Commentary California's Befuddlement Is U.S. Energy Prologue
Clyde V. Prestowitz Jr.
21 January 2001
Los Angeles Times
Copyright 2001 / The Times Mirror Company
California is long-fabled as a source of wealth and the birthplace of
the New Economy. Now it is increasingly being seen as a threat by many
who fear that its burgeoning energy crisis will accelerate the already
surprisingly rapid downturn of the national economy.
Such fears are not entirely without foundation. California accounts for
more than 10% of America's gross domestic product. Any significant
reduction of the state's production of goods and services due to
blackouts or sharply rising energy costs could have a measurable
negative impact on the total U.S. economy at a moment of fragility.
Fortunately, that does not seem likely. Government officials, working
with industry, appear committed to assuring a continued flow of energy
to users. Consumers will pay more, but not enough to have national
economic consequences, particularly in view of the fact that energy is
only a small percentage of the production costs of most goods and
services. Bankruptcy of any of the big utilities would, of course, be
painful for some banks, but the amount of potentially bad debt is
relatively small in comparison with the size of credit markets and is
unlikely to have national macro-economic consequences.
In short, California's immediate energy woes are primarily the result
of the state's flawed deregulation program; the consequences will
mainly be felt within the state. The experience of states like Ohio and
Texas, where deregulation is being implemented without California's
problems, underscores this point.
This is not to say, however, that the rest of the nation has nothing to
learn from California--or that the ultimate sources of California's
energy shortages are unrelated to federal policies and broader national
attitudes and developments. Behind the current energy shortage in the
West lies an unusually low flow of hydroelectric power due to light
rains and snows and a decade of no construction of new generating
facilities in California.
Despite nearly 30 years of recurrent oil crises and the ultimate crisis
of the Gulf War, the United States has been unable to develop a
consistent and coherent energy policy through both Democratic and
Republican administrations and congresses. This was not for lack of
programs. There have been a plethora of initiatives, some of which even
worked. But many policies that appeared sensible in isolation worked at
cross-purposes, leaving little margin for error.
After the first oil crisis in 1973, the United States focused on
improving energy efficiency. This effort was largely successful. From
1980 to 1995, final energy consumption per dollar of Gross Domestic
Product declined by more than 25%. This is one reason why the dramatic
rise in oil prices during 1999-2000 did not cripple the economy as it
did in the 1970s. For environmental reasons, the United States, both
nationally and on a state-to-state basis, also launched energy-related
initiatives to reduce consumption of petroleum and coal and to increase
reliance on clean burning natural gas and alternative fuel sources such
as wind and solar power.
These policies were well-meaning and with time could have produced a
greater level of national energy security. But they soon collided with
other policies that limited energy supply. The desire to shift to
natural gas has been hampered by regulations limiting the domestic
extraction of natural gas. The anti-nuclear movement and regulatory
bias against fossil fuels in many states limited the construction of
power plants that could have prevented the power crisis now gripping
California. The move to balance the federal budget prevented the
federal government from taking a more active role in the development
and use of solar power. Reluctant to reduce consumer purchasing power
and hurt U.S. vehicle producers, Washington and the states have kept
U.S. gasoline taxes much lower than in most other advanced countries.
Just as important, the sense of urgency that spawned efforts to limit
reliance on foreign energy sources all but disappeared. This left
energy policy adrift, pushed in whatever direction the political winds
were blowing. Perhaps nowhere is this phenomenon and its costs more
visible than in California.
As in so many aspects of national life, California has provided
Americans with a glimpse of the future. The new economy, it turns out,
still requires the lifeblood of the old economy. The rest of the
country should take notice and get serious about developing a national
energy policy. Otherwise, California's past could be America's
Clyde V. Prestowitz Jr. is president of the Economic Strategy Institute, a nonpartisan, nonprofit research organization