Energy policy foundation

Under the bright lights of his nominating convention in 1980, Ronald Reagan told the country, "America must get to work producing more energy. The Republican program for solving economic problems is based on growth and productivity ... the [Carter] administration seems to believe the American people would rather see more regulation, taxes and controls than more energy."

On that platform, Ronald Reagan was elected president, whipped the energy crisis, and ended the oil shocks and shortages that plagued America in the 1970s. Twenty-five years later, we have substantially reformed America's energy policy, but there's still much to be done. President Reagan's analysis remains relevant to the debate today, and in this spirit, I would like to offer four principles that should guide the 109th Congress as it moves to pass a new energy bill.

(1) Energy is good and we need more: The Energy Department predicts that by the year 2025, U.S. oil and natural gas demand will rise 46 percent. The United States is a dynamic, creative economy, and we're bringing new products and ideas to the world every day. America is a large and growing energy consumer because we create so much of the world's wealth.

Energy is a good thing, and it allows us to achieve great things. Any successful national energy bill should continue to grow the global energy pie by promoting responsible development of both domestic and foreign resources. Thanks to new technology, we can explore and drill in remote places like the Arctic National Wildlife Refuge (ANWR) with minimal environmental impact.

By failing to address the need to bring more supplies online and to expand U.S. refining and electrical transmission capabilities, we actually risk creating an energy crisis. In a crisis, it will be much more difficult for Congress to do the right thing -- witness the 1970s' energy "solutions" that included foolishness like a 55 mph national speed limit, creation of an enormous new federal bureaucracy, and gasoline rationing and price controls.

(2) We can't conserve the problem away: Conservation should play a role in energy policy, but we will not conserve our way to prosperity. Fortunately, market incentives bring real and lasting conservation gains. As our economy grows and diversifies, we actually use less energy per dollar of GDP. According to the National Energy Policy Group (NEPG), since 1973, the U.S. economy has grown 126 percent, while energy use has increased only 30 percent.

The reason: American industries tend to make incremental improvements in energy efficiency over time in their drive to reduce costs. These small, mundane improvements actually add up to major savings over time. Today's automobiles, for example, travel about 40 percent further on the same gallon of gasoline than they did in 1972, while new refrigerators operate on just one-third the electricity they did 30 years ago, according to the NEPG. Market incentives can achieve greater conservation than government regulations.

(3) Prices are important signals: Energy prices are important, both politically and economically. Prices are an important signal so users and producers can know where shortages exist. The result is an efficient, dynamic system, and our energy policy should avoid subsidies or price controls that distort price signals.

For instance, with gasoline prices currently hovering at $2 a gallon in many states, we can be sure the summer drive season will bring another spike and new complaints about the price of gas (which is not particularly high from a historic inflation-adjusted perspective). But higher prices also encourage conservation and spur additional production.

(4) Let markets work: In addition to the temptation for the government to control prices, government regulations affect everything from power plant site licensing to basic research and development spending.

That's why not a single major oil refinery has been built in the United States in nearly a generation. Similarly, to meet growing demand, our natural gas system will require some 38,000 miles of new gas pipelines, along with 255,000 miles of distribution lines, according to the National Petroleum Council. And we have a pressing need to relieve bottlenecks in the electricity grid -- a situation we must address to avoid more catastrophic blackouts like the Northeastern power failure in 2003 that left 50 million Americans without power.

Often, misguided regulations cause supply problem in the first place. Let's reform and streamline the energy permitting process as part of a comprehensive regulatory reform effort.

More broadly, our dysfunctional tax code and the multiple levels of taxation on capital formation and investment hit the capital-intensive energy industry especially hard. Corporate tax code simplification and making permanent the 2003 cuts in dividend and capital-gains taxes are actually also elements of smart energy policy. Same goes for tort reform. The key: As much as possible, get government out of the way and let competition drive innovation. Where government intervenes, it should do so using market-based incentives and transparent regulation.

If the 109th Congress adopts these four principles as it formulates a new energy policy, we'll keep the country moving forward, and no doubt make Ronald Reagan proud.

Dick Armey, former U.S. House majority leader, is co-chairman of FreedomWorks, a nonpartisan advocate of lower taxes, less government and more freedom for all.