by Raymond J. Keating –
Europe seems to be out front of the U.S. in a variety of ways on the policy front, and by “out front,” I mean that Europe leads the way in a wrongheaded direction on policymaking. Unfortunately, too many elected officials and their appointees in the U.S. are more than willing to follow Europe down the path of costly and destructive measures that undermine economic opportunity and growth.
That’s the case on energy policy.
For an extended period of time now, Europe has been leading the way on having government regulate and control the energy sector, with President Joe Biden again following the European lead. Unfortunately, the only results guaranteed when government steps in to hyper-regulate, tax, subsidize and otherwise control an industry are that sound economics and actual knowledge of the industry, technology and market get thrown out the window in favor of special-interest pressures rooted in little more than political preferences and activism.
Therefore, resources are misallocated; incentives for investment and innovation are undermined; costs skyrocket; and the economy suffers with entrepreneurs, small businesses, employees, and consumers experiencing real hardship and reduced opportunity. That’s certainly what’s been going on in Europe for some time now – for more than two decades – and has been growing as an ailment in the U.S. for nearly 15 years.
Government-Directed Energy
As for some specifics, much of Europe has pushed an agenda focused on moving rapidly away from fossil-fuel-based energy – including bans on fracking, shutting down coal plants and gas fields, limiting fossil-fuel imports and blocking long-term contracts – as well as from nuclear power, that is, the closing of plants. The hopes were that large subsidies for renewables, mainly, wind and solar, would replace such sources. But when political preferences and dreams trump sound economics, inconvenient realities get ignored, and in the case of energy, that has included the ongoing demand for oil and natural gas, the opportunities for domestic production via fracking, the stellar safety record of nuclear power, and the unreliability of wind and solar and the need for reliable baseload back up for wind and solar (that is, the maintenance of reliable natural gas or coal generation as back-ups).
Energy costs increases and shortages have plagued Europe. Of course, these were made worse by Putin’s war on Ukraine, but the fundamental problems predated the war and will continue to plague the continent long after.
President Biden Ignores the Clear Policy Lessons
Meanwhile, Biden and many in Congress are following suit. President Biden has stated that he intends to put an end to fossil fuels, such as on the presidential campaign trail, when he told an environmental activist, “I want you to look at my eyes. I guarantee you. I guarantee you. We’re going to end fossil fuel.”
From that, the Biden agenda immediately focused on banning or limiting fracking, restricting exploration and development in federal areas (lands and waters), opposition to the construction of pipelines, regulation of fossil fuel production and refining, pushing a wide assortment of tax increases on fossil fuels, and subsidizing wind and solar efforts.
The negatives are clear in terms of domestic energy exploration and development; costs paid by U.S. businesses of all types and sizes; and U.S. competitiveness. And don’t forget that key energy sectors – both on the production and consumption ends – are all overwhelmingly populated by small businesses (see SBE Council’s “Energy is Small Business: President Biden and Congress Need New Direction on Energy Policies”).
Finally, politicians, whether in Europe or the U.S., excel at passing the buck. So, while misguided policies have created significant problems now and into the future, the war started by Russia and Vladimir Putin, while certainly a contributor to current problems in energy markets, can serve as a distraction from policymakers’ costly decisions.
In fact, the Putin factor, if you will, allows elected officials both in Europe and in the U.S. to continue with counter-productive policies. In addition, Biden is working to further divert attention by placing blame on Saudi Arabia. So, in Europe and the U.S., anti-growth and costly energy policies are able to persist under the veil of political misdirection.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.