from Econlib

Jimmy Carter’s term as U. S. President (1977–1981) included major deregulation with airlines, motor carriers, and railroads. Other advances were scored in communications, tax policy, and regulatory budgeting. But the “great deregulator” had a very different approach with energy, which (along with inflation) defined his economic infamy.

Carter began wellhead deregulation of petroleum and natural gas—but with a Windfall Profit Tax for crude oil and intrastate regulation for gas. Carter’s basic mindset was oriented toward the federal planning of supply and demand, outlined in the National Energy Plan of 1977. The visible hand of government, not the invisible hand of markets, was to be controlling.

What Was the Problem?

The energy crisis in Carter’s time was blamed on the irreversible, worsening depletion of oil and gas. Physical fixity meant an increasing cost of extraction, hence the problems of supply and price. The “economics of exhaustible resources” was mainstream fare in the textbooks and journals, spawning a new subdiscipline, energy economics. The engineering mind of the 39th President was determined to overcome a perceived limit to growth.

Oil shortages in 1972–74, and natural gas curtailments in the winters of 1971/72 and 1976/77, had set the stage. To Carter, and his energy czar James Schlesinger, [1] crude oil and natural gas had to be replaced by super-abundant coal, synthetic oil and gas from coal (synfuels), and supplemented by renewable energies. (Nuclear, never embraced, was completely off the table with the Three Mile Island incident in March 1979.) 

On the demand side, less energy had to be consumed in transportation, industry, and power generation, not to mention in homes and businesses.

Major new legislation—interpreted in many thousands of Federal Register pages—empowered the newborn U.S. Department of Energy (1977). The new laws (in 1978) were the National Energy Conservation Policy Act; Power Plant and Industrial Fuel Use Act; Public Utilities Regulatory Policy Act; Energy Tax Act; and Natural Gas Policy Act. 

And in 1980: the U.S. Synthetic Fuels Corporation Act; Biomass Energy and Alcohol Fuels Act; Renewable Energy Resources Act; Solar Energy and Energy Conservation Act; Solar Energy and Energy Conservation Bank Act; Geothermal Energy Act; and Ocean Thermal Energy Conversion Act. 

Planning, More Planning

The National Energy Plan of 1977 stated, “neither Government policy nor market incentives can improve on nature.” [2] While recognizing the perverse effects of price ceilings on supply and demand, Carter blamed foreign political control by OPEC for his activism (“there was no free market or effective competitive forces relating to world oil supplies and price,” he stated in his memoirs). [3]

These false rationales resulted in a regulatory experience that was frustrating, wasteful, even bizarre. A new term, gapism, described the multitude of government programs passed to synthetically increase supply and reduce demand, given “disequilibrium” under price controls. “One can only conjecture that many gapologists do not really appreciate the fact that at higher prices consumers really do buy less and producers offer more,” observed Edward J. Mitchell, “or that they believe these tendencies are so weak that only astronomical prices will eliminate gaps.” [4]

The Economists Error

Experts, academics, and planners were all-in with the fixity-depletion premise of Carter energy policy. Forgotten or ignored was Scarcity and Growth: The Economics of Resource Availability (1963), which challenged depletionism and credited “man’s ingenuity and wisdom” with “increasing, not diminishing, returns.” [5]

“There has been a certain tendency to regard technological advance as a chancy phenomenon, a bit of luck that is sure to run out sooner or later (with the ever-present implication that it will be sooner),” explained Harold J. Barnett and Chandler Morse. [6] But data suggested otherwise. “Every cost-reducing innovation opens up possibilities of application in so many new directions that the stock of knowledge, far from being depleted by new developments, may even expand geometrically.” [7]

It would take a contrarian, Julian Simon, to resurrect Barnett-Morse’s “great 1963 book” in the Carter era. [8] And in the 1980s, with energy prices decontrolled, the resource optimists would win the debate. Energy economics was just economics, after all. And less dismal.

Conclusion

Jimmy Carter was apparently well-intentioned in choosing the bureaucratic means to provide reliable and affordable energy for Americans. But he could have ended the energy crisis quickly and simply with an opposite public policy. 

Carter was under the sway of false theories about what human ingenuity could accomplish in a free market, with or without major negative foreign policy events. Those false ideas had resounding negative consequences. The energy lessons of the 1970s should not be forgotten.

[1]  “Schlesinger’s views on national economic policy were closer to French indicative planning than to the invisible hand ….” James L. Cochrane, “Carter Energy Policy and the Ninety-fifth Congress.” In Energy Policy in Perspective, Craufurd D. Goodwin, ed. (Washington, DC: The Brookings Institution, 1981), p. 553.

[2] Executive Office of the President, Energy Policy and Planning Office, The National Energy Plan (Washington, DC: GPO, 1977), p. xiii.

[3]  Jimmy Carter, Keeping Faith: Memoirs of a President (New York: Bantam Books, 1982), p. 94. In a 1977 address to the nation, Carter used the memorable phrase “the moral equivalent of war” to describe America’s challenge against OPEC and oil imports in general.

[4] Edward J. Mitchell, U.S. Energy Policy: A Primer (Washington, DC: American Enterprise Institute, 1974), pp. 20–21.

[5] Harold J. Barnett and Chandler Morse, Scarcity and Growth: The Economics of Natural Resource Availability (Baltimore, MD: Johns Hopkins Press, for Resources for the Future, 1963), pp. 3, 8.

[6] Barnett and Morse, Scarcity and Growth, p. 235.

[7] Barnett and Morse, Scarcity and Growth, p. 236.

From MasterResource

By Kennedy Maize — January 15, 2025

“Construction of the advanced ‘European Pressurized Reactor’ (EPR) at Flamanville began in 2007. It was projected to come into service in 2012 at a cost of $3.4 billion. The final cost, according to (Électricité de France) is about $13.7 billion.”

Last month (December 21), the 1,600-MW Flamanville nuclear power plant near Normandy (below) began delivering electricity to the French and European grid. It became the first new unit in France’s once-aggressive nuclear power program since 1996. The new reactor becomes the 57^th in the French fleet.

EDF (Électricité de France) the French state-owned electric utility, was once seen as at the forefront of nuclear power, ahead in many ways of even the U.S., which has had its own troubles moving beyond its initial nuclear boom times. No more.

Construction of the advanced “European Pressurized Reactor” or EPR at Flamanville began in 2007. It was projected to come into service in 2012 at a cost of €3.3 billion (or about $3.4 billion). The final cost, according to EDF, is about €13.3 billion ($13.7 billion).

EDF’s Generation 111+ EPR, originally designed by French nuclear developer Areva, has meant a world of trouble for France and some of the other nations that have bought the machines. The first two reactors went to China, where Taishan 1 and Taishan 2 went into service in 2018 and 2019 respectively. While the Chinese are opaque about their nuclear program, the two EPR reactors suffered severe construction delays, taking almost twice the 46 months Areva projected. Taishan 1 was shut down between July 2021 and August 2022 for repairs.

EDF’s EPR experience in Europe, where information is more available and reputable, has been worse. Finland contracted for an EPR its existing nuclear site on Olkiluoto Island. Construction began in 2005 with operation planned for 2009, Olkiluoto 3 went into service in 2023 after multiple problems. The final cost came in at over €11 billion ($11.5 billion), much of that absorbed by Areva.

In Britain, EDF’s British subsidiary is building the two-unit, 3,200-MW Hinkley Point C EPR project. Hinkley Point has suffered similar woes to the other EPR projects. A year ago, EDF announced that the price tag for the two units would hit £41.6-£47.9 billion ($52.3 billion-$60.2 billion), with the first unit coming online in 2029-2031. That remains speculative.

Despite these problems, France is doubling down on nuclear, with a new, scaled-down 1,200-MW EPR design, know as EPR2. In 2022, President Emmanuel Macron announced an aggressive “renaissance” of French nuclear ambitions, starting with construction of six EPR2 units at its Penly site in northern France and another six to follow elsewhere. In July 2023, EDF filed an application with French nuclear regulators for approval of two EPR2 units at Penly.

Macron’s nuclear optimism has generated skepticism (and his government is on shaky grounds, not apparently related to his nuclear enthusiasm).

Veteran French wind energy financier and commentator Jérôme Guillet, who publishes an eponymous Substack newsletter Jérôme à Paris, has doubts about the future of the nukes. He wrote before Dec. 21 that

this is the last gasp of nuclear – maybe some people hope to see Flamanville being finally connected to the grid in France, and multiple PR stunts by Microsoft, Amazon et al. (which are just announcements of developments, i.e. highly conditional commitments to purchase electricity) as the start of a renaissance for the sector, but it’s more like a last gasp – in fact 2024 is most likely the year where wind+solar overtook nuclear in the USA, as well as coal.

Flamanville, he writes, “is likely one of the last nuclear plants to be built in Europe. Hinckley Point may be completed at some point in the future in the UK, but even in France the next ones are in doubt, with decisions on future investments postponed. “By the time any new nuclear plant in the West gets built, the transformation of our power systems towards renewables dominance will be over.”

Jerome is also dismissive of the specter of furious growth in electric demand, which is fueling much of the nuclear boosterism. “Despite all the breathless announcements about AI and data centers,” he observes, “overall demand is mostly stable in the US (increasing by 2% in 2024 after decreasing by the same in 2023), and shrinking fast in Europe.” He concludes:

Some are blaming European deindustrialization (and collective suicide caused by crazy green policies and/or naivety about Russia, (even if these are two contradictory and inconsistent arguments) but the trend predates the war in Ukraine. The reality is that we are continuously improving industrial processes while moving towards services, and a service economy is less energy intensive than a more primitive one. Even in emerging markets energy intensity is going down fast.

————

This was originally posted at The Quad Report, the blog site of electricity expert Kennedy Maize.