Friday, December 05, 2008

Energy mistakes of the past

Mark Twain said, "History does not repeat itself, but it does rhyme."

Rather than pour money into subsidies and attempts to mandate our way out of a lousy energy policy, the vast majority of government focus should be on developing new technologies.

Looking back at the 70s and 80s, we see some similarities to the recent events. There was a massive energy crunch, high prices, calls for conservation (some reasonable, some not), federal support for alternatives (some reasonable, most not) including the nascent ethanol boondoggle, and automakers were caught flatfooted on vehicle mix.

Then we got relief. Oil dropped from $39.50 a barrel to under $10 by 1986. US energy policy stagnated. Nobody was interested in developing new technologies, and farm state politicians kept the ethanol dream alive.

Similar dynamics have occurred this year. Oil price shocks, similar government responses. And oil has since dropped about a hundred dollars a barrel since the summer.

Now what?

It doesn't make sense to subsidize the implementation and use of technologies that are uneconomic, and particularly uneconomic with oil around $43/bl. Instead, we should focus on developing technologies that can replace a significant fraction of our future oil consumption that individuals have a non-subsidized incentive to utilize. Dump some more money into fusion research. Fund a few labs working on more efficient solar PV collection. Work on carbon sequestration so we can utilize our massive coal reserves without angering the enviros.

Successful development of more economical technologies is a public good. Once in place, it can be enjoyed by the whole society without coercion. Mandates and subsidies for uneconomic technologies represent the coercive management and inefficient distortion of the economy.

3 comments:

Anonymous said...

Joe - the fact that you and I agree on energy is increasingly concerning...

Matt

Samay said...

Hippie!

No, I don't see how this can be a partisan issue - finding ways to reduce drags on the economy used to be the big republican thing, and reducing fossil fuel use has been a big democratic thing for a while, so why can't we do this?

Sockless Joe said...

Well you wouldn't think it would be nearly as partisan as it is.

Are you ready to give up subsidies and mandates for solar and ethanol, and instead plow that money into research? Do you think Pelosi is?

Here's another mind bender - New coal plants are more economical and emit less carbon. Still a lot of carbon, but less. Utility companies would replace some old plants with new ones but won't because of uncertainty about future regulation. So there's a perverse incentive to not upgrade to a cleaner and more efficient system, even though the evil corporations want to.

Nobody thinks about what compromise means anymore. Go back to the debate about offshore drilling earlier this year, and consider this hypothetical: Democrats allow drilling, Republicans accept some sort of tax or fee (only on those areas being opened) that goes straight to university R&D. I think a lot of reasonable people on both sides would have taken that deal. But instead it devolved into a BS debate about protecting pristine areas (even though the single biggest source of offshore petroleum pollutants is natural leakage from oil formations).