U.S. Government’s Action on Oil and Gas Price Crises: Help or Hindrance?

02The Reality

A Brief History of U.S. Energy Policy

Since the early twentieth century, the public has called on federal and state governments to address America’s energy issues. From utility regulation to natural gas and oil pricing, government has long played a highly visible role in energy markets.

The forms of government intervention have varied; some government agencies have sought to control or even punish industry participants. Other policies have included price control, quantity control, and forced company breakups. From the 1930s until 1972, the Railroad Commission of Texas oversaw most production management in the U.S. domestic oil market.²

By the early 1970s, the commission could no longer determine prices because of the country’s growing need to import a larger share of its oil. In 1971, the Nixon administration attempted to respond to rising inflation with mandated wage-price controls—by summer 1973, the controls remained only on oil.³

The energy crises of the 1970s affected American energy policy in two ways. First, the crises led to an explicit policy of moving the country toward energy independence, which still has not been clearly defined.⁴

Ironically, the subsequent removal of price controls on oil and natural gas in the 1980s, which many congressional leaders resisted, meant that the visible effects of the 1970s energy crises—gasoline shortages and long lines at service stations—did not recur.

Second, the 1970s crises prompted overly ambitious government-sponsored technological change to solve American energy dilemmas. None of these technological solutions has provided an energy panacea. In fact, they have often proved to be costly mistakes.

What Happens When Policymakers Believe That They Must Act

Virtually all major energy policy initiatives have been passed during, or in the aftermath of, what was perceived to be an energy crisis.

During crises, policymakers often feel compelled to act despite the ambiguity of available information.⁵

Crisis-driven policy development often begins with policymakers finding ways to engage with the problem without a major funds commitment.⁶

Energy Solutions

Just a few weeks after the Arab oil embargo, Nixon declared a goal of U.S. energy independence by 1980 yet offered no specific proposal to achieve it.⁷

During the Carter administration, the legislative reach for technological solutions accelerated.⁸

After the first Gulf War led to an oil-price spike, Congress passed the Energy Policy Act of 1992.⁹

Thirteen years later, President George W. Bush signed the Energy Policy Act of 2005.¹⁰

In the early 2020s, energy was again the focus of federal attention. Many elements of the failed Green New Deal were included in the Inflation Reduction Act of 2022—most of whose alternative-energy provisions have since been phased out or canceled.¹¹

03Perspective

In the past 50 years, the government has proved that market intervention—with respect to energy—often leads to unintended consequences, overreactions, and costly failures.

In times of energy-market turmoil and energy-price spikes, people have looked to government for relief. However, history has shown that the only sensible policy at such times is to let the energy market naturally sort itself out.