NCPA - National Center for Policy Analysis

Government Interference in the Energy Market Raises Prices

November 6, 2014

America is experiencing an energy boom, but the economic potential of America's energy sector is limited by onerous and unfair government regulation, argues Nicolas Loris, fellow at the Heritage Foundation.

Shale oil and gas production has been one of the bright spots in the U.S. economy over the past few years:

  • Reduced natural gas costs have saved over $100 billion for consumers and industry, translating into an average savings of $1,200 per family in 2012.
  • Shale oil and gas has created 2.1 million jobs with the use of fracking and directional drilling, not only in the oil and gas sector itself but in retail and service industries in nearby communities. Some of these jobs offer starting wages more than twice the minimum wage.
  • Cheap energy has encouraged investment in energy-intensive industries in America.

However, despite these successes, there are federal policies that restrict growth within the energy sector through regulation, subsidies and favoritism. Loris points to ethanol as an example, as the EPA's Renewable Fuel Standard requires oil refiners to blend ethanol into fuel every year:

  • Despite misconceptions, ethanol is less efficient than gasoline, so it ultimately raises the price of gas for drivers. It is also harmful to engines.
  • Moreover, ethanol has proven to be a high-carbon fuel, requiring the plowing of more land for corn and increased use of fertilizer and pesticides.
  • It also raises the price of food for consumers by raising corn prices.

Despite its many downsides, ethanol producers in the Midwest benefit from the mandate, so politicians in those areas continue to support the policy. Loris argues Congress should repeal the renewable fuel standard -- American families are paying more for fuel and for food because politicians have created a policy that benefits a special interest group, not the public.

Source: Nicolas Loris, "Free Markets Supply Affordable Energy and a Clean Environment," Heritage.org, October 31, 2014.

 

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