets. For example, while criticizing the tax credits for wind and solar power, conservatives have embraced subsidies for carbon capture and sequestration and government regulation on nuclear insurance.
Conservative principles uphold free markets, competition, and the rule of law — yet too many conservatives are content to get their electricity from regulated monopolies, or build infrastructure under outdated regulatory-approval processes that take, on average, 70 months to complete. While conservatives can be bellicose about ending the “war on coal,” they have placed far less emphasis on the benefits of policies to improve liquidity in natural-gas markets. Responding to challenges in the energy sphere one issue at a time results in many conservatives missing the forest for the trees and not talking enough about what pro-market energy policy looks like.
Unwittingly, in conservatives’ quest for equal treatment of different energy sources, they have adopted policies that reinforce government’s role in dictating energy outcomes. Even when Republicans showed budget discipline in 2015 by finally putting a sunset on several production and investment tax credits, they did so without ending all subsidies for wind and solar. The result is entrenched government preference for already mature wind and solar technologies, and stymied competition from emerging technologies, such as fuel cells and geothermal, that would benefit the most from the tax credits.
Conservatives sorely need to define an energy narrative rooted in market principles. It should be one that centers on quality institutions and policies that leverage competition and consumer choice. Markets, not mandates or subsidies, will drive cost reductions, innovations, and deployment of clean technologies. An incrementalistic approach — one that seeks to level the subsidy playing field or merely to pare back Obama’s regulatory legacy — will do little to foster the conditions needed for the sorts of innovation that both the Right and Left seek.
Progressives who favor heavy regulation and energy subsidies had a field day during Obama’s presidency. However, regulators likely overstated the net benefits of regulations, and the Clean Power Plan would have accomplished little, at high cost, while proving legally vulnerable and politically unstable. An analysis of President Obama’s environmental legacy by the American Action Forum found the negative effect of regulations on economic growth led to forgone environmental benefits (richer economies tend to value clean air more and emit less relative to production), and led to regulations that were about half as effective as claimed on paper.
Subsidies also have been inefficient. The National Academy of Sciences found that production and investment tax credits for wind and solar reduced carbon dioxide emissions at a cost of a whopping $250 per ton. A 2015 Congressional Budget Office report acknowledged that tax credits are less effective at achieving policy goals than alternative, market-driven policies. An AAF analysis of tax credits for renewables found the costs to taxpayers rose at a faster rate than the renewable energy output, indicating declining performance of the subsidies.
The Left’s focus on energy policy has been costly, with poor outcomes. The Democratic party has an official policy to cut pollution from energy use through regulation and subsidies, yet another AAF analysis revealed no pathway exists to achieve those stated objectives via regulation. Even assuming the targets were achievable at costs similar to past regulations, the economic costs of the regulatory burden would exceed $7 trillion.
Conservatives should seek opportunities to shed regulations and subsidies in favor of market-oriented policies. This means a plan to phase out distortionary tax preferences completely. Expanding full-cost expensing in the tax code would boost R&D fairly and efficiently. Additional R&D benefits would come from shifting Department of Energy priorities from applied research toward basic research.
Opportunities to cut red tape abound, from hydroelectric and advanced nuclear licensing to modernizing the Clean Air Act. Removing regulatory barriers to entry for unconventional technologies (such as energy storage) in wholesale electricity markets would help level the playing field. Rethinking counterproductive energy-efficiency regulations — which reduce incentives for innovation and risk taking with new technologies — should also be a part of the equation.
Conservatives should also protect and enhance competitive energy markets. A report from the R Street Institute found that competitive electricity markets cut costs while boosting innovation and environmental quality. Strengthening these markets, while minimizing political interventions like power-plant bailouts, is crucial to the performance of the electricity industry. Improving rules that affect price formation in electricity markets will also help stimulate efficient investments.
Conservatives have an opportunity to retake the energy narrative with a platform that favors competition and choice. It would be a return to conservative basics, where industries and technologies excel on their merits, not political popularity. In so doing, conservatives will advance the American economy and their political interests well into the future.
— Philip Rossetti is a data analyst at the American Action Forum; Devin Hartman is electricity policy manager and senior fellow with the R Street Institute.