Regulation Vs. Deregulation: Pros and Cons of Energy regulation in the US
The US federal government like any other given government has a right to control the usage and production of energy. It should be noted that, energy, in which form it is the lifeline of civilization. Without energy no industry can function, without energy, the world can stand still. Therefore, it is crucial to understand the importance of energy in the US economy. Regarding the concept of regulating the energy sector, the government weighted various options, which positively affirmed the purpose of introducing regulation in this economic sphere.
Thus, considering such phenomenons as, the blackout in California, hiking of crude oil prices, massive supply delays and disruptions. Which more than often are either caused by human error or natural catastrophe as is with hurricane Katrina which caused the unmeasured delay in the energy sector. This coupled with such other issues as the Iraq war, bankruptcy of energy giant Enron, rising security risks in the energy markets are some of the facts that prompts the government to regulate the energy in the US. Reflecting on such issues it is significant to understand that, energy poses the greatest threat to any given nation; this can be attributed to the fact that, unchecked supply or production of energy can result in misuse or be hijacked by terrorist organizations and this can drastically cripple any nation (Gitonga, et al, 2000).
Therefore, in regard to the US government policy of regulating all scopes regarding energy, it is prudence to accept that, this is done to protect both the consumer as well as the entire state from manipulation. Though in some cases, there has always been an issue which calls for the total balancing of energy regulations. The government policy is geared towards providing a level ground for all industry players as well as safeguarding its own economic supremacy which in total relies on the available energy sources(Chandi,2002).
Consider the fact that, US Department of Energy acknowledges and controls almost eleven sources for the basic production of energy, principally, this includes, biomass, coal, electricity, geothermal energy, hydrogen, hydropower, natural gas, nuclear power, petroleum, solar power, and power wind. Hence the scope of government involvement in such a situation is often viewed as a threat. For instance, many industries within the US are regulated by the federal government; hence joining specific markets has always been restricted in order to provide the fundamental ground for production as well as the investment environment. However, due to market challenges, prices offered in the competitive market are seen to be more favorable than those set by the government through the regulation of the energy sector.
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Regulating energy – pros and cons
The desire to protect the future of the energy industry is paramount. This can be linked to the fact that, for a number of years this sector has been surrounded by myriad of challenges which includes; conservation issues from environmentalists as well as investors, advocating for new energy policies which would be favorable to them. Thus it important to realize that, regulating the energy sector helps in checking the destruction of the environment by those involved in such phases of energy sector as oil drilling and coal mining among others. Also, it is paramount to understand that the unstable global markets linked to energy do significantly impact on the domestic markets. This is evidenced by hampering of production of goods and services (Chandi, 2002).
Another positive value of regulating energy industry can be said to be the concept of controlling monopoly hence directing market failure .it is instrumental to realize that if this industry is left to run independently there are chances that some energy allied firms may form cartels in order to control such basic energy services such as oil, gas and electricity. However, the Government policy of regulating the entire industry have seen this industry grow significantly and without risk of encouraging monopoly which can lead to market failure .
In regard to economic gains, energy forms a significant ratio of entire production can be affected significantly and this can destabilize the country’s economy. It’s on that note that that the federal Government introduced policies designed to curb the proliferation of illegal energy production points. These policies are in principal defined to help in controlling the manner by which both private and public energy producers are supplying energy. This scenario has seen the growth of a stable energy market both domestically and internationally.
As a matter of fact, the growth in natural resources which forms a substantial ratio of energy production has had the diverse expression in the past three decades. However, in the wake of the 21st century, the exploitation of energy resources took a particular dimension. This, being a cardinal factor within the U.S. economic dynasty as well as within other interested parties, who had developed obsessive traits of maintaining control over energy. Going by such explanation the US federal government found it wise to implement regulations in order to streamline the energy sector without the direct involvement of the private investors, this sector is prone to exploitation (Helena, 2007).
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Thus the policies enacted by the US government to control the energy sector are vital in establishing as well as guarding the energy status in regards to the future .it should be noted that the current energy crisis being witnessed across the world can be linked o the idea of deflecting the energy sector.
The laid down policies can be said to have been influenced by the fact that oil producing nations have been over time hoarding crude oil, hence causing artificial shortages. It’s from such practices that that the U.S. federal government found it appropriate to introduce regulation strategies in order to protect its factories from unfair energy manipulation from multinational firms. This has resulted in reinforcing the national energy resources.
According to the recent report which was published by an independent organization allied to energy sector, it was established that, the various procedures laid down by the US government to regulate energy industry are unhealthy in as far as economic growth is concerned . Other similar studies contend that competitive business environment is gradually destroyed, hence stalling any projects of investing in this industry.
Therefore, it is important to understand that a liberal market is more promising than a regulated one. Exploring other energy sector outside the US, one cannot fail to note that liberalized energy industries are more competitive and more reliable. Thus, the disadvantages of regulating energy sector can be said to be acts of killing competitive business development. So the government should allow the energy sector to be run independently as is with other sectors like agriculture, health as well as in education. Looking at the various effects caused by the governments stand, it is apparent that the negative effects of regulating this energy sector are experienced in all spheres of economy (Helena, 2007). Note that, almost of firms involved with production of both goods and services are forced to increase their prices in order to compensate for extra cost caused by government policy in the energy sector. Hence, the expenses are heavily paid by the unknowing client through taxes.
Therefore it is paramount to allow the players in the energy sector to operate under a liberalized market; this can be linked to the fact, that regulated markets are prone to manipulation as well as the growth of criminal cartels with the intention of controlling production. Therefore give the significance of energy production to, investors in such energy resources as oil, gas and electricity cannot be in a position to invest independently due to fear of laid down regulation policies. Thus regulating this industry is disastrous to both the energy producer and the buyer. Also regulation may result in unstable markets as is being witnessed in a number of OPEC member countries such as Nigeria and Venezuela.
Exploring such factors, it’s certain that most of the energy allied firms are forced to cut the number if production as well as operating cost. From a philosophical approach, the introduction of the energy regulation policies it seems there has occurred a shift in the manner energy production firms are operating, in regard to the dynamics of free trade .US being a developed nation, the concept of regulating energy has seen a large number of multinationals corporations shift their operations to other friendlier nations.
Thus it is paramount to realize that, though the government attempts to regulate the energy industry are anchored within the argument that they are protecting the domestic industry, this trend is proving to be more costly and harmful than was expected (Samuel,2006). Therefore, the government continues to lose in terms of foreign investors, low employment rates as well as increased cost of production.
On a market scope, regulating energy industry is not the best option, though the government argues in the context of limiting exploitation as well as protecting the environment. However, despite the introduction of regulation policies, the rate of exploitation in other similar areas continue to increase while environmental destruction has become one single factor that is nagging the US government ,it should be noted that this destruction is not from energy-oriented industries. Looking at the various aspects that the US government is advocating in its campaign to regulate energy industry, it can be said that in principal this is an act of protectionism.