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...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...more