A Free Market Blueprint for American Energy Reform

The House and Senate energy committees are currently considering a variety of energy reform proposals. Given the poor track record of broad “energy bills” such as Energy Policy Act of 2005 (which created the Renewable Fuel Standard) or the Energy Independence and Security Act of 2007 (which expanded the RFS), it is paramount to focus on pursuing policies in a broad energy bill that promote free markets, expand domestic energy development, and reform broken regulatory schemes. Below are a list of items that would be real improvements.

Let Free Markets Work for Energy Production

Repeal the Renewable Fuel Standard: The RFS is a failed mandate that raises energy costs for American families. The RFS requires refiners to blend biofuels into gasoline, including biofuels that are not commercially viable. This distorts the market and increases fuel prices. EPA has some discretion to set the required volumes every year, but EPA has a track record of failing to finalize the volumes and unlawfully mandating non-existing amounts of cellulosic ethanol. There are some efforts in Congress to partially repeal the RFS, but this would nevertheless continue to give EPA too much discretion and authority over the fuel market. Only a full repeal of the RFS would sufficiently ameliorate its damaging effects.

Eliminate the wind Production Tax Credit: Ending the wind PTC is long overdue. A 23-year-old subsidy that was originally intended to jumpstart wind production, the PTC has become an egregious form of corporate welfare. As Warren Buffett said, “On wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.” Because the PTC is so generous, it sometimes allows wind producers to sell electricity at a loss and still make money. Click here to read 10 reasons to eliminate the wind PTC.

Liberate Domestic Energy Development and Exports

Allow states to manage leasing on federal lands: The recent energy boom has made America the top combined oil and natural gas producer in the world. These enormous gains, however, have occurred exclusively in areas not under federal control. Since 2010, oil and natural gas production on federal lands are down 10 percent and 31 percent, respectively. Meanwhile, on state and private lands, oil production has soared 89 percent while natural gas production is up 37 percent, according to the Congressional Research Service.

State regulators have more local knowledge and are better equipped to make leasing decisions than federal bureaucrats. For instance, it has taken this administration 240 days, on average, to approve permits to drill for oil and natural gas on federal lands, when some states take just 10 days to process similar permits for state lands. States have a long track record of safely regulating energy development on nonfederal lands—it’s time to empower them to also steward energy resources on federal lands within their borders.

Expand energy production on federal lands: America possesses enormous untapped energy potential on federal lands and waters. This includes 34 billion barrels of oil in Alaska’s Chukchi and Beaufort Seas and ANWR’s 1002 Area and another 900 million barrels of oil and 53 trillion cubic feet of gas—about 9 billion barrels of oil equivalency—in the National Petroleum Reserve-Alaska. Unfortunately, the federal government has less than 5 percent of federal lands and waters leased for energy development. Opening up oil and gas development on federal lands and waters would create 2 million jobs annually over the next three decades, increase wages by $115 billion per year, and boost federal revenues by $2.7 trillion, according to a study conducted by Dr. Joseph Mason at Louisiana State University.

Lift the oil export ban: The crude oil export ban is an outdated and economically damaging policy. The statute is a relic from a past era and is causing serious problems for today’s energy reality. Technological advances, specifically in hydraulic fracturing and horizontal drilling, have catalyzed a domestic oil boom. America is producing more oil than it has in almost three decades, and banning crude oil exports only prevents honest, hard-working Americans from earning a fair share in the global marketplace.

In fact, lifting the ban would reduce gasoline prices and create jobs. Allowing U.S. oil exports to compete on the global market will naturally increase supply, thereby driving down the price of oil. Numerous studies, including by the Congressional Budget Office, predict that lifting the ban would result in an oil price drop of several cents per gallon. Additionally, several studies predict significant jobs increases because of all the new investment to expand energy production right here at home.

Expand and streamline LNG export permits: The rapid expansion of domestic natural gas production on nonfederal lands has helped the U.S. become and remain the largest natural gas producer in the world. High global demand for natural gas has created a strong market for American energy, but thus far our ability to feed this market has been hamstrung by bureaucratic red tape that has slowed the approval of export facilities that are needed to get the natural gas to willing buyers. This delay also has national security implications because Russia and others have used energy access as a weapon against our European allies, including Ukraine and Poland. Congress should expedite LNG export permits by placing a 30-day deadline for the DOE to issue a final decision on construction applications of these export facilities after the National Environmental Policy Act review is complete.

Fix cross-border permitting issues: The Keystone XL situation is a perfect example of how flawed America’s laws are with respect to cross-border permits. President Obama has failed to make a decision on whether to approve or deny the pipeline from crossing our border with Canada for more than 6 and a half years. The law should be reformed so that a permit is automatically issued if not rejected for cause within a time limit, such as one year. Because President Obama cannot decide whether oil from Canada is in the national interest, in this case, Congress should approve the pipeline.

Reform NEPA: One of the ways the Keystone XL pipeline has been delayed is through the National Environmental Policy Act (NEPA). NEPA is a costly and burdensome tool used to delay projects instead of its intended goal of providing information and transparency. NEPA should be reformed by setting time limits for reviews, page limits for NEPA documents, and subject matter limits of what should be discussed in a NEPA document. Furthermore, the federal government should certify that a NEPA document is complete—and once certified, the courts cannot reopen the NEPA documents.

Reform the Clean Air Act: Air quality in the United States has improved greatly over the last 60 years. Today’s air quality issues are different than the very real pollution problems of the 1960s and 1970s. The Clean Air Act needs to be amended to focus on today’s issues.

First, states themselves should set all of the standards under the Clean Air Act, including national ambient air quality standards, instead of the federal bureaucrats. EPA’s role should be only to provide information to states. Second, all science used by EPA needs to be open, reviewable by the public, and reproducible. Studies that are not reproducible are not science-based and should not carry any weight. Third, EPA has time and time again demonstrated a poor grasp of economics, including their refusal to conduct whole-economy modeling. EPA’s cost-benefit calculations should be conducted by an outside federal agency.

Lastly, EPA and other federal agencies should be forbidden from using the social cost of carbon because it is a wholly arbitrary metric that is “close to useless” and “can fool policy-makers into thinking that the forecasts the models generate have some kind of scientific legitimacy.” The social cost of carbon is inapplicable for any serious policy analysis.

Conclusion

The United States is an energy superpower, but we still have many impediments that hold us back. Congress has an opportunity to address those impediments, but they must learn from the past. The energy bills of 2005 and 2007—which expanded the size of scope of government and created many of the problems we face today—show what can happen when lawmakers care more about burnishing their legacies than doing what’s best for the country. These are a few areas to start with for a broad energy bill that would unleash American energy development, promote free markets, and strengthen America’s standing as an energy superpower.