Environmental Regulation, Energy, and Market Entry

As my contribution to a symposium, I was asked to identify and to discuss conflicts between environmental regulation and pursuit of the goals of national energy policy. I identify three contexts in which I see clear conflicts between environmental regulation and energy policy - gasoline production, importation of liquefied natural gas, and transmission of electricity. In each case, I conclude that the conflict is attributable to state and local regulations. In the case of the gasoline market, I conclude that the market is beginning to perform poorly because of a combination of state land use regulations that make it impossible to construct new refineries and state gasoline-type mandates that are in the process of transforming the highly competitive and efficient national gasoline market into scores of much smaller inefficient markets that are increasingly susceptible to both unilateral and collusive exercises of market power. In the case of the natural gas market, I conclude that state and local government attempts to assert the power to veto federally approved liquefied natural gas terminals place us in jeopardy of experiencing a devastating shortage of natural gas in the next few years. In the case of electricity transmission, I conclude that our rapidly growing shortage of transmission capacity is already costing us many billions of dollars per year and increasing dramatically our vulnerability to widespread blackouts and price spikes, and that the shortage is attributable primarily to state and local land use regulation. In each case, the conflict can be eliminated only by reducing the power of state and local regulators and/or by transferring some regulatory power from state and local institutions to federal institutions