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November 3, 2017

Perry's Plans to Revive Coal Would Kill Aspirations for a Free Market

  Dallas Morning News

From the very beginning of his presidency, Barack Obama pulled no punches about targeting fossil fuels. The Obama administration promised to eliminate coal, oil and natural gas to the degree possible and replace them with government-subsidized renewable energy sources, regardless of the cost of the economy. 

But politicians are the last to know. Beneath the surface, the fracking revolution was already transforming the energy sector. With the abundance of cheap, clean natural gas, fracking ironically became the Obama administration's unappreciated partner in creating jobs, generating tax revenue and lowering emissions.

No such revolution was in the offing for coal, however, so the Obama administration's pressure on coal country so threatened to damage the economy in those areas that Donald Trump and his "clean, beautiful coal" rhetoric garnered significant political support in West Virginia, Kentucky, Ohio and Pennsylvania coal regions. Coal helped put Trump in the White House.

I have to assume that political payback for coal country is the reason behind Energy Secretary Rick Perry's oddly dissonant proposal to require that coal (and nuclear) generating plants be paid higher-than-market rates for electricity. It's beyond strange that Perry, an avowed believer in free markets and a skeptic of regulation, would make such a counterintuitive proposal.

Perry's proposal would not affect Texas, since Texas has its own electric power market, regulated by the Electric Reliability Council of Texas. Electric power markets in the rest of the United States are regulated by the Federal Energy Regulatory Commission, and would be affected. So perhaps the best possible spin is that Perry is trying to give Texas an advantage by burdening the rest of the country with harmful policies.

It is so common for politicians to say they believe in free markets while promoting government controls that it seems they have forgotten what free means. Free market economics asserts that there is greater cumulative accuracy in the real-time decisions made by millions of Americans through markets than in the decrees of a small handful of bureaucrats. It means bottom-up decision making is smarter than top-down dictates from those who assume themselves to be our betters. And it especially means government shouldn't determine favored outcomes by rigging the rules. Yet that is exactly what Perry's proposal would do to the rest of the country's electrical generation market.

By requiring that coal plants be paid higher than market rates and be insulated from competition, Perry proposes that consumers subsidize coal production. This is every bit as wrong as when the Obama administration required taxpayers to subsidize green energy projects such as Solyndra. Actually, it's worse, because taxpayers were only on the hook for temporary loan guarantees for Solyndra. With Perry's coal handout, consumers would be on the hook indefinitely.

Yes, it was also anti-market for the Obama administration to rig the rules against fossil fuels, and to favor renewables. But you fix that by moving back to neutral policy and market competition, not by favoring coal. The best energy portfolio for America is whatever combination of gas, oil, coal, nuclear and renewables that is most efficient for a particular geographical area. Prices should be set by supply and demand, not by bureaucrats in Washington.

Perry dismisses such market rhetoric, saying at a congressional hearing, "I think the idea that there is a free market in electrical generation, it's not a bit of a fallacy, it is a fallacy." He's correct that generation markets under FERC are still highly regulated, but is perhaps unaware that his proposal would reverse 30 years of progress in moving away from top-down federal regulation and toward market-based pricing. This is also odd coming from Perry, since the Texas market deregulated under his watch as governor.

In a market economy, government should neither favor nor discriminate against any particular industry or technology. To do otherwise is crony capitalism, whether it's the Obama administration favoring certain renewables, or the Trump administration favoring coal.

Perry's proposal would put the government's thumb on the scale for coal. When the Trump administration decides it wants to help coal, or any other industry, it's already on the path to the same kinds of crony capitalism it criticized from the Obama administration. 


 

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