The Many Problems with California's Energy Mandates

Too many of the arguments for energy policy are either illogical, irrelevant or downright silly.

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Michael Lynch is the president and director of global petroleum service at Strategic Energy & Economic Research.

On a recent speaking engagement in California, I committed a major faux pas. As an example of what I called "stupid energy policy" I referred to the mania over hydrogen fuel cell vehicles in the late 1990s, when Ballard Power's announcement of a breakthrough lowering fuel cell costs led the auto industry to predict a commercial vehicle by 2005, with sales in the tens of thousands. In fact, it was clear that the technology was nowhere near being ready for consumer markets, and wouldn't be for decades, and the auto industry's inability to realize this remains an embarrassment.

Imagine my chagrin when other speakers mentioned that California is now promoting hydrogen, specifically by mandating that the petroleum industry install one hundred hydrogen refueling stations. Alan Lloyd, so prominently featured in the film Who Killed the Electric Car, was the keynote speaker, and he admitted that California had lost money on a hydrogen fuel cell bus a decade ago, yet somehow that didn't deter him from supporting the current policy.

Oddly, in the "documentary" he defended killing the electric vehicle mandate in California on the grounds that he was seeking to improve air quality, not promote a particular technology, yet that is precisely what California is doing now (with his blessing apparently).

[See a collection of political cartoons on energy policy.]

Has the government successfully promoted technologies? Yes, there are examples, for instance, requiring auto companies to install seat belts. Or catalytic converters in cars. But these are both instances of equipment which cost a fraction of the car's price and delivered significant benefits.

But the California approach to energy policy is influenced by a number of glib sayings that are all too common in the national debate, but which are either illogical, irrelevant, or downright silly. These are tossed out by proponents but rarely stand up to scrutiny.

First: The Chinese are doing it. Yes, but they are also pursuing coal and nuclear, and no one argues we emulate that. And given their dominance in cheap consumer goods, why would that uniquely qualify them to choose future energy technology?

[Read Thomas Pyle: How the Government Failed in Energy Policy in 2011]

Second: We will lose global dominance of the technology. Well, given that the technology is not commercially viable, how is that a bad thing? And this argument has often been used in support of technologies from the supersonic transport to clean coal to justify promoting something which can't succeed on its own. And dominance is hardly permanent, viz., Microsoft, General Motors, RCA, etc.

Third: Build enough, and they'll get cheaper. Well, yes, but not that cheap. Large scale production can reduce costs, but when the technology is close enough to being commercial, then companies will invest in factories without needing massive subsidies. Learning curve effects are also moderate in scale, and only apply to the technology being built. What hydrogen fuel cell vehicles need is a massive technological breakthrough, which will come from the lab, not the production line.

Fourth: We're trying to encourage some progress by setting ambitious targets. Management consultants call these 'stretch' targets (assuming you want to emulate them), but they are never so ambitious nor focused on technological progress. And failure to meet the targets can actually set a technology back—recall the diesel Oldsmobile in the early 1980s, whose poor engineering gave diesel engines a bad name for years.

[See the 10 priciest years in history for gas.]

Fifth: There's no taxpayer money at risk. Are you kidding? The oil industry pays lots of taxes, and the more they lose building hydrogen fueling stations, the less profits they have and the less taxes they pay. (And the less jobs.)

Frankly, California energy policy seems to be driven by the hopes and dreams of those with short memories and little experience in the field, listening with rosy expectations to promoters of new technologies and a variety of unfounded slogans without critical thought. It's almost as if health policy were being driven by bureaucrats who considered late-night infomercials to be medical research.

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