The End of Energy: The Unmaking of America's Environment, Security, and Independence

12. The Invisible Hand?

12 The Invisible Hand? Regulation and the Rise of Cap and Trade Before the 1970s, the federal government played only a bit part in regulating energy policymaking. The most important agencies were state entities, such as the Oklahoma Commerce Commission and the Texas Railroad Commission, which had the power to regulate oil production in their states. Their job was largely to manage abundance. In effect, they limited output so as not to exceed domestic consumption, although there were times when efforts by the states fell short, and the Interior Department had to intervene to prevent supplies from outstripping demand. Nevertheless , federal policy consisted mostly of the FPC’s regulation of interstate natural gas, the AEC’s insistent promotion of nuclear power, the licensing and building of dams for hydroelectric power, and the leasing of federal lands for exploration of oil and natural gas. Oil was inexpensive and plentiful. Virtually no one gave a thought to potential scarcity. Recall Richard Nixon’s refusal to accept the shah of Iran’s 1969 offer to sell the United States a million barrels of oil a day for a decade for $1 a barrel. Our most conspicuous policy toward oil was the import quota adopted by Dwight Eisenhower to keep foreign oil out of the country. Limiting imports kept oil prices high enough to satisfy the oil companies but, because of oil’s abundance and low price, not so high to make consumers fret. Along with a series of tax breaks for oil and gas exploration and production (of which the oil-depletion allowance was the most famous but not the most important), the quota kept our domestic oil producers happy—some might say fat and happy. The main effect of the quota policy was that we used up our own oil when it was cheap rather than devouring Middle East and Venezuelan oil when it was much cheaper. We have been paying the price for that mistake ever since. 198 Chapter 12 Following the 1973 OPEC embargo, all this changed. As previous chapters have described, facing an ongoing national trauma, the federal government, under three presidents, threw itself into the field of energy policy and regulation. By 1980—after promulgating many thousands of pages of new laws and regulations—the national government had entered into every nook and cranny of our nation’s energy policy, and federal regulations affected virtually all aspects of energy production and consumption. Nevertheless, states continued to play an important role in further regulating our various sources and uses of power, sometimes to standards higher than those of the federal government. California, for example, in the 1970s began requiring energy-efficiency minimums for appliances and certain other products. After Florida and some other states joined in or threatened to do so, manufacturers became fearful that they might have to meet 50 different state standards and, seeing that they could not thwart this movement, began to press for uniform federal standards that they could handle. In 1974, Congress required the Department of Energy to set specific energy-efficiency standards for 13 household appliances and heating and cooling equipment, but the Energy Department dithered, and the Reagan administration refused to implement any rules. Congress responded in 1987 by passing the National Appliance Energy Conservation Act, which not only set national standards for appliances, but also imposed deadlines for the Energy Department to promulgate specific rules. In 1992, Congress extended energy-efficiency mandates to some lighting products and certain industrial and commercial technologies. Efficiency standards were further extended and tightened by more recent legislation. And the states continue to be active, with California remaining the most aggressive —now regulating flat-screen televisions, to give just one example. The CAFE standards are merely the best known of the many energy mandates that firms and families face. Just walk around your house. The energy efficiency of virtually every large appliance and many small ones is now dictated by the federal government: refrigerators and freezers, clothes washers and dryers, dishwashers, hot-water heaters and gas furnaces , to name just a few. And commercial and industrial businesses also now face numerous specific federal energy requirements. Proponents of such standards often claim very large benefits for them by assuming that no progress in energy efficiency would have occurred if the government had not required improvements. Detractors, however, The Invisible Hand? 199 claim that most of...