US Energy Policy and the Pursuit of Failure

by on April 4, 2013 at 5:21 am in Books, Economics | Permalink

If you are interested in energy policy and political economy, Peter Grossman has written a good book, US Energy Policy and the Pursuit of Failure. I was asked to blurb the book  and was happy to do so:

For four decades, politicians have promised a solution to the “energy crisis” that will bring Americans “energy independence”. Fusion, wind, solar, switch grass, or algae, the salvation technologies have changed but the promises remain the same and broken. In this important and entertaining book, Peter Grossman documents the history of energy policy failure. Most importantly, he explains why policy has failed. Crisis-mentality thinking has promoted quick fixes and single-shot ‘solutions’ that ignore market and technology realities. What we need is not a solution in the style of the Manhattan project but stable rules that support basic research while leaving plenty of scope for American entrepreneurship and innovation. Professor Grossman’s careful history and insightful analysis is the key guide to a more modest but a more successful energy policy.

Alex Tabarrok, Director, Center for Study of Public Choice, and Bartley J. Madden Chair in Economics, George Mason University

ThomasH April 4, 2013 at 7:40 am

Well said. Of course “energy” policy is a grab-bad of issues like climate change and road user finance and tax reform and “independence” is a silly objective, period. I attribute the largest part of this failure to those who refuse to consider “stable rules” i.e. taxes which leads to hightly “second best” policies like ethanol and “green energy” mandates and Solyndra-type investments.

mulp April 4, 2013 at 12:04 pm

How do you separate energy policy from environment?

Isn’t that like separating free market from property rights? I support free markets where I sell anything I can grab for the market clearing price? Granted that was the foundation of the US where the role of government was taking land from one group and giving or selling it to other groups, but once the victim groups have nothing left, who are the new victims chosen?

When an old pipeline dumps thousands of barrels of crude oil in your yard forcing you to abandon your home, is that not energy policy? Many argue that strict regulation of pipelines and strong oversight of pipelines is not protection of property rights but instead harmful energy policy. That fighting government taking of your land to give to a corporation for private profit is not protection of property rights but instead harmful energy policy. That fighting the methods of fracking to prevent pollution of the waters your cattle and children drink is not protection of property rights but harmful energy policy. Even the idea that energy producers should be held liable in court under civil and criminal law for their harm to others is condemned as harmful energy policy.

Do individuals have any rights when it comes to energy policy? Or is energy policy driven by “the sacrifice of the few for the benefit of the many”?

ThomasH April 5, 2013 at 6:52 am

To make policy about “energy” does not seem to be good starting point. If we make policy about CO2 build-up in the atmosphere, there will be implications for energy production and use. If we make policy to tax traffic congestion, there will be implications for energy production and use. Energy “indendence” an often stated objective of such policy is however a mistaken objective. Granted, one might start looking at ways to reduce policy induced ineffieiencies in energy markets (fuels are somwhat substitutable), but that is not what is usually meant by “energy policy.”

Brian Donohue April 4, 2013 at 7:53 am

“a more modest but a more successful energy policy.”

Hmmm…the word ‘but’ feels out of place. mebbbe ‘and therefore’.

Ron W April 4, 2013 at 9:52 am

Seems interesting, and I clicked through to Amazon to see about purchasing the book… Why is it so expensive? Are there a lot of people required to buy it?

Peter Grossman April 4, 2013 at 11:05 am

When you type in the title at amazon only the $99 hardcover is shown; click on the title and you’ll see the paperback is one-third the price. I am trying to get amazon to change this. –Peter Grossman

BadShoes April 4, 2013 at 10:24 am

The fundamental problem with energy policy in the United States is that, for most of the public, the energy “problem” is that energy prices are too high–i.e., that prices are sufficiently high that people notice them.

On the other hand, “experts” think that energy prices are too low–that they do not reflect various risks and externalities, and that consequently the public consumes “too much” energy and in the wrong forms.

So, uh, what can politicians in a democracy actually do? Mumble incoherently, and hope for a technological miracle that lowers the price while making the externalities go away. Its helpful that the externalities associated with the forms of energy that are widely used are much more visible and apparent than the externalities of hypothetical or little-used technologies

Externalities don’t exist in political or legal sense until they are discovered. When they are discovered, they create a gap in the existing system of property rights. An ancient implicit right to emit carbon dioxide, we learn, clashes with an implicit right to a stable global atmospheric composition. There are any number of legal solutions to this clash, each of which would have a set of economic winners and losers.

When the political process grapples with a newly discovered externality, the debate is really about who pays, but nobody ever talks about that: we hear about junk science, hard-working coal miners, impending economic catastrophe, our children’s welfare and dead polar bears. This is especially ironic because at the end of the day, it is always the general public that will pay, either for the consequences of a changing atmospheric composition or for a different energy mix.

The unwillingness of our democracy to have an honest discussion is unfortunate, in part because one of the features of discussions about costs in a democracy is that concealing the cost is often preferred over minimizing the cost. So, the Congress resolutely turns its face from considering cap-and-trade legislation, which we hear would be very costly and a dangerous expansion of government authority, while EPA has the duty and legal authority to regulate greenhouse gas emissions under the Clean Air Act, using laws that everyone agrees are ill-suited to the purpose. As one of my more cynical colleagues put it: “How much are you willing to pay to not know how much you are paying?”

Sorry, i’ve been ranting. will stop.

Urso April 4, 2013 at 10:44 am

Good comment.

mulp April 4, 2013 at 2:12 pm

But what are externalities,really.

Aren’t externalities just pillage and plunder?

Those Indians don’t have deeds to their land granted by European Kings, so they are external to European derived political-economy, therefore, we can just take their land and drive them off or kill them. After all, they are external to our moral code.

Those landowners refuse to allow us to put our pipeline through their property, but given they are external to our corporate profit driven system, using any means possible to take their land for our profit is justified because they are external to our corporation.

Polluting the people downstream and downwind is justified because they are external to our interest in polluting the water and air.

Breaking into your house is ok because it is external to my household.

Externalities is justification for us v them – they are on the outside of our interests so we don’t need to consider theirs.

If you take the point of view of a scientist and especially an ecologist, nothing is “external”.

To merely use the word “externality” in the context of political-economics is to deny nature, and thus to place political-economy outside the natural world.

BadShoes April 5, 2013 at 11:34 am

An externality is fundamentally a consequence of something that I do that affects you, but where there is no social mechanism that requires me to consider your consequences. Often, no social mechanism exists because the causal linkage between my action and your consequence is unknown. Each of your examples are useful illustrations of how externalities are “discovered” and how they evolve into rights and responsibilities.

–when the first Europeans landed in the new world, the idea of human rights barely existed. Kings ruled by divine right, with theoretically infinite power over their subjects, limited only by practical considerations and various self-restraining contractual arrangements. Non-subjects (including other Europeans) had whatever rights they could enforce at the point of a sword. The Europeans had better weapons and disease immunity so they could pillage and plunder, and they did. Over time, surviving indigenous people were incorporated into the legal system, in which they became citizens or sovereign powers in treaty relations. Pillage and plundering an Indian reservation today would be grounds for arrest and incaceration.

Pipeline builders have to buy the land or a right-of-way, or persuade a government to exercise the right of eminent domain and pay compensation. Eminent domain is usually a hot button issue, and politicians hate-hate-hate to invoke it. In real life, pipeline operators usually end up cutting a deal with the landowners, with a certain amount of loose talk about eminent domain used to get the price down.

–polluting people downwind and downstream used to be entirely legal in the United States. The idea that pollution posed some sort of problem and that people have an implicit right to clean air and clean water gained political traction only in the 1960s. Since the passage of the Clean Air and Clean Water Acts, such emissions have been subject to an increasingly complex and stringent body of law and regulation. Air and water quality (as measured by concentrations of regulated pollutants) in the United States have improved steadily in recent decades. This costly effort has probably generated health benefits alone well in excess of the costs.

–breaking into a house has not been okay in the United States, and before that in Britain, for maybe a thousand years. Burglars or robbers, if found, are subject to arrest and incarceration.

It is true that if one takes the point-of-view of a scientist or ecologist, nothing is external, but then scientists are trying to understand the functioning of natural systems, and not, qua scientists, not trying to decide what to do.

We humans are gradually coming to a new understanding that we are embedded in interlocking complex natural systems, that our behavior is affecting these systems, and that our own self-interest causes us to be stuck with the responsiblity for attempting to manage global-scale natural systems.

We certainly lack the institutions to manage planetary natural systems, and it is far from clear such systems are manageable, or if they are, that humans are smart and wise enough to manage them. But, IMHO, we ought to try, and trying involves things like laws and property rights and economic and political interests, and coming up with answers to what, specifically, people, institutions, and societies ought to do.

So, I don’t think that by using the word “externality” I am denying nature. The concept helps me to understand how the economy, which is a sort of artifical ecosystem, functions subject to a set of property rights, which in turn, are established by political institutions. Teh concept helps illustrates, how and why our societal institutions do or do not recognize the consequences of our actions on the natural world.

Steven Kopits April 4, 2013 at 10:53 am

Who’s Peter Grossman? He’s not a regular in the energy stables.

The US has a lot of energy policy. Power is highly regulated, and there are any number of programs in place to support renewables (PTCs, ITCs, RECs, ORECs, RPSs, loans, grants, guarantees). The US Gulf of Mexico is open for drilling–it is highly regulated. Alaska may not be open for drilling–it is even more highly regulated. The EPA has pretty much regulated coal plants out of existence. US policy makes nuclear expansion problematic.

As for “energy independence”, this is a retail political notion, not policy or a target for anyone in the industry. We don’t have a policy of “vehicle independence” or “soybean independence”. Politicians say this because it sounds good, not because some consensus has arisen against free trade in energy products.

We have lots of policy. Not all of it is functional.

Rahul April 4, 2013 at 12:02 pm

Why are there so many more books on Energy Policy and Energy Crises by Economists than Engineers?

JWatts April 4, 2013 at 12:16 pm

Because the US doesn’t have an Energy Crises from an Engineering point of view.

Build it Fast, Cheap or Well (pick two).

prior_approval April 5, 2013 at 1:00 am

Learn German.

TommyVee April 4, 2013 at 3:46 pm

” The EPA has pretty much regulated coal plants out of existence.”
Do you feel no compunction to make your claims have any connection to reality??
Aren’t you slightly ashamed to write blatant falsehoods (ie., “lies”) that can be detected with 20 seconds on google?

http://en.wikipedia.org/wiki/Coal_power_in_the_United_States
“Coal power in the United States accounted for 42% of the country’s electricity production in 2011.[1] Utilities buy more than 90 percent of the coal mined in the United States.[2]
In 2009, there were 1436 coal-powered units at the electrical utilities across the US, with the total nominal capacity of 338.732 GW[3] (compared to 1024 units at nominal 278 GW in 2000).[4] “

JWatts April 4, 2013 at 4:02 pm

I’m pretty sure he meant building ‘new’ coal power plants. It’s still not completely correct, but there is no denying that the EPA has made it much more expensive to build new coal plants in the US.

Although the United States has long generated the bulk of its electricity from coal, over the past 6 years that share has fallen from 50% to 38%. Plans for more than 150 new coal-fired power plants have been canceled since the mid-2000s, existing plants have been closed, and in 2012, just one new coal-fired power plant went online in the United States.

prior_approval April 5, 2013 at 1:03 am

The price of natural gas, and its cheaper to burn efficiently and cleanly, played the largest role – compare the price of natural gas in the U.S. between 2012 and 2006 – http://www.eia.gov/dnav/ng/hist/n9190us3m.htm

anon April 4, 2013 at 11:32 am

If they want more attention, the advocates of “energy policy” must tie it to gun control.

See
http://marginalrevolution.com/marginalrevolution/2013/04/the-culture-of-guns-the-culture-of-alcohol.html

Harris April 4, 2013 at 11:41 am

The concept and practice of “Energy Policy” is ultimately just standard socialist central-planning…. superior ‘experts’ in the government plan & direct things in the national economy — and everything turns out really great.

What a wonderful concept of economics and governance… except that it has failed miserably wherever it’s been attempted — and it has been attempted a lot.

“Energy-Policy” enthusiasts should admit their true collectivist outlook (at least to themselves).

ThomasH April 5, 2013 at 7:03 am

There are possibly as many motivations for “energy policy” as there are advocates for the disperate policies that might be labeled “energy policy.” Most of those who advocate “energy independece” for example, probably do not think of themselves having a “collectivist outlook;” they just want more subsidies/lower taxes and less regulation of oil and gas production.

Willitts April 6, 2013 at 3:53 am

Pebble bed nuclear reactors. The answer doesn’t get any more clear.

Aside from the irrational fears of radioactivity and nuclear weapons, the coal and oil industries have strong incentives to keep things as they are.

Even if the mythical creature of plug in electric vehicles becomes feasible (as in hundreds of thousands of people not stranded on the highway), then we will need clean nuclear power to provide them with energy.

If people knew the volume of waste that coal-fired plants produce compared to the miniscule amount of nuclear waste, there would be no hesitation in building these things everywhere.

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