ANALYSIS: ‘Fracking’ Lowers Gas Prices, While EPA Rules Raise Electricity Prices
Two interesting phenomena are occurring in the U.S. right now, both of which illustrate the power of free enterprise versus government mandates.
On the one hand, hydraulic fracturing, or fracking, and horizontal drilling have boosted oil production to the point that gas prices are plummeting– and are predicted to keep plummeting into next year. Great news for anyone with a car!
On the other hand, however, Environmental Protection Agency policies are shutting down coal fired-power plants, causing electricity price increases that are only expected to grow larger as environmental regulations pile up. Bad news for anyone who uses electricity… so basically everyone.
This isn’t to say that gas prices and electricity prices have never moved in opposite directions before, but this illustrates the radically different directions current U.S. energy policy is taking the country.
Fracking and new drilling technologies have allowed the U.S. to unlock vast reserves of shale oil and natural gas. The resulting energy boom has allowed the U.S. to become the world’s largest liquid fuels producer, generating 11 million barrels a day of oil and fuels separated from natural gas in the first quarter of 2014.
The trickle down effect of the oil and gas boom has been falling gasoline prices for the whole country, due to declines in the price of oil. The Energy Information Administration (EIA) predicts that gas prices will average $3.14 per gallon in December. For 2014, gas prices are expected to average $3.45 per gallon and fall to $3.38 per gallon in 2015– well below the average price of $3.51 in 2013.
Splendid news! Especially in light of unrest in the Middle East, which has historically led to price shocks in world oil markets. It’s just too bad electricity prices aren’t following suit.
EPA rules restricting mercury and carbon dioxide emissions from power plants are expected to force hundreds of coal plants to shut down in the coming years, causing power prices to spike and throwing a damper on the United States’ economic prospects.
The EIA expects residential electricity prices to average 12.5 cents per kilowatthour this year– 3 percent above last year’s price. In 2015, prices will rise another 1.7 percent. But this is only the beginning. As more coal-fired power plants are forced into early retirement, prices are predicted to rise even more.
EIA predicts 60 gigawatts of coal-fired power capacity will be shuttered by 2020. Most of these will shut down by 2016, when the EPA’s mercury rule goes into effect and power plants must shut down or install costly upgrades. But the EPA’s new plan to regulate carbon dioxide emissions from power plants is expected to nearly double the amount of coal power being shuttered: The agency itself says its “Clean Power Plan” will close an additional 46 to 49 gigawatts of coal power.
That’s not all. These power plant closures will be accompanied by a 6.5 percent hike in retail electricity rates by 2020. Combine this with the power price spikes expected with the agency’s mercury rule, and electricity prices could rise 10.3 percent by 2020, costing families an extra $150 a year in electric bills alone.
This doesn’t include the huge price jumps in natural gas prices that will inevitably occur. As more coal plants shut down, they will largely be replaced with natural gas-fired power plants. Power from these plants gets more expensive as the plants pick up the slack in baseload power.
It’s also important to remember that natural gas has many uses. It will not only increasingly be burned for electricity, but it also provides heat for people’s homes during the winter and is being used as fuel for vehicles. This will stretch supply even further, driving up the price.
EIA already predicts gas prices could be driven up 150 percent as coal plants shut down, though this may be too optimistic of a prediction.
Energy is the lifeblood of the modern economy. It power everything we do (online news publications like The Daily Caller would not even exist if it wasn’t for cheap, abundant power).
Increasing access to energy — not making it more expensive — by making it more affordable is key to our future success, even if making it more expensive is designed to allegedly stop global warming. Making people poorer by increasing their costs of living is not a very smart way to fight global warming (forget about the fact that temperatures have not risen in over 18 years).
Let’s let free markets meet our future energy needs. They’re too important to be left in the hands of bureaucrats.
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