8/17/2023 0 Comments I ve been there done that![]() ![]() Today generators of electricity face an equally complicated set of controls. Rich producing wells were left to expire because producers had no incentive to maintain them, while investments poured into very small wells that would never make a difference to the nation’s energy future. The patchwork system contained many perverse incentives. The lowest-priced crude sold for about $6 per barrel, while the most expensive, “stripper” oil, sold for about $15. The crude oil price controls adopted in 1971 eventually flowered into a complicated system that, by early 1979, set prices for 10 different types of crude oil-even though, of course, oil is fungible. A similar system ought to be put in place for the current situation.įirst a quick look back. We should learn from the solution adopted then: removal of the price controls, coupled with a windfall profits tax on producers and a recycling of the proceeds to consumers. In 1979 crude oil prices surged while the nation was still saddled with a Byzantine system of oil price controls inherited from the Nixon administration. We should keep in mind that we’ve been here before. Price caps also generate artificial shortages, either electricity blackouts or lines at gas stations. On the other side will be those who will argue that price caps will worsen the problem by failing to encourage consumers to conserve, while discouraging producers-especially independent generators of electricity-from making new investments that eventually will alleviate any supply shortages. On one side are those who almost certainly will call for price controls to cushion the blow to consumers and to limit any price “gouging” by producers. The electricity crisis in California-now expected to spread to other parts of the country this summer-will soon launch a predictable battle not just over electricity but over gasoline prices as well. ![]()
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