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November 15, 2002
The Case For Energy Deregulation
The case for energy deregulation remains strong despite the problems Californians faced with market restructuring, according to a recent study. Strict regulations are costly and negatively affect energy providers and consumers. While the actual cost of regulations has yet to be tallied, experts estimate that restrictive trade practices cost hundreds of millions a year.
Experts project that the demand for energy will increase by 60 percent in the next 20 years. Basic market principles hold that if demand for energy increases while energy supplies stagnate, energy prices will skyrocket. Consumers should expect rising rates on heating and cooling unless restrictions on energy trade are eased.
On the other hand, case studies in the United States and Europe indicate that energy de-regulation spurs substantial economic growth.
o Following the extensive reforms in the United Kingdom that
took place in the 1990s, industrial gas prices fell by 45
percent and consumer gas prices fell by 25 percent.
o European Union member countries continue to benefit from
energy deregulation efforts in 1998. Electricity prices in
Germany fell 25 percent between 1998 and 2000.
o Deregulated United States natural gas markets in the 1980s
drove down operating costs by 35 percent and saved
American consumers $200 million a year in transportation
charges.
Price restraints, market entry barriers and other restrictive practices continue to hamper the growth of energy trading. The energy industry continues to lag behind other industries in deregulating such as airlines, telecommunications, and banking.
These restrictions make it difficult for energy providers to access and compete in foreign markets and effectively limit cross-border trading, driving up prices for consumers.
Source: Peter C. Evans, "Liberalizing Global Trade in Energy Services" (Washington: AEI Press, 2002).
For more on Electrical Power http://www.ncpa.org/iss/reg
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