A Man, a Plan-a Waste of Time: The problem with Bush's "comprehensive national energy strategy".

It's regrettable that conservatives are rallying around the new Bush energy plan, because this whole debate is nine parts political theater to one part policy-and even that "one part" of policy is pregnant with economic and rhetorical mischief. To begin with, conservatives should not be cheering the introduction of a "comprehensive national energy strategy," any more than they cheered Hillary's "comprehensive national strategy" on health care; these are matters to be addressed by the free market, not government policymakers. But they insist that "energy's different," that excessive regulation and environmental opposition have shut down energy production and delivered us into a mess that only a "comprehensive national energy strategy" can sort out.

Really? Today, without any guidance from a comprehensive national strategy, investors are pouring billions into the energy sector. We're in the midst of a power-plant construction boom, with some 90,000 megawatts of new electricity capacity scheduled to come on line by 2002 and a staggering 150,000-200,000 megawatts by 2004. This will not only burst the electricity-price bubble but will probably, in the near future, produce an electricity glut. Billions are flooding into the natural-gas market. High gasoline profit margins are inducing foreign refineries to enter the American market for the first time in decades, and sparking new investment in domestic refining capacity as well. Barring some unforeseen supply disruption in the refining sector, gasoline prices will begin to decline slowly-but steadily-this summer.

So why did energy prices shoot up in the first place? Because energy markets, like most commodity markets, are subject to boom-and-bust cycles. Energy prices, adjusted for inflation, have been more or less plummeting for 15 years. Investors took money out of production and exploration budgets because profits were hard to come by. The bust suddenly ended last year, catching almost everyone by surprise, and the boom is now on. Investors are scrambling to expand supply, but capital investments take time. Let me make this simple: High prices lead to high profits, which lead to increased investment, which leads to lower prices. It might take some time to get from here to there, but it will happen-as long as government doesn't do anything foolish in the meantime.

How does the administration's plan stack up in that regard? Let's look at the highlights. The rhetorical heart of the Bush plan is the cry for energy independence-which is lousy public policy. Energy independence is, put simply, a mirage. Domestic oil prices reflect international supply and demand conditions; even if all our oil came from domestic sources, a cut in OPEC production would raise the price of West Texas crude. In 1979, OPEC production cuts caused prices to soar in "energy independent" Great Britain just as dramatically as they did in "energy dependent" Japan. The bottom line is that the U.S. buys more than half its oil from abroad for a reason: It's cheaper than the oil we could produce at home.

Which brings us to the issue of oil drilling in the Arctic National Wildlife Reserve (ANWR). The case for drilling in ANWR is not that it will immunize our economy from OPEC; it can't. The real reason for drilling there is that ANWR might hold so much crude that it could reduce OPEC's share of the market, and thus reduce the cartel's leverage over world prices. Industry's best estimate is that ANWR could produce about 1 million barrels of oil per day at its peak; that's a 1.25 percent increase in global production that, all things being equal, would reduce world oil prices by about 10 percent, from $29 per barrel to about $26. Not much, but better than nothing.

The administration has also played up the nuclear component in its energy plan; they maintain that the only reason investors haven't been jumping at nuclear power is that the government has effectively shut down the industry. Vice President Cheney, for instance, laments that "the government has not granted a single new nuclear power permit in more than twenty years." But there's a reason for that: No utility company has submitted such an application in more than twenty years. Investors have stayed away because nuclear-fired electricity is about twice as expensive as coal- or gas-fired electricity. The marginal costs of nuclear are indeed lower, but the capital costs are much higher; electricity costs skyrocketed by 60 percent between 1978 and 1982 largely because of a wave of nuclear power plants that came on line in the late 1970s.

The "Clean Coal" initiative is another dud. It has raked in $5.4 billion in government subsidies since 1985, and recipients can't even spend the money fast enough. The problem is that "Clean Coal" plants are 50 percent more expensive to build than conventional coal-fired plants. Not a single commercial order has yet been placed for one of these white elephants.

This underscores the more general problem: If you're an organized energy lobby in Washington, the Bush plan is the equivalent of-in Vegas-hitting five cherries on a slot machine. Everyone is a winner: oil; gas; hydrogen; hybrid and fuel-cell vehicles; superconductors; landfill methane; coal; ethanol; nuclear; solar; wind; bus-, truck-, and automobile-engine manufacturing; fuel cells; biomass; industrial cogeneration plants-the list never ends. This blizzard of new federal research and development initiatives, accelerated depreciation allowances, production tax credits, consumption tax credits, and subsidies for energy businesses competing in foreign markets is all coming out of your tax cut.

It's unclear why we need to bribe investors with tax money to take advantage of profit opportunities. And corporations aren't the only ones having tax dollars thrown at them: More tax money is being thrown at the notoriously wasteful Low Income Energy Assistance Program, the Weatherization Assistance Program, and the Northeast Heating Oil Reserve. For this we elect Republicans?

While these spending hikes are very real, a lot of the regulatory streamlining the administration promises is too vague or too qualified.

On the plus side, the plan calls for the repeal of the antiquated Public Utilities Holding Company Act, which dictates both the organizational structure and permissible service territories of electric-power companies. It also promises to expedite the renewal of permits for construction of the Trans-Alaskan natural-gas pipeline, potentially a valuable energy source a few years down the road.

On the minus side, however, the plan contains ominous rumblings about increasing fuel-efficiency standards for automobiles-standards that are simply back-door taxes on big cars, SUVs, and minivans. Worse, it threatens further federal prohibitions on "energy-inefficient" (that is to say, "cheap") appliances; directs federal agencies to pursue international agreements to address global climate change (haven't we had enough of that for a while?); and calls for tighter regulation of power-plant emissions of sulfur dioxide, nitrogen oxide, and mercury (is more environmental regulation of power plants really what we need now?).

To summarize, what we have here is the political equivalent of a sugar pill: The Bush energy plan won't do much good, but it won't do too much harm either-and that's pretty good for government work. We can be thankful for what the plan won't do: It resists, for example, the call to impose Carter-era price controls on electricity and gasoline markets-no small accomplishment in this supercharged political environment. The energy-conservation measures the administration proposes-while annoying and economically counterproductive-are a pale shadow of the sort of things the Left would like to slap on the economy.

But on balance, we'd be better off if the administration had not opened this political can of worms at all. Had they simply focused on tinkering with regulations where necessary, and revising federal land- use rules where politically possible, we would not need to tolerate so much chaff in return for so little wheat.

And that there's a lot of chaff for conservatives to swallow is undeniable. Thanks to the administration's determination to- rhetorically-seize the reins of the energy economy away from the market, we're now in the midst of an intellectually empty but still white-hot argument about whether we should more heavily subsidize this rather than that. We're also subjected to a bizarre debate about whether "the nation" (as if we had a command-and-control, Soviet-style economy) should invest more heavily in supply or invest more heavily in conservation.

And to make its case, the administration is finding it useful to dredge up ludicrous arguments, such as the horrific implications of importing oil or the apocalyptic consequences of having investors go about their business without some detailed, comprehensive federal energy planning document to guide them. The vice president even spent a few days after the plan's release arguing that the federal government ought to do whatever it can to keep oil prices from dropping too much in the future. The administration has, evidently, joined the crowd that believes the feds know the right price for oil-and should do whatever it takes to get it.

This "comprehensive national energy strategy" might work in scoring some political points-but conservatives should be clear on the reality.