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Welcome to Dispatch Energy! Politicians love to sell a utopia. They have the best answers, know more than the experts, and can tell you exactly what they’ll do to right the wrongs that plague their voters. But the word “utopia” is Greek for “no place”—it doesn’t exist. This doesn’t stop politicians from peddling the fairytale, and New York recently offered a reminder of what happens when political fantasy clashes with reality, this time in the realm of climate action.
After Donald Trump’s victory in the 2016 election and Vox’s declaration of planet Earth to be the real “loser,” many blue states passed climate laws that they knew would not be adopted at the federal level. One such policy was New York’s 2019 Climate Leadership and Community Protection Act. The law required the state to cut greenhouse gas emissions by 40 percent relative to 1990 levels by 2030 and by 85 percent by 2050.
Faced with reality as 2030 drew closer, New York state lawmakers decided earlier this year to jettison the 2030 target and pursue other rollbacks of the law. Unfortunately—and unsurprisingly—the state was having trouble meeting its own ambitious targets. The latest reports show that New York is only 15 percent below its 1990 emissions, making it very unlikely that the policy’s emissions-reduction goals will be met.
In New York and elsewhere, it is patently obvious that politicians’ efforts to force the market to contort itself into their preferred vision don’t work. There’s just no getting around the fact that economics governs the intersection between what is desirable and what is achievable. Yet the phenomenon of politicians selling the public on the idea that they have it all figured out has become a staple of energy policymaking.
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In 1979, during one of that decade’s multiple energy crises, President Jimmy Carter delivered his famous “crisis of confidence” speech. The speech itself is a classic exercise in trying to persuade voters that their nation’s ingenuity and a gung-ho attitude can overcome any obstacle, but I frequently return to Carter’s words because I can imagine almost any politician repeating them verbatim today.
To give us energy security, I am asking for the most massive peacetime commitment of funds and resources in our nation’s history to develop America’s own alternative sources of fuel—from coal, from oil shale, from plant products for gasohol, from unconventional gas, from the sun. … Just as a similar synthetic rubber corporation helped us win World War II, so will we mobilize American determination and ability to win the energy war.
History repeated itself after Russia’s invasion of Ukraine in 2022, which drove up energy prices and prompted the U.S. government to promise to “accelerate the clean energy transition” in response. Through a policy lens, the Biden administration attempted to facilitate this shift by requiring car manufacturers to sell more electric vehicles and imposing aggressive regulations on fossil fuel power plants. The Trump administration rescinded these policies, perhaps feeling that their failure to reduce prices gave them social license to do so. But the appeal of politically directed market interventions to remedy energy costs remains as alive as ever.
Indeed, even as New York state policymakers are accepting that their ambitious energy transition plans were either impossible, too expensive, or both, New York City is showcasing its intent to stay the course. Mayor Zohran Mamdani is a member of the Democratic Socialists of America and is championing not just aggressive emissions targets but also public ownership of energy production. Clearly, there’s a tension between voters’ desires and what is achievable.
This is not inherently a left-versus-right political issue but rather a symptom of the rise of populism and its attendant preference for central planning. Populists push a narrative in which corrupt elitists are holding the public back from realizing its full potential, a particularly convenient story in the energy and environment policy space. It is a rule of politics that during debates about energy costs or pollution, politicians will add a quip about how their preferred energy source would solve the problem.
Democrats blame Republicans for their promotion of fossil fuels and accuse them of being captive to special interests. Republicans chastise Democrats for their devotion to renewable energy subsidies and mandates. With this type of rhetoric as the standard, both sides have frequently pushed for policies that advantage their preferred energy types. But populist solutions never work.
New York’s climate leadership law is not the only example of why trying to force particular energy outcomes is folly. For a long time, Germany was convinced that levying a tax on electricity consumers—which reached almost seven cents per kilowatt-hour in 2020—to subsidize clean energy growth would stimulate a transition away from fossil fuels. But despite facilitating an infusion of cash into the clean energy sector, the tax was scrapped after it became apparent renewable growth was held back by transmission access and other factors, not capital availability. And the idea of public ownership of utilities is not new. Notably, Puerto Rico’s electric utility was founded on the same principles as Mamdani’s proposal—and has left a long legacy of corruption and incompetence.
These sorts of politically directed energy market interventions are rooted in the already-flawed idea of central planning, but their repercussions are particularly acute given the nature of energy production. In the United States, annual energy expenditures are usually between $1 and 2 trillion. The average American is spending thousands of dollars on energy per year. Building new energy infrastructure is particularly capital intensive, and profit margins are often thin, meaning it can take a very long time to recoup investment costs.
And in the energy sector, in particular, market forces are not easily overcome by government interventions. Energy subsidies—even very large ones—are ultimately only a drop in the bucket compared to total energy expenditures. Regulations and mandates can be aggressive, but they cannot manufacture nonexistent investor confidence in multidecade infrastructure projects.
But really, it is understandable why the myth that government can just mandate an outcome in the energy sector is so persistent. Energy is expensive, and most of the associated consumption is polluting as well. It is tempting to claim that an energy-abundant idyll is kept from us by powerful lobbyists, but the truth is that the current energy market just doesn’t yet favor what politicians want.
While I expect the energy affordability debates of upcoming elections to be dominated by renewed calls for market interventions, policymakers would be wise to focus on economic basics. If we want more clean energy and lower emissions, then we need to eliminate barriers to market entry—for example, by finally passing permitting reform legislation. If we want more affordable energy, we need to allow more competition (e.g., by creating more competitive electric power markets rather than regulated monopolies and by avoiding regulatory capture that entrenches incumbent energy producers).
Despite the lofty goals laid out by President Carter in his speech, Americans were unwilling to give him a second chance, and Ronald Reagan defeated him in one of the biggest electoral landslides in American history. And Reagan’s first order of business was to eliminate price controls on energy. Reagan believed that if the market was unleashed, prices would normalize, and it was during his administration that energy prices finally fell and the energy crises that marked the 1970s came to an end.
The difference between the Carter and Reagan approaches to energy is a lesson that politicians who venture to be serious would benefit from revisiting—especially in our age of vapid populism.
Policy Watch
- To comply with President Donald Trump’s executive order aimed at boosting American critical minerals production, the Army recently announced plans to lease land to four mining companies for the processing of these minerals. Last year, Trump directed the federal government to use available authorities and resources to “facilitate domestic mineral production to the maximum possible extent,” a directive the Army is now seeking to fulfill by leasing “underutilized” land at its facilities. Such an agreement may expedite permitting timelines for these particular facilities, but as I have argued in previous editions of Dispatch Energy, the selective application of government preference can undermine the benefits of market competition.
- In pursuit of building 10 large-scale commercial nuclear reactors, the Department of Energy last month offered conditional loan commitments totaling $17.5 billion to five eligible projects. In announcing the initiative, Energy Secretary Chris Wright claimed that the loans will accelerate the construction of such projects by up to three years. However, critics of heavy nuclear power subsidies have long voiced concerns that such government interventions distort incentives. There may be direct benefits to subsidized projects, but these policies shift the burden onto taxpayers while eroding the benefits of competition.
Further Reading
- A recent report published by the MIT Center for Energy and Environmental Policy Research projected future U.S. power sector emissions after the rescission of clean energy subsidies. The report found that, despite the lack of subsidies, 74 percent of clean energy capacity would still be built, and 67 percent of emissions cuts would still be achieved. These conclusions affirm R Street’s predictions from 2022, which said that 67 percent of subsidized clean energy generation would occur even without subsidies. MIT’s report and its overlap with earlier analyses reinforce what has been known for some time: Subsidies have diminishing climate benefits because clean energy is already profitable without them. Barriers to market entry in the form of permitting are what hold back clean energy growth.