- - Tuesday, September 30, 2014

Analysis/Opinion:

One of the most difficult distinctions to make in the energy field is the fundamental difference between stationary sources of energy — primarily electricity generation and grid management — and mobile sources, namely liquid transportation fuels derived primarily from oil. Politicians and policymakers too often conflate the two, making common-sense analysis extremely difficult from both an economic and national security point of view.

Until there are a lot more electric cars on the road, the two markets are for all intents and purposes unrelated. The price of oil can fluctuate wildly, as it has over the past several decades, but these changes have little or no impact on utility rates. Similarly, the government can smother the electricity sector with regulations regarding climate and pollution, but these many regulations have little impact on the price of oil or gasoline at least until auto companies start putting sails and windmills on the tops of cars.

One could argue that even though electricity is fueled almost exclusively by domestic fuels like coal, natural gas and hydropower (and now, wind and solar), it may present a greater security risk from dangerous places than oil because of cyber warfare and the grid’s dependence on the Internet.

But electricity generation does have a couple of advantages over transportation. First, as noted, the fuel is domestic. Second, and perhaps more important, the fuel is quite diversified. Utilities can choose from more than a dozen alternatives, and, as a result, the grid is becoming more decentralized and subject to competition every week that passes. There ar0e, to be sure, still a lot of state-permitted monopolies, but this state of affairs is not likely to survive very long.

Transportation, however, is very highly concentrated, if not effectively monopolized, by just one fuel when in fact we are almost drowning in alternatives — like natural gas, compressed natural gas, methanol, ethanol, hydrogen and electricity. Allowing in the competition would lower the price, provide cleaner air, and permit more efficient vehicles.

We can achieve this even while maintaining America’s connection to global energy markets. We can export gas and oil without substantially increasing their price at home. A 2013 report by Deloitte, for example, found that U.S. exports of liquefied natural gas would have “minimal” impact on local prices, because “abundant North American gas resources” would “mitigate the impact of demand changes.”

Simply put, exporting gas to foreign markets would not reduce the supply of gas available to Americans, because foreign demand would be met by increased domestic production, thanks to our combination of “vast shale gas resources” and recent technological advancements. The real price impact would be felt overseas, where those who reap the benefits of high international prices for oil and gas — Russian President Vladimir Putin and the Islamic State extremists, among others — would face lower prices thanks to American competition.

Why isn’t fuel sources for transportation as diversified as electricity generation? There are a quite a few explanations, but an important factor is the web of thousands upon thousands of pages of regulations issued by the EPA in the Federal Register that make it difficult if not virtually impossible for alternatives to compete with the incumbent monopoly.

This kind of incumbency protection is not unique to the field of energy and the environment. It is in fact characteristic of almost every highly regulated industry. There was a time, for example, when cell phones and the Internet were illegal. Think of where the U.S. would be like if this were still the case. But at some point the situation will change, just as Uber is going to survive to make personal transportation much easier and more competitive.

The public is, however, going to have to pitch in to push the politicians to open up markets. This in turn will require the media to do a better job of informing the public of the choices they are being denied. With more choice, lower prices, cleaner air and a wider variety of cars, the lift to the economy will be massive.

C. Boyden Gray has served as White House counsel, U.S. ambassador to the European Union, special envoy for Eurasian energy and special envoy for European Union affairs. “Arbitrary and Capricious” runs monthly.

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