If you’re looking for an example of a vocal, politically connected special interest securing government favors, look no further than President Trump’s recent decision to launch an unprecedented intervention into America’s energy markets to rescue failing coal and nuclear power plants.
While a small group of energy companies stand to benefit from these subsidies, the rest of America will face higher energy prices. Consumer welfare is maximized by letting the market set energy prices, not by giving government regulators the authority to manipulate policies to promote their preferred energy sources.
According to a leaked memo, the Department of Energy is considering using its emergency authority to order grid operators to buy electricity from struggling coal and nuclear plants.
The memo argues that delaying the closure of certain coal and nuclear power plants by giving them preferential contracts is needed to ensure grid reliability and protect national security in the event of fuel disruptions or natural disasters. But there’s no evidence that this sort of government intervention is necessary to achieve those objectives.
The Federal Energy Regulatory Commission already rejected a similar proposal in 2017, noting that its “support of competitive wholesale electricity markets has been grounded in the substantial and well-documented economic benefits that these markets provide to consumers.”
The Commission also failed to detect a “threat to grid resilience” linked to planned plant retirements, and a 2016 report from the Department of Energy found that the United States’ electric grid is one of the most robust in the world. To the extent that the reliability of the grid is a concern, the evidence shows that transmission and distribution systems are almost always to blame, not power generators.
On top of that, even if the grid needed to be made more resilient, market competition is the best remedy. Price signals would notify generators and distributors that grid improvements were highly valued, and the market would self-correct.
Unfortunately, the president’s directive will only make it harder for market signals to operate properly in the energy market, which is already heavily subsidized. The solution is to eliminate the existing subsidies, not create new ones.
Temporarily propping up failing power plants won’t reverse the long-term decline of the coal and nuclear industries, but it will bring hardship to millions of American households who will shoulder higher energy bills.
Coal and nuclear plants are struggling because of intense competition with cheaper forms of electricity like natural gas and renewable energy. In the past 10 years, fracking and horizontal drilling technologies have led natural gas supplies to soar while prices have plummeted more than 60 percent since 2008. As a result, demand for coal and nuclear power has slackened. No amount of government involvement will revive a fundamentally uneconomic industry.
At bottom, this action is not based on a thoughtful assessment of the energy market or sound economic analysis. For instance, the Trump administration seems uninterested in even calculating the potential costs to consumers. It is merely an attempt to use the power of the federal government to bolster an uncompetitive industry that President Trump favors. And consumers will pay the price, to the tune of billions of dollars per year.
Liam Sigaud writes for the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org.