Discuss the role of states in energy policy.

Question

What will be an ideal response?

Answer 1

A good deal of the regulation of energy distribution is done at the state level. First, states are involved in energy regulation. Second, they tax energy resources. The traditional model for this regulation has been to create virtual monopolies in electricity and gas and then regulate rates to allow the privately owned utilities a set return on capital investment, while attempting to offer consumers energy as inexpensively as possible. Many states have engaged in deregulation efforts, assuming that the market could produce even better outcomes for consumers and also remove government regulation. About half of the states had entered into some type of deregulation by 2010. The deregulation effort has been met with mixed success. Deregulation has been said to have been partially responsible for the 2000 and 2001 energy crisis in California. On the other hand, deregulation was very successful in Pennsylvania which saw energy prices drop by a third. It is unlikely that states who have moved away from regulation will ever revert to as tightly controlled a government system as they used to have, though a monitoring of the markets is necessary. States also regulate and tax energy that is extracted from their lands. Unlike industrial policies that involve state chasing mobile industries, the coal, oil and gas industries are not movable. Therefore, the states can charge significant severance taxes on these industries in an attempt to mitigate some of the social and environmental cost of extraction. States do vary in their taxing efforts, however. For example, Pennsylvania charges about 10% of what Ohio does for taxes on shale gas.