In my salad days, I worked briefly for a senator who was hell-bent on preventing the deregulation of natural gas prices. It was an article of faith in our office that government micromanagement of this industry was essential to protecting American consumers from price gouging.
We were wrong, of course. When deregulation finally came in 1989, no calamity ensued. Markets generally worked well, and natural gas remained not only plentiful and affordable but also sufficiently clean-burning that it has become the fossil fuel of choice for industry and environmentalists alike.
I thought of this yesterday as I passed my old office on the way to the Senate Energy Committee's markup of a new energy bill. Once again, a president -- Bush this time, rather than Carter -- has proposed a comprehensive national energy plan in the context of Mideast tensions, volatile prices and increasing dependence on foreign sources. And as before, politicians are determined to solve the crisis by micromanaging energy markets, this time through a potpourri of incentives to get consumers and producers to do what they otherwise would not.
Among the proposals are ones suspending royalty payments and providing tax credits for "deep" oil and gas wells, or marginal wells on the verge of being abandoned. Another would provide tax credits for a $20 billion natural gas pipeline from Alaska to the lower 48. Other tax write-offs would be accelerated.
And because this is meant to be a balanced program, there are royalty breaks for production of fuel from "non-conventional sources," and tax credits for solar-powered water heaters and energy-efficient vehicles.
Defining just what all this means takes many pages of legislative language. And because the idea is to provide incentives but not windfalls, there are all sorts of caveats. Credits and royalty breaks would phase in when oil and gas reach one price and phase out when they reach another. Tax credits for cars would be based on their weight and how much more efficient they are than a "base fuel economy," as determined each year by the Environmental Protection Agency. And because many of these tax breaks can be undermined by the alternative minimum tax, various exemptions to that tax are also required. The cost to the Treasury: $2 billion a year.
My guess is that should these provisions be adopted, the volume of regulations would soon rival those of the old regulatory regime. If we've learned anything in the past 20 years, it should be that oil and gas markets work pretty well when left to their own devices, while remaining stubbornly resistant to being steered. Despite all the Carter-era incentives, wind and solar have not taken off as major energy sources, while the best incentive for conservation and new production remains that old free-market standby -- rising prices.
More significantly, oil and gas prices are at least 50 percent higher than they were when the White House launched its energy initiative two years ago. That should warn Washington that attempts to tinker with energy markets are likely to be overwhelmed by events outside the government's control.
There are, of course, areas where markets have failed -- think Enron and California's electricity debacle. And even within the traditional oil and gas arena, there are places where government may have a role to play.
Basic research into alternative energy sources, particularly hydrogen, is something private companies cannot be expected to do on their own.
And that the market has failed, after 20 years, to finance a natural gas pipeline from Alaska certainly suggests that some modest federal involvement may be necessary to finally tap that huge energy source.
It is also clear that, even putting aside the contentious issue of drilling in the Alaskan wilderness, environmental rules have effectively put too much of the nation's natural gas supply out of reach. They need to be revised.
Republicans came to Washington praising the wisdom of markets. Energy would be a great place for them to practice what they preach.
Steven Pearlstein will host a Live Online discussion today at 11 a.m. at www.washingtonpost.com. His e-mail address is firstname.lastname@example.org.