Energy & Entrepreneurs

Five Energy Issues in 2011

by Raymond J. Keating

Energy promises to be a top policy issue, once again, in 2011.

On December 27, TheHill.com offered a quick rundown on five energy issues to watch in the coming year. How do small businesses fit into each?

First, the Environmental Protection Agency (EPA) made year-end announcements about phasing in emission standards for power plants and refineries, and about imposing greenhouse gas permits in Texas. In addition, the EPA will begin phasing in emissions rules for large new industrial plants and those with major upgrades.

While the emphasis is on large sites, the impact will be felt throughout the economy, including by entrepreneurs and small businesses, due to increased costs of electricity, gasoline, diesel and other industrial goods.

Second, the Department of Justice declared in mid-December that it is suing BP and eight other firms involved in the Gulf oil spill, while also reserving "the right to expand the lawsuit and add new defendants." As reported earlier, "The Oil Pollution Act puts a $75 million liability cap on damages from a spill. BP has said it will pay all damages, even if they exceed the cap. But if the government is able to prove gross negligence, willful misconduct or that the defendants broke a federal environmental regulation, that cap is waived anyway."

This lawsuit, particularly if it turns out to be the federal government successfully overreaching, could serve as further disincentive to energy firms undertaking the significant risks and costs of exploring and undertaking energy production in deep waters. If so, that translates over the long haul into increased energy prices for all consumers, again including small firms.

Third, the question is whether some kind of compromise is possible on energy legislation. The more significant issue is whether the Republican takeover in the House and gains in the Senate will lead to stopping measures that would raise energy and taxpayer costs - such as the EPA's overreach on CO2 emissions regulation, offshore drilling bans, imposing renewable portfolio standards, and subsidies for non-economic renewable energy endeavors - and shift policy in a positive direction, including removing governmental barriers to domestic energy exploration and production.

A change in energy policy from the direction emphasized over the past two years would be a plus in terms of energy production, jobs and costs.

Fourth, TheHill.com article noted that green groups are planning to defend the EPA and state programs regulating emissions, while also getting more confrontational with business groups. Of course, this is nothing new. But given the state of the economy, along with recent increases in energy costs and changes in Congress, this green effort faces a steep climb. Yet, environmental groups have proven politically influential for over three decades now, and that will not change. The business community, their employees and consumers need to be prepared for an intense conflict over energy issues in 2011 and beyond.

Unfortunately, the last point highlighted on energy policy for 2011 was minor, focusing on conflict between the U.S. and China over subsidies for green energy, specifically wind power. But it does provide another necessary reminder that much of energy policy is focused on subsidies for non-economic energy sources. This is about political and special interest preferences supplanting sound economics.

In fact, endeavors like wind and solar energy have been subsidized for more than three decades now, with little to show for it except lost taxpayer resources.

In the end, sound energy policy would remove subsidies and other targeted preferences, reduce tax and regulatory barriers, and allow the market to supply energy to businesses and individuals by the most efficient means possible. The closer the U.S. moves to such energy policy, the better off, including more competitive, our businesses and economy will be.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.