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Follow the Money

April 09, 2007

By Peter W. Huber

Park a random row of energy pundits and policymakers on a dais, let them loose and watch the ships race past one another in the night. Oil, gas, corn, coal, sun, wind, nuke, conservation, efficiency. External and internal combustion, fuel cell, reactor, hybrid, better bulb, battery. Kill these, coddle those.

Every sage has a shopping list, and every list is different. Big energy laws invariably end up looking just the same--ham for you, bacon for me, sausage for the next guy and on down a long list of billion-dollar servings. What we really need is energy policy without the shopping list. Here it is.

Don't tinker with technology, tune engines, engineer enzymes, design windmills or gaze rapturously at the sun. Just follow the money--the real money. Not the odd 5 or 10 billion visible and counted on the ledgers of the federal pig farm. Huge though they sound, these numbers are all trivial when viewed against a backdrop of the $500 billion we spend annually on raw fuel and as much again on engines, power plants, bulbs and other energy-converting hardware. Focus instead on the hundreds of billions that change hands under government direction by way of pennies per gallon and cents per kwh.

Electricity is the key, not because it tops my personal list but because it has muscled its own way to the top of the nation's. Power plants use the most raw fuel--roughly 40% of the total--with another 30% used for all transportation (and only about half of that used by passenger cars) and the remaining 30% for raw heat. Every year electricity's share rises a bit, and the shares of the other two fall. And best of all, the grid is the energy economy's one real trading floor and stock exchange.

How so? Power plants can spin their turbines with steam, which they can produce by consuming coal, gas, oil, wood, trash or uranium; or they can replace the steam with water, combustible gas or wind. Solar cells skip the turbine, too, dispatching electrons straight down the wires. And technologies now rapidly emerging turn electricity around to displace fossil fuels that might otherwise be used to generate it. Power plants, that is, can consume oil and gas, or they can unconsume it by burning uranium to make electricity; that juice then powers microwaves, lasers and plug-in hybrid cars, and these devices in turn displace fossil-fuel-hungry tools used to cook, heat, dry, cut or travel.

These basic (and largely undisputed) facts must frame any serious discussion about alternatives, efficiency, competition and independence. And they all point to economics, not technology, and to principles, not shopping lists, as the drivers of policy.

Deregulate price at the power plant. Don't force the utility to pay 10 cents a kwh for wind electrons that coal or uranium can dispatch for 2 cents. If Al Gore still wants to pay 10 cents for wind electricity, that's fine--his utility can deliver it to him. Less affluent people may prefer to buy 2-cent coal-fired electricity to recharge their cars.

De-average the price of the grid. The owner of the grid should have complete freedom to cover his fixed costs with a 6-cent transmission at 4 p.m. in August and very close to a 0-cent transmission at 3 a.m. in December. Implications of time-of-use pricing: great for uranium, pretty good for coal and wind, bad for solar.

Let the consumer choose the fuel. If Al Gore is the only guy in town who craves 10-cent wind power at midnight, he also has to pay the $10 million it will cost to extend the grid to the top of some distant hill. If you and enough others would rather pay 30 cents for electricity made from clean natural gas than 2 cents for dirty coal, you can be accommodated. Separate state and federal regulators from the business of dictating these consumer choices.

The last shopping list to kill is the tax collector's. At present, electricity is typically taxed at a flat 10% (or so) surcharge on the retail bill. That makes it mostly a fuel tax if the electrons are generated with gas, mostly a capital tax if with uranium, sun or wind. Make fuel taxes truly flat--replace all other energy taxes with a uniform tax on sales of crude oil, gas, coal, corn and uranium oxide. Free fuels like sun and wind should burn free. Shopping-list thinking should survive only at the tailpipe. There is no rational way to ignore differences between sulfur, mercury, nitrous oxide, carbon and whatever else we hate to find in the public air and water. This is the one place where taxes, caps, and control technologies must inevitably answer to public taste.

How much would all these changes cost us? Much less than nothing. A no-shopping-list energy policy requires no direct outlays. Direct taxes on fuel and pollution should just replace existing electron taxes dollar for dollar. And that would spur huge efficiency gains in the use of capital and natural resources.

Original Source:



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