Build Up Before You Tear Down (or Subsidize): Easing New Energy Infrastructure

As energy prices have risen over the past 20 months, there has been growing clamor for solutions to make our energy system more affordable and more secure. Unfortunately, these discussions are often sidetracked by debates about 1) proposals to subsidize energy use to reduce its apparent costs and 2) debates about how quickly we should transition to cleaner energy sources.

The latest proposal is President Biden’s plan to suspend federal taxes on gasoline and diesel fuel for three months. These taxes help pay for the infrastructure—highways and bridges—that drivers use. Unfortunately, waiving this tax may not help drivers much because many refineries closed down in the last twenty months and the remaining refineries are already producing as much fuel as they can and barely keeping up with fuel demand. This shortage makes it very hard for refiners to lower prices. If they lower prices, more Americans will purchase fuel and we may actually run out of fuel supplies.

Ultimately, prices will only fall when there is enough energy production to comfortably meet energy demand. Unfortunately, our current approach to encouraging energy supplies is too reliant on tax breaks and dollar subsidies for new energy sources. The problem with these subsidies is that like the proposed “gasoline tax holiday,” they simply bid up the price for energy supplies if there are other roadblocks that prevent energy production.

As I explain in a recent op-ed in the The Hill:

The current challenge is securing investment in energy sources that could quickly ramp up supplies of reliable, affordable energy. Unfortunately, clean energy funding alone will not accomplish this. Investor hesitation is often driven less by pure financial concerns than by slow permitting processes that can delay or stop new infrastructure. Think of the 2009 stimulus, which put a record $8 billion toward high-speed rail, yet nothing has been built in America because of permitting delays — something that is holding up so many infrastructure projects around the country. 

James W. Coleman, Biden’s Approach to Climate Action Drives Energy Conflict, Not Cooperation, THE HILL, Jan. 26, 2022 (suggesting Carbon Matching Commitments as an alternative method of encouraging climate action)

Instead, government should focus on removing the permitting roadblocks that are holding up so much energy infrastructure. Easing permitting would help lower the cost of both oil and cleaner sources such as natural gas and renewables because they are often held up by the same roadblocks. As I explain in another recent op-ed:

The problem with arguments about the pace of the energy transition is that an orderly transition has two parts: first building new energy infrastructure and then restraining, and eventually retiring, older energy infrastructure.

One of the main reasons for the current crisis is that the world has gotten these two steps out of order. Governments and litigants have developed legal tools to stop new fossil fuel infrastructure. Think of the demise of the Keystone XL oil pipeline, the Jordan Cove natural gas export facility, or the Constitution gas pipeline. But we have not built enough geothermal and nuclear power, or enough new power lines to bring renewable energy to market.

In fact, the legal tools developed to stop oil and gas projects, such as expanded environmental reviews and state permitting challenges, are now used to stop the infrastructure that could bring clean energy to market. The focus on further subsidies to renewable energy is beside the point when what these maturing energy sources really need is permission to build power lines to take them to market.

James W. Coleman, How America Can Survive Ukraine War’s Gas and Oil Crisis – and Build a Stronger Energy System, FOX BUSINESS, Mar. 9, 2022

The important debates about the pace of energy transition will continue, but for now the urgent priority must be making it easier to build all kinds of energy infrastructure. That is the only way to see the return of abundant energy supplies.