A Man, a Plan-a Waste of Time: The problem with Bush's "comprehensive national energy strategy".

It's regrettable that conservatives are rallying around the new Bush energy plan, because this whole debate is nine parts political theater to one part policy-and even that "one part" of policy is pregnant with economic and rhetorical mischief. To begin with, conservatives should not be cheering the introduction of a "comprehensive national energy strategy," any more than they cheered Hillary's "comprehensive national strategy" on health care; these are matters to be addressed by the free market, not government policymakers. But they insist that "energy's different," that excessive regulation and environmental opposition have shut down energy production and delivered us into a mess that only a "comprehensive national energy strategy" can sort out.

Really? Today, without any guidance from a comprehensive national strategy, investors are pouring billions into the energy sector. We're in the midst of a power-plant construction boom, with some 90,000 megawatts of new electricity capacity scheduled to come on line by 2002 and a staggering 150,000-200,000 megawatts by 2004. This will not only burst the electricity-price bubble but will probably, in the near future, produce an electricity glut. Billions are flooding into the natural-gas market. High gasoline profit margins are inducing foreign refineries to enter the American market for the first time in decades, and sparking new investment in domestic refining capacity as well. Barring some unforeseen supply disruption in the refining sector, gasoline prices will begin to decline slowly-but steadily-this summer.

So why did energy prices shoot up in the first place? Because energy markets, like most commodity markets, are subject to boom-and-bust cycles. Energy prices, adjusted for inflation, have been more or less plummeting for 15 years. Investors took money out of production and exploration budgets because profits were hard to come by. The bust suddenly ended last year, catching almost everyone by surprise, and the boom is now on. Investors are scrambling to expand supply, but capital investments take time. Let me make this simple: High prices lead to high profits, which lead to increased investment, which leads to lower prices. It might take some time to get from here to there, but it will happen-as long as government doesn't do anything foolish in the meantime.

How does the administration's plan stack up in that regard? Let's look at the highlights. The rhetorical heart of the Bush plan is the cry for energy independence-which is lousy public policy. Energy independence is, put simply, a mirage. Domestic oil prices reflect international supply and demand conditions; even if all our oil came from domestic sources, a cut in OPEC production would raise the price of West Texas crude. In 1979, OPEC production cuts caused prices to soar in "energy independent" Great Britain just as dramatically as they did in "energy dependent" Japan. The bottom line is that the U.S. buys more than half its oil from abroad for a reason: It's cheaper than the oil we could produce at home.

Which brings us to the issue of oil drilling in the Arctic National Wildlife Reserve (ANWR). The case for drilling in ANWR is not that it will immunize our economy from OPEC; it can't. The real reason for drilling there is that ANWR might hold so much crude that it could reduce OPEC's share of the market, and thus reduce the cartel's leverage over world prices. Industry's best estimate is that ANWR could produce about 1 million barrels of oil per day at its peak; that's a 1.25 percent increase in global production that, all things being equal, would reduce world oil prices by about 10 percent, from $29 per barrel to about $26. Not much, but better than nothing.

The administration has also played up the nuclear component in its energy plan; they maintain that the only reason investors haven't been jumping at nuclear power is that the government has effectively shut down the industry. Vice President Cheney, for instance, laments that "the government has not granted a single new nuclear power permit in more than twenty years." But there's a reason for that: No utility company has submitted such an application in more than twenty years. Investors have stayed away because nuclear-fired electricity is about twice as expensive as coal- or gas-fired electricity. The marginal costs of nuclear are indeed lower, but the capital costs are much higher; electricity costs skyrocketed by 60 percent between 1978 and 1982 largely because of a wave of nuclear power plants that came on line in the late 1970s.

The "Clean Coal" initiative is another dud. It has raked in $5.4 billion in government subsidies since 1985, and recipients can't even spend the money fast enough. The problem is that "Clean Coal" plants are ...