Back in April 1977, President Carter warned that “the oil and natural gas we rely on for 75% of our energy are running out.”
In response to the perceived energy supply shortages, he wanted to limit the annual growth in overall U.S. energy usage, force American consumers to lower their gasoline consumption and demand that U.S. citizens make other sacrifices that were deemed necessary to avoid a catastrophic energy future.
With nearly 40 years of hindsight it is clear that global energy supplies were not running out as Carter feared. In fact, global oil supplies grew over 40% since his dire prediction, and global natural gas supplies have more than doubled.
Thanks to the fracking revolution, oil and natural gas reserves in the U.S. have increased by 30% and 90%, respectively. Some believe, because of the fracking revolution, that the U.S. could actually become a net exporter of oil.
Along with the growth in supply, the U.S. is now using more total energy compared to 1977. Fossil fuels (which accounted for over 82% of total U.S. energy consumption in 2012) continue to power the U.S. economy despite the growth in alternative energy sources.
The continued growth in supply and demand illustrates that the sacrifices contained in Carter’s central plan were unnecessary, harmful and, if followed, would have actually created greater energy insecurity.
President Obama’s latest attempt to centrally plan the U.S. energy future, which he asserts does not require congressional approval, has not heeded the lessons from Carter’s mistakes.
Obama’s energy plan as of his June 2013 release intends to significantly limit greenhouse gas (GHG) emissions from existing power plants apparently a crucial policy plank that would enable the U.S. to reach his goal of reducing GHG emissions to 17% below 2005 levels.
The actual emission standards that the Obama administration will enact to meet these goals are still unknown. The EPA has been tasked “to work expeditiously” to create carbon emission standards for both new and existing power plants.
These standards will likely take several years to finalize, and then will likely endure several more years of litigation. Throughout it all, investments in new power plants or upgrades to existing power plants will be curtailed until greater regulatory clarity is obtained.
Why spend hundreds of millions of dollars on a power plant if an unknown regulation could make that investment obsolete?
Some things are certain, though. Any significant reduction in GHG emissions requires a significant reduction in the use of fossil fuels a self-imposed energy supply shock. Energy supply shocks create painful economic damage whose timing would be particularly bad due to the already fragile U.S. economy.
In both 1974-75 and 1979-81, the U.S. economy endured significant energy-supply shocks due to political uncertainty in the Middle East. In both instances, the energy supply interdiction caused the U.S. economy to slow, raised the unemployment rate, and lowered the value of the U.S. stock market.
The severity of these impacts was linked to the severity of the energy supply shock the larger supply shock in 1974-75 was associated with a more severe recession.
The president’s plan has an answer to this economic predicament, however. In classic command-and-control style, the plan calls on engineers, scientists, farmers and businessmen to come together and make alternative renewable energy sources viable.
And, with viable renewable energy sources available to the marketplace, the economic consequences from limiting GHG emissions are supposedly diminished if not eliminated entirely. It’s a win-win.
Of course, private individuals do not need the government to bring them together to solve pressing problems. More importantly, the government’s continued interference into the energy markets is rife with failures.
For instance, the Solyndra bankruptcy could wind up costing taxpayers nearly $1 billion, according to a House Oversight Committee report. As another example, Congress spent $20 billion of taxpayers’ money over 30 years subsidizing the ethanol industry even though its environmental benefits were always controversial.
Since Obama has been in office (including expected expenditures through 2014) $150 billion will be spent by the government on new alternative energy sources, according to the Brookings Institution.
Despite these expenditures, and the hundreds of billions of taxpayer dollars spent on alternative energy programs before these, there is no evidence that alternative energy sources are (or will be) capable of replacing the lost energy produced by fossil fuels under the type of GHG emissions restrictions envisioned by the president.
Thus, despite its wishful thinking, the president’s plan does not resolve the economic predicament. Limiting the use of fossil fuel in the near-term can only be achieved by limiting the amount of energy produced effectively, the president’s plan would be mandating an energy supply shock.
Unlike the 1970s, today the alleged energy crisis is not that we have too little fossil fuels. The alleged crisis of today is that we use too much fossil fuel. The consequences from central plans that attempt to fix this latest crisis are still dire, however.
If implemented, Obama’s restrictions on GHG emissions will cause an energy supply shock. And, energy supply shocks always create economic crises.