What Happens When Government Plays Market Maker

Increased energy use to assist humans in carrying out their daily tasks is perhaps the most distinguishing characteristic of developed countries. Energy is used in various forms, but one of the most useful is electrical energy, which keeps finding additional productive uses. When governments attempt to directly interfere with the markets for critically important economic goods such as electricity, the results are often catastrophic.

The best known example is some Western European countries, particularly Germany, Denmark, Spain, and Great Britain. Despite this well documented experience, Obama and EPA are now attempting to follow their examples here in the US, but on a larger scale. The result will be the same–government regulations that fiddle with working markets, almost always fail to achieve their intended goals, and result in decreasing efficiency unless there are significant market distortions which are corrected by the fiddling. The climate alarmists claim that carbon dioxide emissions from burning fossil fuels is a very significant such distortion, but as explained in my book, Environmentalism Gone Mad, they have failed to prove their improbable case.

The German Experience Is Overwhelming

The evidence concerning the highly adverse effects of such government interference provided by the Western European experience is simply overwhelming. As described in much more detail in Environmentalism Gone Mad, the German Government, for example, decided to increase wind and solar generation for the usual bad reasons. Then they decided to phase out all nuclear plants because of safety concerns after Fukushima. As a result, German electricity rates have tripled while supply has become much less reliable, particularly during cloudy, windless periods. They have now even resorted to using more dirty brown coal to keep the lights on. So the original objective (reducing CO₂ emissions) has not been achieved and rates have gone through the roof.

The US, which has had much more limited subsidies for wind and solar, has not experienced rapidly rising rates as yet (except in ultra-green California) and has decreased CO₂ emissions significantly. But in the US this decrease occurred not through government intervention but through market-based substitution of natural gas-fired plants for coal plants because of increased use of fracking and other new techniques in finding additional natural gas. These important innovations resulted in a surplus of natural gas and lower prices, as recently discussed.

The German Government, on the other hand, tried to select the “winning” sources of electric energy and favor them, just like Obama and EPA are now doing in the US. The result will be the same if Obama and EPA are allowed to implement their regulations.