A pro-market, not pro-business, energy strategy
Here is my Reuters Breakingviews piece from last week:
General Electric boss Jeffrey Immelt last Thursday castigated Washington for neglecting the U.S. energy industry, calling current policy “stupid.” Sure, Immelt was talking his own book — a third of GE’s profit last year came from its power unit. But the lack of a comprehensive energy strategy is still an economic drag.
Immelt was a big fan of President Barack Obama’s energy plan, which proposed a cap-and-trade system for reducing carbon emissions. The version of the Obama plan that died in the U.S. Senate also contained new incentives for nuclear power. Immelt, working hard to boost GE’s reactor business, would surely have welcomed those. So on one level, Immelt’s complaints are gripes from a CEO trying to boost his business.
But his critique goes further. The demise of the Obama plan — Republicans killed the bill by portraying it as an economy-crippling energy tax — left in place a policy vacuum. Immelt also lambasted the current patchwork U.S. regulatory structure as an 18th century relic that “has fundamentally no basis in the modern world.”
The lack of clarity in government policy has become a big concern for corporate America. One obvious example is the continued absence of a defined approach to pricing carbon. Despite faults including needless complexity, Obama’s cap-and-trade plan would have supplied that. Meanwhile, the volatility of oil prices already makes investments in fossil fuel-substitutes such a nuclear, solar and wind power risky enough, without further uncertainty over tax treatment and other government-influenced costs.
But Immelt should take heart. Although cap-and-trade is dead, the idea of a simple carbon tax with revenues used to reduce other taxes still has a pulse among both Democrats and Republicans. Even more likely, perhaps when Congress meets after the November congressional elections, is passage of a nationwide renewable energy standard. The law would require utilities across America to deliver 15 percent of their power from renewable sources, or by ramping up energy efficiency, by 2021. Currently standards vary state by state — exactly the sort of thing that irks Immelt.
But while an energy strategy should mean greater regulatory and pricing certainty, it should be not be a euphemism for massive government subsidies. That would merely reward effective lobbying by energy companies instead of market success. Immelt is right to expect a hand up — but not a handout.
Me: Certainly we don’t need a massive regulatory structure put in place, along with billions or hundreds of billion in subsidies. I have an upcoming chat with Glenn Hubbard about his idea for a flexible carbon tax.