March 15, 2008

Markets, not government, must set energy prices

J. Bennett Johnston

It is fashionable these days for policymakers, particularly those running for office, to somberly suggest that America needs an energy policy—thus implying that America has no energy policy.

 

As one of the prime architects of an energy policy that has served America well, I could not disagree more. The fact that our collective memory seems on the verge of lapse suggests that we may be about to relearn the painful lessons of the past.

Controls created chaos

Thirty years ago this winter, an antiquated system of price controls on natural gas combined with an extended period of cold weather to prompt the first and only widespread curtailments of natural gas in our history. We watched in disbelief as factories and schools were forced to close because we had no ability to keep them warm.

These price controls, which had no basis in statutory law, but rather had been devised and extended by federal regulators, artificially restricted the price of natural gas in certain markets. Not surprisingly, natural gas found its way to markets where its price was not restricted. Not until Congress intervened and removed the artificial constraints were we able to restore heat to much of America's heartland.

The following year the Islamic Republic of Iran imposed an oil embargo, and the mightiest nation on earth saw its citizens waiting in long lines for gasoline. The shortfalls from the embargo were exacerbated by a federally imposed regime of price and allocation controls. Those controls, which actually dictated the amount of oil and gasoline available to various regions of the country, created absurd situations. For example, drilling rigs in my home state of Louisiana were unable to continue operations because they lacked a federal allocation of diesel fuel.

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