Doubling down on bad policy

Doubling down on bad policy

May 9th, 2011 in Opinion Free Press

A little over two decades ago, eight car-manufacturing facilities operated in California. But in 2010, the last of those eight closed shop. Why?

California has notoriously high taxes and excessive environmental regulations. The harm of high taxes is obvious, but the environmental rules hurt the auto industry in a subtler way. Forcing utilities to get big percentages of their energy from sources such as wind and solar kept driving up the cost of electricity, until it was roughly double what the rest of the nation was paying.

Building cars is an energy-intensive operation, so rising prices for power, coupled with high taxes, ultimately helped drive out the automakers. In fact, in an effort to keep a Toyota plant in the state, California hastily offered the company a combination of tax breaks and reduced electricity costs. But it was too late.

Now, looking at that history of economic pain caused in part by unwise tax and environmental policies, wouldn't it seem rational for California to pull back on those policies? Well, unfortunately, California Gov. Jerry Brown is doing the opposite.

Until recently, California required utilities to generate an impractical 20 percent of their energy from high-cost sources such as solar and wind. But the governor has just signed a bill that will force utilities to boost renewable energy to an absurd 33 percent of all the energy they produce by the end of 2020.

Opponents of the law estimate it will raise overall energy costs by an additional 7 percent, and that a typical California resident's energy bill could rise almost 20 percent! That's the last thing that California, which is deep in debt and struggling to attract industry, needs right now.

With businesses in California already paying far higher power rates than the national average, how does the state expect to draw new industry by making energy even more expensive?

Critics of traditional energy such as oil and coal often say government has to support - meaning "subsidize" - alternative energy, because oil and coal eventually will run out.

But that misses the point of a free market. In a free market, as the cost of oil and coal rises due to lower supply, consumers will naturally seek alternatives - once those alternatives are truly cost competitive. That is very different from government trying to make solar and wind power seem cost competitive by subsidizing them. And it is certainly different from government propping up high-cost energy sources by forcing utilities to produce more of that energy.

The market will work if government will stop trying to replace the judgment of millions of consumers with the social engineering of government bureaucrats.