Thursday, November 22, 2007

Some elements of a proper energy policy

A proper Energy Policy in the United States would promote (1) clarity of purpose, (2) diversification of use of energy resources, and (3) more transparent and accurate pricing of energy such that the market (consumers and energy companies) can properly make both short and long term decisions.

How to promote each item above:

(1) CLARITY – State, through actions and rules in the Energy Bill, that the U.S., being the largest energy consumer in the world, and the largest energy user per capita, must always consider the tradeoffs of such a large amount of energy. These tradeoffs are environmental stewardship, security/accessibility of energy resources, and costs that don’t cause disruptive economic conditions (but that if changing slowly over time in the right direction can work to our benefit). For example: The fact that private banks will not underwrite new nuclear facilities is testament to how high they perceive the risk. Does this mean that the U.S. should have no new nuclear facilities? Not necessarily, BUT if the taxpayers underwrite (through government loan guarantees) the high infrastructure costs (for nuclear plants and disposal), then the taxpayers should also reap the economic benefits of this underwriting. I don’t want a “national energy company” (i.e. U.S. government running a nuclear facility), but I might rather have that than the U.S. citizens taking the risk of a nuclear facility without directly benefiting from the cheaper operational costs of generating electricity from nuclear facilities.

(2) DIVERSIFICATION – The oil shocks of the 1970’s took petroleum out of the mix (almost, but not entirely) of electricity generation. We are benefiting from this decoupling today with higher oil prices. Consumers will generally benefit when there are multiple competing sources of fuels/energy for various applications ranging from heating/cooling homes to fueling cars. The market is NOT SET UP to take into account these concerns, so it is the responsibility of the government to set up the rules such that various companies end up filling the need for a diverse energy supply that includes ALL fuels renewable, fossil fuels, and nuclear. THE MOST IMPORTANT thing to do regarding this concept, and energy policy in general, is to promote higher CAFE fuel standards for cars AND LIGHT TRUCKS AND SUVS. We, the United States, can do this, and should. More fuel efficient cars are being made, and can be made. Also, the more fuel efficient a car is, the further it can go ON ANY FUEL (electricity, hydrogen, gasoline, diesel, etc.). AND, higher fuel standards do not mean people will buy less cars, so I’ve never been sure why automakers are so concerned about this issue as long as the time for transition is appropriate.

(3) TRANSPARENT PRICING – Every energy usage today is subsidized in some way by the government at both the state and federal levels. This is not inherently bad as the governments have concerns and perspectives that the players in the economic market do not have. The U.S. has established over long time scales that it is willing to promote and fund expansion of fuels that are BOTH NEW (wind, solar) AND WELL-ESTABLISHED (coal, petroleum exploration). Arguments abound such as (1) fossil exploration is “new” and R&D is needed, or (2) wind energy is starting at a disadvantage and needs R&D to compete as well as new transmission lines and rules, (3) etc. on other energy resources. All of this is generally true, and people are just bickering over who is not getting their fair share. Everyone has an argument because the coupling between energy subsidies and subsidies in other areas of the economy are sufficiently blurry. There are some areas where U.S. investment can have a more direct effect upon pricing than others. For example, the U.S. is only one player in indirectly dictating (by consumption, production, and intervention in oil-rich areas) the price of oil. But investing in resources that exist within the U.S. (renewables, coal) a more direct effect will be had upon how much citizens spend on energy. We can make a start to people understanding this by making some basic information available in a simple and straightforward manner: 1. Government dollars given to promote each fuel (wind, oil, coal, etc.) 2. Amount of energy consumed from each fuel (absolute values and percentages) 3. Dollars per energy consumed 4. List of externalities that are and are not accounted for in prices of energy. Examples include SO2 is not sufficiently internalized for coal plants (due to technology for scrubbing) and nuclear waste disposal is not sufficiently internalized for nuclear power.

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