Eleutherian

Here's a sign that the U.S. government is over-regulating the nuclear power industry. Bob Metcalfe, with Polaris Venture Partners, recently wrote an op-ed in the Wall Street Journal, stating that his firm (like many others) passed on funding promising private enterprises seeking to build new nuclear power generation plants. According to Metcalfe, five of these start-ups seek to utilize nuclear fission energy (as in traditional nuclear power plants) and two additional start-up enterprises are tapping the power of the sun: nuclear fusion energy.

Polaris and other sources of private funding chose not to invest in this new breed of nuclear power plants despite the following highly appealing characteristics:

These new small reactors meet important criteria for nuclear power plants. With no control rods to jam, they are far safer than the old models -- you might well call them nuclear batteries. By not using weapons-grade enriched fuels, they are nonproliferating. They minimize nuclear waste. And they're economical.

Those are just new nuclear fission plants. Nuclear fusion plants use no radioactive materials for fuel with not risk of catastrophic events. There is only one reason why the private market is not investing in these start-up enterprises: government regulation.

The start-ups estimate that it will cost each of them roughly $100 million and five years to get their small reactor designs certified by the Nuclear Regulatory Commission. About $50 million of each $100 million would go to the commission itself. That's a lot of risk capital for any venture-backed start-up, especially considering that not one new commercial nuclear reactor design has been approved and built in the United States for 30 years [emphasis added].

The private market is producing technology that will reduce the country's carbon emissions, and the government is making it more difficult for them. Instead, U.S. Representative Zoe Lofgren of California has introduced H.R. 3177 to increase government funding for nuclear fusion energy research and development.

The government's excessive regulations of the nuclear power industry has prevented the private sector from investing in its development. As a result, the government has felt the need to spend taxpayer money where the private sector would like to invest.

I read a disturbing headline today (what else is new): US Agency May Impose Limits on Energy Futures. (Although its search engine lags behind Google, Yahoo! Finance is still a good source for quick financial headlines). The "US Agency" refers to the Commodity Futures Trading Commission (CFTC). Before I continue on this recent development, let's go over a little history.

Last summer (2008), Congress made a push to regulate (or in some extreme cases, eliminate) speculation in the oil commodity market. However, Congress was unable to pass the proposed legislation because oil prices dropped over $100, falling below $40 per barrel.

If Congress would have listened to the experts in 2008, they would have saved themselves the embarrassment of proposing pointless (and costly) legislation. The Wall Street Journal found 89% of surveyed economists attributed the rise in energy prices to "fundamental market conditions" driven by supply and demand. The Economist added:

There is no clear correlation between increased speculation and higher prices in commodities markets in general [emphasis added]. Despite a continuing flow of investment in nickel, for example, its price has fallen by half over the past year.

Jeffrey Harris, chief economist of the CFTC, has stated that the voices demanding increased regulation of oil futures trading are confusing the cause with the effect. It is likely that the rising prices are spurring the increased investment, rather than the other way around. In testimony before a House subcommittee, Mr. Harris stated:

Our studies in agriculture and crude oil markets have found that speculators tend to follow trends in prices rather than set them...Simply put, the economic data shows that overall commodity price levels, including agriculture commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand. These fundamental economic factors include increased demand from emerging markets; decreased supply due to weather or geopolitical events; and a weakened dollar [emphasis added].

Back to today's announcement, CFTC Chairman Gary Gensler (an Obama appointee) is allowing Congress, led by Senator Carl Levin, to influence the supposedly independent institution's mission. From the CFTC's website, "The CFTC's mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets [emphasis added]."

However, Sen. Levin has chosen to ignore this mission, stating:

It is a relief to know that the Obama administration does not plan to stand by silently while inflated crude oil prices top $70 per barrel despite ample oil supplies and low demand. Excessive speculation is distorting prices, undermining our commodity markets and hurting our economic recovery.

The CFTC has previously stated that speculators do not set market trends. Senator Levin continues to confuse the cause with the effect. As such, since making his statement, the price of oil has dropped to a 5-week low of under $63 per barrel.

In 2008, the following predictions were made about the long-term price of oil:

Tim Evans, energy futures analyst at Citigroup's Futures Perspective: $60-70

Michael Lynch, President and Director of Global Petroleum Service at SEER: $60-70

Akira Yanagisawa, Senior Economist at Japan's Energy Data and Modeling Center: $50-60

J. Stephen Simon, Executive Vice President, Exxon-Mobil: $50-55

John Hofmeister, President, Shell Oil Co: $35-65

First two predictions via Reason, second three via Econbrowser.

Researchers at the University of Iowa are currently conducting field tests on technology to replace the current gasoline tax with a by-the-mile road tax. These tests utilize GPS devices installed in vehicles to log the number of miles driven. Before I get into the complications that arise from such a move, officials endorsing the road tax believe:

...the traditional by-the-gallon fuel tax, struggling to keep up with road building and maintenance demands, could fall even farther behind as vehicles' gas mileage rises and more alternative-fuel vehicles come on line.

Basically, their argument is that because vehicles are becoming more fuel efficient (at least partly as a result of government mandates), the established tax on gasoline no longer provides enough money to "properly" fund road maintenance. (I'm sure you can deduce why "properly" in is quotations).

I decided to list complications of this switch in list form. If you think of anything I missed, comment, and I may choose to add your suggestion.

1. Privacy - I don't know about you, but I don't want the government lojacking my vehicle for any reason. Even if the bill's language includes specific references to the use of the information, simply having the device already in place makes it easier for the government to go further with the collected information in the future.
   
2. Environment - Presently, the gasoline tax serves a dual purpose. It funds road maintenance and discourages consumption (thus promoting research and development into alternative fuel sources). Switching to a road tax adds a new tax to owners of electric vehicles (and increases taxes for owners of more fuel efficient vehicles). The government may also be pressured to institute a separate excise tax on gasoline, effectively making this tax shift into a new tax.
3. Stolen Vehicles - The road tax adds a new complication to victims of vehicle theft. Not only will the victim be left without a vehicle, but may also potentially have to pay a tax on the miles driven by the thief.
4. GPS Capacity - I am no expert on this subject, but will the current Global Positioning System (GPS) have the capacity to relay information from every vehicle in the country?