Perry's Energy Speech: Part II (EPA vs. abundant energy)

“The third part of my plan is to reform the bureaucracy, in particular the EPA, so that it focuses on regional and cross-state issues, providing scientific research, as well as environmental analysis and cost-comparison studies to support state environmental organizations. We will return greater regulatory authority to the states to manage air and water quality rather than imposing one-size-fits-all federal rules.”

– Gov. Rick Perry,  Energizing American Jobs and Security, October 14, 2011.

Part I yesterday described Governor Rick Perry’s call for greater oil and gas resource access to government land to help create economic and job growth–and open-ended opportunity given technological developments.

Indeed, ‘peak oil’ and ‘peak gas’ concerns have been waylaid by reality. At a recent conference of the U.S. Association for Energy Economics in Washington, D.C., it was clear that energy economists believe that demand for petroleum will not fall around the globe for many years, decades, and possibly centuries to come.

Therefore, if we do not produce it here, production will occur by countries, such as China and Venezuela, that do not currently have the resources we do to efficiently drill for oil and take care of our beautiful planet. Moreover, many of these countries are not friendly to us and will use the funds in a way that may not be helpful for future peace and prosperity.

EPA’s Ram: The ‘Precautionary Principle’

Governor Perry is correct that individual states are better prepared to decide on public policy initiatives that reflect the needs of their citizens. Allowing for a competitive environment between states will bring about innovation and quality energy production that is beneficial to the states and the nation.

Regulations put in place by the U.S. Environmental Protection Agency (EPA) are based on the precautionary principle, which is defined at dictionary.com as follows:

In environmental matters, the theory that if the effects of a product or actions are unknown, then the product should not be used or the action should not be taken.

This better-safe-than-sorry principle, however, does not take into account the real costs, which include opportunity costs, to the economy and society. Therefore, making policy based on the precautionary principle is misguided and could do more harm than good in reducing greenhouse gas emissions and providing healthier outcomes for citizens.

In a recent Washington Post op-ed, Senator Rand Paul writes quite succinctly how burdensome the EPA has become:

Since its creation in 1970, the Environmental Protection Agency has done more harm than good. EPA regulations cost more than 5 percent of our annual gross domestic product – the equivalent of the costs of defense and homeland security combined. Since EPA regulations have expanded, unemployment in America has increased by 33 percent. This abuse of power by the implementation of regulations infringes upon our basic constitutional rights.

Marlo Lewis notes another reason why the precautionary principle is inept in providing clear choices for effective policies based on marginal (economic) analysis by stating that it “supplies no rational guidance for choosing between competing public policies.”

Giving the power back to the states would allow for competing regulations to bring about the best types of regulations based on which ones stand up against others. Unfortunately, the EPA currently has a monopoly on regulating many aspects of our energy sector.

Mirage of ‘Green’ Energy

The precautionary principle has also led many to believe that we should move away from fossil fuels no matter what means achieves this end. No other place can we find this more apparent than with the Obama Administration’s push towards “green energy.”

During a speech in March 2011, President Obama touted the spending from the government that has went into firms that produce renewable sources of energy. “And I’ve seen the scientists that are searching for the next big breakthrough in energy. None of this would have happened without government support.”

Well, the amount of subsidies and loans that these firms receive still cannot keep these firms in business (i.e. Solyndra) because they lack sufficient demand for their products. No amount of government intervention can keep them afloat forever nor should they. Firms come and go and resources come and go. Let’s stop the policies of the government picking winners and losers and instead allow tax dollars to go to more valuable purposes and create an environment where real economic growth and job creation can occur.

Indur Goklany’s book, The Precautionary Principle, summarizes why policymakers should caution against being hyperactive with trying to use this approach and what may work better to maximize the outcomes to individuals and our planet. He states:

A more aggressive strategy could retard increases in global wealth, which could lead to greater hunger, poorer health, and higher mortality, as well as retard progress toward environmental improvements such as safer water, better sanitation, reduced habitat loss, and lowered threats to biodiversity. Specifically, the precautionary principle argues against forcing the pact of GHG controls beyond what would occur with secular improvements in technology.

Conclusion

Policies made on faulty science and the lack of looking at the true costs of regulation are widely viewed as preventing the economic recovery that 99% of Americans want. A better solution could certainly be private regulation, as noted by this CATO Policy Analysis, but it appears that this may not happen for quite some time.

In the meantime, Governor Perry’s approach of releasing the federal shackles on our energy sector stands as a marker for a new approach to both energy and economic recovery.

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Vance Ginn earned a BBA in Economics and Accounting and minored in Political Science and Mathematics at Texas Tech University where he is completing his doctorate in economics. He recently joined the economics faculty at Sam Houston State University (Huntsville, Texas) where he teaches micro and macro economics.