United States

United States

Ruffling the feathers of the establishment

A summary of the government oriented recommendations in "The United States 1998 Review" of energy policy by the International Energy Agency. Conclusions include the United States' energy deregulation, dealing with stranded costs, environmental costs and public awareness.

The United States should be commended for its cutting edge energy deregulation -- but it should also set up a national framework so that the entire country moves forward at the same pace. During deregulation, stranded costs should be dealt with consistently and strictly so that full competition can occur as soon as possible. Environmental costs should be internalised -- by taxation and emissions trading schemes. And lastly, the government has to ensure that public awareness is heightened so that such crucial policy steps are possible.

These government oriented recommendations are in "The United States 1998 Review" of energy policy by the International Energy Agency (IEA), an independent part of the Organisation of Economic Co-operation and Development (OECD). The IEA's recommendation that the external effects of energy choices -- the environmental and security consequences -- be recognised in the retail cost is bound to ruffle feathers in the United States. The document also suggests that tax distortions, for example, breaks offered to publicly owned utilities, be eliminated.

The IEA concludes that the US has had great success with technology development, but only when technologies fit with consumer preferences or save money. But for a more pro-active energy policy that takes externalities into account, especially with today's low energy costs, more public awareness is needed. Most immediately, the public should know about the real trade-offs in energy policy decisions, since they go far beyond whether R&D programs should be funded. Ultimately, they can effect climate change or the possibility of a future oil crisis, warns the report.

The 150-plus page report summarises the deregulation of America's US energy market at the state and federal level. The IEA says wider representation of all industry participants should be an integral part of the system of Independent System Operators and other bodies responsible for system reliability and reciprocity. The opportunity to recover stranded costs should be limited in time, so that open competition is not hampered. And competition should not be hampered by preferential treatment for government owned utilities, whether federally owned or smaller municipal systems.

The report details the deregulation of California's energy markets and lauds the state's "public goods charge" that is providing $540 million to encourage renewables over the first four years of transition to an open market. Since energy consumption and CO2 emissions in the US are among the highest, policies must set appropriate signals and provide enough incentives so that carbon emissions are lowered -- and the targets of the Kyoto Protocol are met -- but so that competition is not hindered.

Big industry reaction

A hint of how the recommendations will undoubtedly be received in the US private sector comes in a second report that also assesses America's energy policy, but this time issued by the United States Energy Association, effectively the national trade group for large private energy companies. It is part of the World Energy Council, which held its three yearly congress in Houston, Texas, in September (Windpower Monthly, November 1998).

The association's "US Energy 1998" stresses that flexible and voluntary measures should be used to address environmental concerns, and that solid science should be the foundation of environmental policies. The Kyoto protocol must be amended before it is acceptable, said the report, so that developing countries also bear the economic and political burden of reducing greenhouse gases and so that the targets are reduced to become realistic. The marketplace works to the benefit of everyone, and so should be the tool of preference. And government should take a hands-off approach to global warming until regulations can be justified on the basis of science and cost effectiveness.

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