Powering the Future

This article appeared on Los Angeles Times (Online) on August 22, 2008.

Before you confidently hold forth about the future of energy markets, you really ought to pick up a copy of Vaclav Smil's 2005 book, "Energy at the Crossroads," and direct your attention to Chapter 4. There you will find a thorough review of the most prominent energy forecasts that have been offered over the last several decades by various blue-ribbon commissions, government forecasting agencies, top-flight academics, energy trade associations, think tanks, policy advocates and energy corporations. One can't help but conclude that drunk monkeys would be just as reliable as "the best and the brightest" when it comes to soothsaying about the future of technology, market share or price.

The point here is that we don't know what the energy future may hold and we should accordingly treat the periodic energy crazes that sweep the political landscape more skeptically than we have in the past.

If you need any proof that unleashing government to plan our energy future is like giving car keys to drunken teenagers (to paraphrase P.J. O'Rourke), you need look no further than President Bush's 2002 "Freedom CAR" initiative. First, it was charged with delivering us into the hydrogen age. But then the president discovered switch grass; fuel cells were henceforth "out" and cellulosic ethanol was "in." Now it turns out that 200-proof grain alcohol is not the fuel of the future; electricity delivered via plug-in electric-gasoline hybrids is. And Freedom CAR is but one example of many that one could marshal; whole books have been written about the myriad economic disasters and quiet taxpayer waste associated with our ongoing practice of energy planning in post-World War II America.

The problem isn't that ignorant or venal people are charged with making our collective energy decisions. The problem is that we can no more sensibly plan the energy economy than we can centrally plan any other sector of the economy, particularly given the fact that political decisions are inevitably made primarily on their political merits, not on their economic or environmental merits.

Markets will provide the lowest-cost energy possible because energy producers compete mightily with one another for profit. The argument we frequently hear that "we need every source of energy in the future to meet our staggering energy needs" is ridiculous. Some energy — such as nuclear fusion and grid-connected solar energy — is simply too expensive to produce now, which is to say, it costs more to generate than it is worth. Subsidies and mandates to get "every energy source to market" simply force us to generate and consume energy that costs more than it is worth.

In an ideal world, we would strip the energy market of all subsidies; liberate the energy industry to exploit resources on federal lands; leave prices alone so that they deliver accurate information to investors about wealth-creating opportunities and to consumers about relative scarcity; allow energy companies to structure themselves in any manner they like; and fully embrace free trade in energy markets, which keeps prices down.

I don't disagree that we have a responsibility to police the public environmental commons. But the best way to do that is to set emission rules or regulations that apply fairly to all emitters in all sectors of the economy and that have some relationship to the harms being addressed. Once that's done, market actors will order their affairs efficiently to produce the lowest-cost energy possible and do a better job picking "winners" than would-be central planners.