Government Intervention Would Hurt Energy Producers
By Tom Giovanetti and Drew Johnson
America's energy sector has seen better days. The recent price war between Saudi Arabia and Russia rocked oil and gas markets -- and the coronavirus outbreak has reduced demand and forced some companies in the renewable sector to stall projects and furlough workers.
Despite these upheavals, the government has yet to intervene. The Trump administration chose not to impose tariffs on Saudi Arabia, and Congress left the renewable energy sector out of the first batch of COVID-19 stimulus packages.
That's for the best. Tariffs, tax credits, and other government interventions would only weaken the energy industry, which doesn't need help surviving the present crises. Policymakers can help energy firms and consumers alike by letting the market sort itself out.
COVID-19 hit the energy industry from all sides. Stay-at-home orders caused demand for energy to plummet just as Saudi Arabia flooded the market with cheap oil. Together, these factors pushed oil prices to 17-year lows and dealt a major blow to America's fossil fuel sector. And by reducing demand for electricity, COVID-19 has disrupted the renewable energy sector, particularly wind and solar power.
Naturally, policymakers want to help the energy industry through these uncertain times. President Trump recently expressed his willingness to impose tariffs on oil imports to bolster domestic production. In Texas, regulators are debating a system of production quotas designed to stabilize the state's energy market. Meanwhile, Democrats in Congress have called for the next phase of federal stimulus to include tax credits and direct payments to the renewable sector.
These policymakers certainly have good intentions, but the energy industry doesn't need such drastic interventions. American oil and gas companies have weathered all sorts of upheavals, from the energy crises of the 1970s to the 2008 financial crisis. No matter how dire things get, markets tend to bounce back.
If anything, government intervention could harm the energy industry down the line. As the rapid resolution of the Saudi-Russia price war shows, the current crises won't last forever. Imposing tariffs or quotas now will impede the energy industry's ability to bounce back when the COVID-19 pandemic subsides, and demand for oil and gas returns to normal. By artificially reducing the oil supply, tariffs and quotas could eventually raise prices for consumers.
Extending federal stimulus funds to the renewable energy sector is similarly shortsighted. The entire renewable energy sector is responsible for less than 20 percent of total U.S. electricity generation. Americans don't need wind or solar power to heat their homes or power their businesses.
With so much of the economy ravaged by COVID-19, there's no sense using taxpayer dollars to support the renewable sector. If renewable energy firms hope to gain equal footing with oil and natural gas producers, they'll need to learn how to survive economic downturns without the government coming to the rescue.
The COVID-19 pandemic poses a real challenge to American energy producers. But if lawmakers want to support this crucial sector of the economy and protect consumers from energy price hikes, they'll let the industry sort things out itself.
Tom Giovanetti is the president of the Institute for Policy Innovation, a Dallas-based public policy think tank. Drew Johnson is an energy policy expert who serves as a senior fellow at the National Center for Public Policy Research.
