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A Free Market Energy Vision

Energy is the master resource. Without it, other resources could neither be produced nor consumed. Even energy requires energy: There would not be usable oil, gas, or coal without the energy to manufacture and power the requisite tools and machinery. Nor would there be wind turbines or solar panels, which are monuments to embedded fossil-fuel energy.

And just how important are fossil fuels relative to so-called renewable energies? Oil, gas, or coal generates the electricity needed to fill in for intermittent wind and solar power to ensure moment-to-moment reliability. So renewable energy, ironically, is dependent on nonrenewable energy short of prohibitively expensive battery technology assuring the flow of electricity.

As a component of all products and services, energy needs to be affordable, convenient, and reliable. To this end, public policy should respect consumer preference and allow energy producers to meet the demands of the marketplace. This requires a respect for private property rights, voluntary exchange, and the rule of law to facilitate the global exchange of energy and its innumerable subcomponents.

Government Intervention

Global energy supplies are primarily owned by governments rather than by individuals, giving rise to ‘energy security’ problems for some nations. In state-run economies, political elites make the decisions that otherwise would be made by millions of people. Win-win voluntary exchanges are supplanted by government-dictated win-lose transactions. Wealth is redistributed rather than created. Pure waste results from the intervention of (political) third parties into what otherwise would be mutually advantageous self-interested exchange.

For example, electric utilities may be forced to buy wind power, solar power, or another politically correct energy under a state law. A mandate is required because a free marketplace would not support such expensive, unreliable—noncompetitive—supply.

Oil and gas producers may be unable to access offshore properties because of government constraint. In such cases, supply is not produced, and higher-cost substitutes elsewhere pick up some of the slack. Consumers are left with less supply and higher prices. Economists have a name for this: inefficiency.

Government intervention may also give life to uneconomic projects. Such ventures may include carbon capture and storage, a “smart” electricity grid, or even a nuclear plant that requires a federal loan guarantee. Resources that go to these projects do not go to other more economical projects (which may or may not be in the energy sector) as judged by the marketplace. Resources are again misallocated.

Nonmarket Failure

Proponents of government intervention cite “market failure” as the reason for regulating or subsidizing energy projects. Negative externalities created by self-interested exchange are said to require government modification of transactions in ways ranging from a prohibition to a tax.

But there are two other types of failure that also must be considered before rushing to policy judgment.

One is analytic failure, in which the outside evaluator’s prescription for intervention (such as a per barrel “energy security” tax on oil imports or a per ton “climate change” tax on carbon dioxide emissions) overcorrects or undercorrects for the “real” problem. The error might be purely intellectual—or it might reflect the personal prejudice of the analyst. Fallible self-interest in the marketplace has a counterpart in the ivory tower.

Second, there is government failure whereby even the “correct” analytical blueprint is altered and violated in the political process. Special-interest tinkering add to or subtract from the core proposal, and “log rolling” (where extraneous issues are added to the legislation just to win votes) is resorted to.

House passage of a cap-and-trade energy bill last year, and healthcare legislation enacted this year, are stark evidence of sausage making in Washington, D.C.—and something scarcely recognizable in “we the people” textbooks.

Thus, “market failure” does not automatically require a government correction. This suggests a different approach. Knowing that solutions are likely to be as or more imperfect than problems, alleged market failures should be scrutinized to see if they are really serious problems. And if so, whether the real problems can be addressed by novel voluntary approaches and reforms rather than by government dictates.

Energy Sustainability: Markets, Not Government

Intellectual and political debates over energy have revolved around four “sustainability” issues:

1. Future supply growth of carbon-based energy (including oil, gas, and coal) in light of the fixity/depletion view of minerals.

2. Air and water pollution from carbon-based energy production.

3. Security of supply, particularly oil imports to the U.S. from the Middle East.

4. Global warming (aka climate change) from man’s use of carbon-based energy.

Whole books address these issues, most from the market-failure viewpoint conclude that mankind is on a perilous path, and government-engineered energy transformation is necessary.

But students of history must ask: Has a political makeover of any industry ever worked well for consumers and taxpayers? Or has it had the opposite effect? Market makeovers from shifting consumer demand, also known as creative destruction, is one thing; governments wielding carrots-and-sticks to pick winners and losers is quite another.

The argument for allowing free markets, rather than government planning, to address the four sustainability issues can be summarized as follows:

1. Estimated quantities of recoverable oil, gas, and coal have been increasing over time according to the statistical record. Human ingenuity in market settings has and will continue to overcome nature’s limits, leaving in its wake errant forecasts of resource exhaustion. The resource challenge is political: allowing access and incentive so that the ultimate resource, human innovation and entrepreneurship, can expand new energy supplies and multiply its productive utilization.

2. Statistics of air and water quality in the United States show dramatic environmental improvement and, in fact, indicate a positive correlation between energy usage and environmental betterment. While improvements have been achieved by politicized, command-and-control environmental regulation, the results have come at a higher cost than necessary.

3. Energy security in the electricity market is assured by abundant domestic coal and the fact that almost all U.S. gas imports are from Canada. Most of the oil needed for transportation comes from domestic supplies supplemented by imports from a variety of ally countries led by Canada and Mexico. Oil imports from unstable or unfriendly nations, such as Venezuela and those in the Middle East, can be more effectively addressed by allowing greater access to U.S. oil and gas resources for development than by government discrimination against oil imports that cannot discriminate between “good” and “bad” barrels.

Even if the U.S. were to use the powers of government to pare domestic oil consumption, the resulting drop in world oil prices would encourage non-U.S. demand and subsidize foreign industry at our expense. The world oil market will continue to exist and thrive even with reduced U.S. participation and, over time, the market will continue to improve.

4. The global warming scare is plagued by open scientific questions, economic tradeoffs, and the reality that carbon-based energy is requisite to economic growth. Carbon rationing (via the Kyoto Protocol) is a failed policy for the developed world and a nonstarter for the developing world. Not only have targeted reductions proved to be elusive, the economic costs of carbon rationing are not unlike those from (postulated) deleterious climate change.

The recent oil spill in the Gulf of Mexico raises an additional sustainability issue: unexpected setbacks that can kill and cause mass property losses. (The culpability of “green” BP versus the more reality-focused oil industry should be noted.) Short-run problems, however, can result in longer-term gains so long as the firm faces full liability and pays restitution to the victims. Accountability in private property settings encourage companies to square profits, people, and the environment—and avoid the financial losses that come from performance failure.

Rather than expand government, public policy should end preferential subsidies for politically favored energies, depoliticize access to public-land resources, and privatize such assets as the Strategic Petroleum Reserve. Multi-billion-dollar energy programs at the U.S. Department of Energy can be eliminated. Such policy reform can simultaneously increase energy supply, improve energy security, reduce energy costs, and increase the size of the private sector relative to the public sector.

The Real Sustainability Problem: Statism

To Al Gore, the “planetary emergency” is five-to-six billion people using oil, gas, or coal for most of their energy needs. But the real energy problem is that one-and-a-half billion people do not use modern forms of energy. Rampant statism in place of private property, voluntary exchange, and the rule of law, is behind this problem.

The energy-impoverished use dried dung and primitive biomass to stay warm and cook their meals, destroying their health and shortening their lives. Without electricity or machines, they do not have clean water, reliable lighting, or other means for comfortable, sanitary living. This here-and-now problem demands energy freedom and an end of debilitating energy statism.

The free-market vision stresses that these impoverished should not be subject to energy rationing by government. Solar panels and industrial wind turbines can only generate a fraction of the energy produced by diesel generators or a conventional power plant—and much less reliability. Energy brawn is needed, not inferior, politically correct energies that appeal to government planners.

Property Rights vs. the ‘Resource Curse’

More fundamentally, these victims of statism need private-property rights to in-ground minerals and ownership title to energy infrastructure. In this way, they can overcome the so-called resource curse whereby siphoned energy wealth underwrites government control and bad economic policy.

Countries worldwide should reject energy planning from a politically endowed elite. Government planners suffer from a “fatal conceit” that their knowledge and goals must override those of the masses. But on-the-spot energy consumers and energy producers, guided by prices and profit/loss, have much more collective wisdom than faceless bureaucrats commanding from on-high. Top-down planning misdirects and destroys despite the best efforts of even well-educated, well-meaning bureaucrats.

Towards Freedom

Freedom—the use of reason and persuasion in place of coercion—is a worthy goal. The initiation of force should be a last resort given the ability of free people to improve situations and correct problems. In the U.S. energy sector, market reliance has produced economic coordination, fostered economic growth, and democratized wealth. Government intervention, on the other hand, such as occurred in the 1970s with U.S. oil and gas price controls, has produced shortages, civil strife, and bureaucratic waste.

Markets are not perfect, inspiring some to devise and champion government intervention. But political solutions must contend with analytic failure, implementation problems, and public-sector (taxpayer) costs. Imperfect markets, in other words, may well be better than “perfect” regulation in the real world. The burden of proof, therefore, should be on government intervention, rather than on voluntary transactions premised on private property and governed by the rule of law.

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This is a revised version of a piece that recently appeared in the Foundation for Economic Education’s monthly magazine: The Freeman: Ideas on Liberty.

39 comments

1 Richard W. Fulmer { 07.16.10 at 7:25 am }

It’s both amazing and sad that government interference can take resources and turn them into a curse for a nation’s people.

2 Ed Reid { 07.16.10 at 7:46 am }

It is my observation that most situations described as “market failures” are actually failures of functioning markets to produce the dysfunctional results desired by the political elites.

In almost every instance I can recall, government intervention has disturbed or distorted the functioning market and then relied on “market-based” mechanisms to restore order in the “new reality”. The glaring exceptions are regulated industries, in which the government intervention is continuous, though not always consistent.

3 Steve C. { 07.16.10 at 8:45 am }

Bravo! Can anyone doubt that what the public wants are energy supplies that are affordable, reliable and convenient? Yet we have government, industries and third parties who are doing everything possible to foil this need at every turn.
I can’t help but thinking that in 100 years, social scientists will be hosting symposiums with topics like “Windmills?! What were they thinking?”, “Food to Fuel, And other Silly Ideas.” and “The Great Global Warming Panic. A Failure of Imagination or a Failure of Politics.”

4 Ferdinand E. Banks { 07.16.10 at 10:06 am }

I’m not against government being involved with energy. On the contrary, I don’t see this thing working without government playing a key role. And I’m not the only one to feel that way. In the new edition of my energy economics textbook I will probably cite a number of very conservative gentlemen – and maybe a few ladies – who feel the same way that I do.

But unfortunately there is some craziness associated with many governments where energy is concerned – or maybe I should say a lot of craziness – and in cases where some top politicians have the right ideas (as in Germany), the voters seem to be out of step.

In fact I’m tempted to say that everybody is out of step except me, and even I don’t say it, I’m tempted to think it. For example, this business with wind is really scary, because as far as I know, hardly anybody is prepared to make the calculations that will show that wind is not what we want when standards of living are in danger: make these calculations and distribute them in such a manner that even our hypocitical academic colleagues will comprehend that an inferior source of large-scale electric power is a threat to them and their families. And when you pick up a publication with the prestige of the (UK) Financial Times, and are confronted by a column a page long claiming that the optimal energy future will feature an absence of nuclear and ‘unsequestered’ CO2 emissions, then you know that you are on your way into a world where anyone with half a brain is not going to be comfortable.

The expression politically correct is used in this article, and that of course is where the problem is. The IAEE Energy Forum, once a reasonable publication, has gone off the deep end with environmental craziness, and as far as I can tell the Swedish government has signed on for the duration. What I would like to say is that they will be alone with this crackpot behavior but that is precisely the opposite of the truth.

5 rbradley { 07.16.10 at 10:25 am }

I expect that the Left will increasingly come to grips with an energy reality that shows that wind power and such are not the solution but a problem. The physics that Kent Hawkins and others are documenting must be confronted by the Left enviros sooner or later.

6 Richard W. Fulmer { 07.16.10 at 10:57 am }

Professor Banks,
What key role do you see governments playing in energy? What is it that will not work if government does not play this role? Thanks.

7 Damned Skeptic { 07.16.10 at 11:03 am }

Despite improvements we are still polluting our air and water. The question is what to do about it. As is pointed out, in some parts of the world having access to modern carbon based energy sources would be an improvement, but since we have those sources in the industrialized nations, continued improvement must come from something else. I’m not suggesting I know how it should be achieved, but our goal should be clean air and water.

8 Jon Boone { 07.16.10 at 11:08 am }

As I see the issue, at least as shorthand, the problem is that, in the electricity sector, the conversion of reliable, affordable, secure energy into power for transmission to all–residents, commerce, industry, the public sector–has become politicalized in ways that produce greater unreliability, increase costs in regressive ways, and threaten the supply security. This has happened because certain elements of the private sector, which have a vested interest in devaluating the energy supply, have captured the relevant government functions, preventing them from doing their jobs properly while subverting government’s ability to be a dispassionate arbiter of the truth. Concurrently, except for isolated pockets on the Internet, news accounts of energy production are generated by the same “entrepreneurs” that have captured government. Holy leveraging…! Infotainment for the masses.

What is so sinister about all of this is that corporate captured government is now seen as legitimizing–and enforcing–politicized energy conversion initiatives. Challenging those initiatives now involves engaging in what is perceived (again, note how this perception is manipulated) as unpatriotic activity by unruly zealots. It also involves ultimately facing the power of the state’s enforcement apparatus.

But it is now relatively easy to marginalize dissent, or even sound science, by using stochastic techniques familiar to insurance companies and politicians who use spin doctors to tailor their campaign rhetoric to stitch together just the right amount of voters to win election. Call Rob Bradley a shill for fossil fuels, for example, or dress an energy debate up in arcane language, using pretentious he said/she said claims and counterclaims. Give ‘em the old razzle dazzle. Daze and dizzy ‘em.

To see what’s going on here, let me recommend an evening watching the musical, Chicago. Here’s a teaser, the lyrics from Razzle Dazzle:http://www.stlyrics.com/lyrics/chicago/razzledazzle.htm/

9 Ferdinand E. Banks { 07.17.10 at 2:27 am }

What key role do I see governments playing? That must be the easiest question that I’ve ever been asked. In a perfect world stop or discourage the telling of lies and spreading of nonsense about energy. Note, NOT stop telling lies (which governments have been known to do), but stop or discourage THE telling of lies and spreading of nonsense about energy, and when the lies and nonsense appear, make sure that the TV audience is duly apprised . For instance, all so-called energy wisdom that happens to be nonsense should be exposed as nonsense, and exposed/explained in such a manner that it can be understood by one and almost all. Moreover, the time to do this is now, not later.

Of course, we don’t live in perfect worlds. If we did Dr Chu would have fired a number of his assistants, and appointed himself to take over their functions. Then it is possible that the US might get the energy future they need and perhaps deserve.

10 Richard W. Fulmer { 07.17.10 at 11:56 am }

Professor Banks,
In your perfect world, the government would stop others from telling lies about energy (though why stop at energy?). And who gets to decide what the truth is? The government, which is itself under no obligation to tell the truth (the same government that is currently telling us that corn-based ethanol will bring us energy independence and save the environment).

Your idea of Heaven, a world in which truth is dictated by self-interested politicians and bureaucrats, is my idea of Hell.

11 Charles G. Battig, M.D. { 07.17.10 at 12:27 pm }

The moving finger(s) having written (and written and written), (barely) moves on, and nary a word of (logic) can lure it back to where it all began, more or less.

The fingerprints of F. A. Hayek, Shumpeter, Spengler, Mussolini’s “third way”, Hubbert’s “peak oil”, Eisenhower’s “military-industrial complex” (now morphed into the Obama “private industrial-government cronyism” complex) are all here under the optimistic gaze, I trust, of Julian S. from above.

Rob’s essay is the essence of logic in an illogic world. Politicans who get to run things for the rest of us do not seem to ever get to the impartial logic part of legislative formulation.

Unlike Prof. Banks, my perfect world would have the unfortunate Dr. Chu fire himself from a postion where a Nobel prize in physics brings little pragmatic knowledge to the real world of a political appointment, or one with messy oil spills. His other sterling qualifications for appointment included a concern with climate change. I wonder what “energy future” does Prof. Banks feel that the rest of us “deserve”?

12 Ferdinand E. Banks { 07.17.10 at 12:49 pm }

Well Richard, I think that I am the man who should be telling people what the truth is, as well doing what I do so good in seminars and conferences, which is to make fools of people who don’t see things the way that I see them. I hate to inform you, but I deal in bottom lines. The correct energy solution for the country where I live, Sweden, is somewhat more nuclear and a lot of the right renewables and alternatives. The important thing here is to understand that without the nuclear the renewables and alternatives will underperform. That also applies to the US.

What are the ‘right’ renewables and alternatives? There is room for some wind and probably some corn based ethanol and a lot of electricity, as well as the other kind of ethanol. I’d love to say that I’m capable of figuring out exactly how much, but that is unfortunately not true. I don’t have a clue and don’t care. I can figure out a lot of things about oil and nuclear however, and nobody in their right mind would want to be in a seminar or conference with me and say that I’m wrong.

As for this Hell you are talking about, for me that is millionaires spreading lies in order to be billionaires. It’s also the oil price going up to $150/b again and dumb politicians and bloggers making fools of their supporters, while unemployment sets records. Its having university professors tell me that they would feel “safer” with Ms Palin in the White House than Mr Obama, and worst of all, having to communicate with people who are incapable of understanding that miracles took place in the United States during WW2, thanks to Franklin D. Roosevelt. It’s also winning two wars – Iraq and Afghanistan – but being stupid enough to continue fighting them in order to bring freedom and democracy to somebody.

13 Jon Boone { 07.17.10 at 2:19 pm }

Let’s keep the issue as simple as possible, Ferdinand. And let’s assume that we both seek scientific elegance by way of making plain (the very definition of explanation) the best way of producing the most reliable, affordable, and secure electricity within the laws of physics while accounting for reasonable societal goal, such as substantially reduced carbon byproducts in the air and water, minimal use of land area, at the least regressive cost.

Given these assumptions, please demonstrate why you say that “there is some room for wind,” when everything I’ve seen suggests wind volatility is dysfunctional to the goals we would seek together–under any circumstance. Moreover, please provide evidence showing how nuclear will make wind technology perform optimally, anywhere on Earth and, perhaps, Mars. For my part, I’ll be glad to demonstrate how wind volatility will make nuclear underperform in almost any conditions.

Trying to sell nuclear by pandering to those seeking to foist silly, antediluvian technologies on the modern world is not a rhetorical approach that appeals to me, since it represents questionable, even perverted, “science.” Even if it were the official position of government…. As it evidently is for Areva, which is in the business of–uh–sales.

14 Charles G. Battig, M.D. { 07.17.10 at 3:33 pm }

Ah!, a Swedish connection via Prof. Banks. No wonder he is speaking in terms of governmental authority. I have a somewhat more intimate one via my native born Swedish wife. During my travels to Sweden for over thirty years, and first hand visits with numerous relatives there , I like to think that I have more than a passing acquaintance with the Swedish psyche. The nanny state mindset is part of that psyche; go to the doctor and the Swede will settle for what ever he/she is told…they do not question the authority of the “experts.” I have seen two relatives their die as a result of their blind obedience to delays in medical care. Sweden has a long history of “Berwicken” style, medical care rationing, now coming to your local care center via Obama’s recess appointment.

The Swedes were all up in arms a few years back over fears of an ill wind blowing the remnants of one of the Danish nuclear plants over the pristine Swedish country side. Now the nuclear option (power plant that is) is back on the table; the last time I checked, they have two operating nuclear plants. Meanwhile, that once pristine landscape is littered with more and more wind turbines each year. All the more curious since Sweden is one of the major energy sinks for the excess wind turbine electicity output of Denmark.

Do not forget the Swedish power company Vattenfall, which manages to cover all energy bases from brown coal to nuclear.

Perhaps Prof. Banks has met my good friend Fred Goldberg.

15 Jon Boone { 07.17.10 at 4:11 pm }

If Ferdinand thinks that nuclear will be enhanced by wind, he surely has met Rube Goldberg….

16 Ferdinand E. Banks { 07.18.10 at 2:50 am }

First of all Jon. It so happens that I don’t believe in wind. It’s those other people who want it – you know, the ones who believe in democracy, but who might have some problem adding and subtracting. They want it, and the Swedes have figured out how to give it to them: no country in the world has been more positive toward wind than Sweden, and done so little. At the same time though I am very ready to accept (and help pay for) a large wind park somewhere up in the mountains of Northern Sweden. It makes more sense to finance that than to send Swedish soldiers to some stone age country so that a few Swedish politicians can eventually get international jobs.

But why deny that large numbers of registered voters in almost all countries want wind, and by the same token a large number hate nuclear. I gave a brilliant talk in Paris on oil, and the audience was tickeled pink, but when I put in a good word for nuclear the scowls came out – and this was at the Ecole Normal Superieure, and not some store-front university. A part of the tragedy here is that the ignorant economics teachers at your local university and elsewhere have not explained to their students and colleagues the inability of wind to make more than a marginal contribution to the optimal energy supply.

Now for what seems to be a mystery to you, but is obvious to me. In this country, and perhaps elsewhere, as long as there is the reliability supplied by nuclear, and perhaps hydro, we will get the electricity we need and deserve, regardless of the sub-optimality of the other one or two percent of the energy supply. I could elaborate on that but I have something else to do right now.

Dr Battig, you are completely and totally unfamiliar with the energy situation in Sweden and Denmark. You are completely wrong. I’m glad of that, because it creates a market for my extensive wisdom. But you ARE correct about Vattenfall. Those people are running a scam on the good citizens of this country and Germany. As for the medical/hospital situation here, at one time we had what might have been the best in the world. The money to make it even better went to Brussels – as part of the fee for belonging to the EU – and also development aid to hopeless countries in the Third World. But what can we do about that? We live in democracies and if voters preferred membership in the EU, and giving money to corrupt governments in the Third World, to the best medical services in the world (on the average), then they deserve what they get. But on the whole I am quite satisfied with the medical situation in Sweden. I overstrained myself playing tennis last year, and the next day I went to the hospital, and for a few dollars got a complete physical checkup. I had to stay there until midnight, but they paid for the taxi to my house. You might remember that when you visit Sweden. If you have a problem you go to the emergency ward at the nearest hospital, sign in and take a seat.

Fred Goldberg. He visited Cal Tech and tried to tell the faculty and some students there that climate warming was nonsense. I don’t think he will ever forget what they told him in return, nor will he ever return to that seat of learning. He would have been treated much better at the down-market university in Chicago that I attended. But not Cal Tech…puhlease.

17 Jon Boone { 07.18.10 at 8:06 am }

Thanks, Ferdinard, for the response to my questions. I had known that you’re not a fan of wind technology. However, here’s what I think you should consider more carefully. Given wind’s relentless variability, the lack of industrial scale battery storage, and the requirement that supply match demand at all times, wind performance must existentially compel more inefficient performance from the other generating units in any grid operation, including that for Sweden–even in nuclear reactors of the future that can cycle quickly to follow both wind and demand flux, although I haven’t really seen that technology demonstrated yet. The consequences of playing games with hydro, making that generation supply more inefficient, has already been addressed in this forum by Kent Hawkins. Moreover, given the problem of integrating wind, I don’t think you or anyone else can demonstrate that wind can contribute even marginally to an “optimal energy supply” in a modern society. Wind can only be a minor ingredient in a much larger fuel mix, in the process making things more problematic for those larger fuel engines, and pushing costs up.

Pandering to fools who have been gulled by PR may be a hallmark of modern social democracies. But it’s not wise policy. We already do this enough with our food (Coke and McDonald’s, for example). There is lot’s of fluff out there as stuff dreams are made of.

But pandering to the desire for pixie dust in our energy supply is where responsible societies should draw the line. Electricity is simply too important for this kind of nonsense. And cavalierly putting wind in the mountains just to appease the dupes in the city is an act of incivility that is to me unconscionable. The neocolonism involved in sticking such a mess to the hillbillies in the mountains is, to me, morally corrupt. So, no, Ferdinand, I don’t buy it.

Your defense of wind as tokenism for the dimness of the masses is anti-science and immoral. Why not get a PR campaign to bring back phlogiston–and build a public bonfire in Stockholm’s public square to celebrate the wisdom of doing so?

18 Charles G. Battig { 07.18.10 at 10:09 am }

Prof. Banks, thank you for an example of your brillant powers of insightful refutation of those who might challenge you. Your argument “You are completely wrong” is breath taking. Would that I could match it.

I have watched two relatives die at the hands of the Swedish medical establishment. It appears deasigned to provide for care for the younger and less sick members of the society. If you are older and have a significant illness, e.g. colon cancer, a brain tumor or the like, you will be put on a list and wait a home for months. Whether you live long enough to have your turn come up is the catch. Do not get sick during the infamous Swedish holiday periods. The hospitals all but close down on Friday. Read the local newspapers as we do on-line and note the number of patients “forgotten” in hospital waiting rooms, or whose X-rays had to wait till Monday, when the staff retuned to duty, and the patient died waiting. I hope that all your medical needs may be minor ones. Think of the Berwick-Harvard medical care model.

I have heard Fred Goldberg speak in person numerous times. Neither he, nor I, nor any of those questioning the validity of the current state of knowledge regarding the understanding of climate deny that there has been global warming…most recently since the “coming ice age” of the 1970s, and before that, since the end of the “little ice age” of the 1600-1800s. The informed discussion is one of manmade influence or not, and the accuracy of a uniformly agreed upon temperature record.

Jon, the wind turbines are not just “in the mountains.” They are visable eyesores all along the west coast of Sweden, and inland as well. I have flown over the stretch from Malmo to Gothenberg, as well as having driven it dozens of times. This area of rolling farmland is now peppered with the whirligigs.

19 nofreewind { 07.18.10 at 8:21 pm }

Ferdinand, I am sure you do a great job of making fools out of people at your seminars, that is so easy when you at the podium with a audience who is in agreement with. Do you know anything about an electrical grid? Have you ever looked a wind output graph? Here is Irish wind.
http://www.eirgrid.com/operations/systemperformancedata/windgeneration/
How does nuclear energy complement wind energy? Do you mean nuclear will follow wind around as it increases and decrease by 20 or even 40% every few hours?
What does a discussion of Sarah Palin or futile wars have anything to do with this particular energy discussion? You show your ignorance by making an ad hominem attack that has nothing to do with Bradley’s column, these are the tactics we see often. And you offer to help pay for wind parks – how much are you willing to pay? Do you know that your personal electric bill is only about 1/3rd of the total share of your true electrical bill, the other 2/3rd used you use as a member of a society. That 2/3rd is hidden in your purchases and taxes. When wind energy is added to the system it is at last double the price of conventional energy (w/o the subsidies that hide the true price). So you want your electrical bill to go up 6 times? You want your entire countryside destroyed with thousands of noisy windturbines, which take many tons of steel and concrete to construst? Do you know that the kWhrs produced by the nuclear plant powering this compuer (2400MW) needs 5,000 wind turbines to equal it, not replace it, because we still need the power plant. You writing is much more eloquent than mine, and I am quite sure you are quite persuasive at the podium with a naive audience. Don’t you understand the basics of money? We can’t mortgage the futures of our country by building these wind or solar farms? This is like going on vacation this week and paying the interest forever more on a credit card without any hope of paying off the original expense. And any energy is only used at the moment, we need to pay for it NOW. If it not paying for it now, it is never worth paying for. And the citizens who “want” this alternative energy, you don’t understand they have been deceived by the interests of big business and government, because the mass media which they rely on for information, only gives them one side of the story.

20 Ferdinand E. Banks { 07.19.10 at 2:51 am }

Here they come again boys. Open…fire.

Mr NoFreewind, I would cut you off at the knees in any forum, so you make sure that you stay away from me. Your problem seems to be that you don’t understand the English language. Wind can’t replace nuclear. Didn’t you read what I said? What I have said is that nuclear and hydro gave Sweden the most inexpensive electricity in the world (costwise) on occasion. Much less expensive than the US in fact. But a large subset of voters in this country don’t want nuclear. They want wind, and so I say give them some…SOME….wind. In Sweden, with luck, that would mean about 2 percent. As for financing that 2 percent, my first step would be taking Swedish soldiers out of Afghanistan, although they would be free to go back on December 31st, 2099, in case there are any parties going on in celebration of the war there entering a new century. As for the electric bill going up if a lot of wind is used, of course it will go up. I’ve told people that for years, but nobody wants to hear that. However if I wrote an article in which I said that the electricity price would go down if more wind was used, it would be on the front page of every morning paper in Sweden the next morning.

Incidentally you-all, I consider myself the best academic energy economist in the world. I’m also a great teacher – a brilliant teacher in fact, which I repeatedly tell my students. And if they don’t agree, well…

As for destroying the countryside with windmills, I traveled from Stockholm to the Swedish West coast by train last year, and might have seen a couple of windmills. I don’t see any around Uppsala or Stockholm however, although that might change. Everything considered though, I think that Dr Battig is suffering from triple vision or something. Where hospitals are concerned, the Swedish people have sacrificed the best hospital care in the world in order to send money to stone-age countries in the Third World, and the EU in Brussels. I told them not to do that, but they told me to ……. . Maybe someday I will be able to convince them, although it isn’t certain. But if I can’t convince the Swedes to do this or that, I hope that someone above can convince the Americans to stay away from people like Sarah Palin. If they dont…if they dont…I’ll just have to get my soap-box and come back to the Big PX in a couple of years. Then you’ll hear some raving an ranting .

The good Dr Battig mentioned the stretch from Malmö to Gothenberg. That is one of the most beautiful drives in the world, and the people watching on those beaches is tops. Of course, it is better in Stockholm in the summer, but we don’t need to discuss that on this occasion.

21 Jon Boone { 07.19.10 at 8:25 am }

One hates to prick such ebullient peacockery, Ferdinand, so this will be my last post here. I might point out the bluster involved in sanctioning government to give some people what they want when such action will also distress others and destabilize the production of electricity. Perhaps it would be more logical to let people, if they want an item so badly, buy it for themselves. What is stopping folks in Sweden for getting their own wind appliances and sticking them on their roofs? Even with government subsidy inducements for such silliness.

In addition to pointing out your questionable morality on this issue, let me say that as long as a lot of people think wind technology belongs in a modern energy portfolio, support for nuclear will always be endangered. Your “give ‘em what they want” sloganeering may end up haunting the very goals you seek. Cheers!

22 E.G. { 07.19.10 at 8:29 am }

See we “academics” have a very serious problem, as Professor Banks above demonstrates all too readily; We take ourselves way too seriously. You ask any professor what should be the solution to any particular problem an the answer is “why mine of course! Don’t you see that I’m a professor?” (I generalize of course) As if the 20th century wasn’t a good enough example of what “expert minds” with “good intentions” can produce, given unlimited government powers.

When the Professor said “well there is a very important job for government to do in the energy sector!”, I thought I was actually going to hear a GOOD reason for the government to be involved. I hurried down the list of comments to see exactly what this reason, which I had been trying to contemplate for a long time, could possibly be. And there it was. “To stop people from lying!”

Professor Banks, with all due respect, do you have any idea how a MARKET functions? Have you ever seen a commercial on TV? With all due respect, but that is perhaps the worst reason for government intrusion that I have ever heard. I was expecting something along the lines of “well nuclear requires massive government subsidies in order to take off” etc. That may have been halfway reasonable (even if not acceptable)

But leave it to “academics” to come up with a reason. In the end it isn’t about the consumers of the energy. In the end its about “ME” being right (even if I have to force you to admit that I’m right). The story of the 20th century, unfortunately.

Lets take the example of Mr. T Boone Pickens (whom I suspect you might be talking about). Mr Pickens can lie through his teeth all he wants (which he does), it won’t get him 1cm closer to building his scam projects. What he REALLY wants is a government subsidy. He is free to build his windmills with his own money, and I’d be the happier for it. If he really felt that people wanted this sort of energy, and that it could deliver, then he surely would do it with his own money and make a killing. But he doesn’t. Government need not stop him from lying. There’s a thing called…the market…where millions and billions of people make individualized decisions every day which drive the supply wherever it is needed and in whatever form it is needed.

Unfortunately that is precisely what is lacking in today’s energy markets; a market. All we have is government interventions of every possible distortions (although some countries do this better then others). In no small part due to “academics” such as yourself (and myself) who simply cannot fathom to allow “people” to make drive decisions as opposed to having us experts determine it for them. And so we can come up with any combination of “perfect plans” for energy production in Sweden or Mongolia. All can as easily be imposed. None require that the consumer ever be asked or decide. Many can even be very profitable for some of us, or someone we know. They need not even compete with each other! But I’ll leave that to your trusted hands.

At the end of the day, the very serious shortcomings of the energy system in today’s world, as the article so rightly points out, is a lack of “market” rather then a need for government intervention. There has been 70-80 years of government intervention already. Of course one need only go down to your local government-protected local energy distribution monopoly to see how such a monstrosity functions in a business sense (they call themselves a “businesses” but I have seen Eastern European communist enterprises run more efficiently and with more innovation).

PS: I’m still waiting for Professor Banks to enlighten us to the “wonderful things” FDR created. Another problem we “academics” have is that we are both entirely myopic (“look at that dam!”) and all encompassing at the same time (Sarah Palin, Bunny Rabbits, windmills, Iraq, Its all Bush’s Fault!). Truly we must be Gods.

23 Cooler Heads Digest 15 July 2010 | GlobalWarming.org { 07.19.10 at 10:17 am }

[...] A Free Market Energy Vision Robert Bradley, MasterResource.org, 16 July 2010 [...]

24 Ferdinand E. Banks { 07.20.10 at 1:38 am }

E.G., the only energy system that I’m really interested in is the one that provides energy for me and my family. I couldn’t care less about the others unless I am paid to do so. Incidentally, the one that provides energy for me here in Sweden is unfortunately ‘hooked’ into that of Denmark and Germany, but I can’t do anything about that. If I could I would immediately cut the wires between Sweden and Denmark, which means that the price of electricity in windmill loving Denmark – already perhaps among the highest in the world – would increase. And by the way Mr E.G., when I was in the US Army in Japan, I worked for a few months with a Japanese engineer who said that when FDR gave his talk the day after Pearl Harbor, and told the world what the US was going to do in the coming year or two, it was transmitted to the Japanese people as an example of American arrogance and untruthfulness. Unlike you, he soon found out how things work in this world.

As for Jon Boone, he just doesn’t know what he’s talking about, does he. After the first oil price shock the Swedish government saw to it that 12 reactors were constructed in 13-14 years, that eventually supplied just over 50% of Swedish electric energy. Only a complete ignoranus would believe that that achievement was possible without initiative of the government. And listen, the taxpayers – in the aggregate – did not pay a penny for those reactors , although I won’t bother to explain that contention.

Did I mention that I am a great teacher? I hope I did because all my students are aware of this marvelous fact, and the reason I’m so great is that I put history first. I’m not as interested in ‘theories’ and ‘concepts’ as I am in reality. George Bush and his gang unleashed a curse on the rest of the world, and I can’t tell you how pleased I am to get the opportunity to point this out to a few guys and gals. Fighting and winning two wars, and then keeping them going in order to bring the American version of freedom and peace to people who have their own definitions of freedom and peace hardly deserves to be called fruitcake.

25 Jon Boone { 07.20.10 at 7:34 am }

This is what Ferdinand Banks wrote on July 3, 2009 in an Energy Pulse blog conversation:
“Jon Boone, the zaniness [with wind technology] is just beginning! In one of the big Swedish newspapers this morning there is a ‘story’ about how a former director of Volvo is now in the wind energy business, and as far as the fool who wrote that story is concerned, it’s going to be roses all the way on the energy front because of the presence of Mr Gyllenhammar (Toyota’s president).
You see, she wants to believe in windpower. She desperately wants to believe that the 6000 turbines the ignoramuses are talking about will make everything right. Yes, wind has a place in the energy portfolio of this country, but not the place that she believes. As for Mr Gyllenhammar, that pensioner just wants something to do that will put him on the front page of a newspaper now and then. As for the hundred million or so of American dollars that are involved, many of which will be wasted, well the hell with those. As Tokyo Rose said, he’s got his.”

This rambling plaint was a hand-wringing denouncement of the ignorant way the Swedish government leadership was evidently going to pursue wind initiatives at the expense of renewing its commitment to nuclear, which, as Banks points out above, and as I and many others knew, had historically inculcated nuclear as the centerpiece of the nation’s electricity supply. Because of government action, nuclear and hydro provide virtually all of Sweden’s electricity, making it the cleanest electricity producing nation in the world (but certainly not the greenest). Banks was rightly concerned last year that, when that same government was was flirting with wind, the flirtation would undermine and subvert sustained support for nuclear.

Which is my point. Banks has also not shown how wind can have a functional place in any modern grid system in ways that make the grid more reliable, affordable, and secure, although he continues to maintain that it does. Buffoonery even on an energy blog should be no excuse for not putting up–when wisdom should dictate that he shut up.

26 E.G. { 07.20.10 at 1:39 pm }

Mr. Banks I do not doubt your abilities as a teacher. Nor is anyone here particularly concerned over Mr Bush or his policies (except for you it seems).

The issue at hand here, as far as the article is concerned, is the lack of a free market in energy production, rather then the wonderful achievements of government intervention, which are questionable at best.

The real issue at hand given any discussion about free market vs government determination is almost never whether the government decisions did not have a positive effect or only a negative effect. They most certainly had some positive effects, for someone (otherwise they wouldn’t have happened). The real question is, would the free market decisions of producers and consumers, led to a more efficient use of resources. You haven’t answered that question, and no amount of “optimum plans” will answer that question. It is irrelevant if Sweden gets 50% of its energy from nuclear, as opposed to something else. That doesn’t answer the question of, if that was the most efficient use of resource allocation to produce the greatest benefit for the greatest number of people. The dozens of billions of dollars spend on those nuclear reactors, if government financed, certainly had multiple implications on the availability of investment opportunities elsewhere in the economy, either in other energy projects or not. Government spending isn’t free…and its implications go FAR beyond whether the tax payers got their money back or not (or the bond holders for that matter). Nobody makes an investment with the prospect of “getting my money back” in 30 years (well, maybe the government does).

Nor is the argument of “clean” a reassuring argument for myself. My country of origin can be classified as extremely “green”; we do get about 98% of our energy from hydro (no its not Norway). It comes at a tremendous price however. Fortunately in recent years there has been a boom in investment in the energy sector, mostly characterized as a “free” market (not quite, but any comers who think they can make money are able to come in), and the results are astonishing.

In the end any amount of discussion on whether wind or solar etc can be effectively integrated into the grid, is an entirely inconsequential argument as to whether the free market would have undertaken such projects or not (although we know the answer to that). Same thing goes for nuclear.

The real question that the article poses (though perhaps not strongly enough), is whether the evidence suggests that the free market makes the most appropriate resource allocation decisions precisely because of its profit-loss system and price system, where investments have to make financial sense and provide a return; or whether we believe that “optimum plans” created by “experts” with unlimited government control, not concerned with the mechanisms of the market, can make more efficient resource allocation decisions. In the end that question cannot be answered by a simple exhibition of the “positive” outcomes of the government-controlled scheme, because these do not show and cannot show all that had to be foregone in the economy and society to achieve these lofty monuments to experts and presidents (multiple economic studies have shown the extensive drawbacks of such exercises as the TVA on the states it was imposed upon, regardless of the concrete monuments it has left behind for us to wonder at).

Most systems are a mix of the two of course, and although we free-marketers may not have many examples to boast about, we do at least have examples where systems entirely run outside of market forces have led to disaster (ex-communist countries). If more free market is a good thing in almost any human activity, why is the energy market an exception? Are the effects of subtle distortions like subsidies, government-granted monopolies on distributors, all sorts of regulations, restrictions on financing activity, price controls etc etc…leading to more or less efficient use of resources? These are some answers you need to discuss Professor Banks, rather than the need for “government mandated honesty”. Sorry for being so long winded.

27 Richard W. Fulmer { 07.20.10 at 4:06 pm }

Professor Banks,
You included corn-based ethanol in your mix of renewable resources. In the U.S., at least, ethanol must be subsidized to keep producers in business since ethanol is so much more expensive to produce than gasoline. I believe that as long as ethanol is subsidized, we can never really know whether its production results in a net energy gain or loss. Various studies have tried to determine this, but the findings range from a 30% loss to a 30% gain.

The problem, of course, is that there are so many components to production that it is impossible to track down all of the energy inputs. For example, I attended a presentation of an Energy Department paper that purported to show a net 30% energy gain. After the talk, I asked one of the presenters whether they included the energy used by the farm workers and their families. He stated that no study included such energy inputs – yet they are, in fact, inputs. The free market automatically factors such inputs via wages.

Subsidized energy ultimately, then, suffers from a fatal paradox – if we subsidize it, we cannot know whether we are gaining or losing energy. If we don’t subsidize it, its producers cannot compete in a free market.

28 Ferdinand E. Banks { 07.21.10 at 3:23 am }

Looks to me like I’ve got some more convincing to do.

Mr Boone, nobody who has ever heard me lecture has seen me wringing my hands, or other body parts. As it happens, Sweden is a democracy, and X percent of Swedes want wind. I think that algebraically it can be proved that wind is wrong, but even if I proved it they wouldn’t understand. The most intelligent politician in this country is Maria Wetterstrand, and she has openly and repeatedly insisted that wind is better than nuclear.
I doubt whether she believes it, but there it is. Furthermore, I’m not going to get my soapbox out of the garage in order to do my thing on that expanse in the center of Stockholm where the junkies used to do their business. Two percent wind is a lot better than what she wants and is liable to get before the great majority of Swedes get the wind-nuclear message.

The comment by EG is just wrong – I’m afraid that there is no other word for it. When the first oil price shock took place the Swedish government dived into nuclear. It was the smartest thing that they could have done, because nuclear is the most flexible of all energy media at the present time, and whether they realized that or not, the government at that time decided not to play dumb (as governments in this country enjoy doing) and pretend that nuclear was a curse.. Nominally those reactors did cost billions, although I make a point of arguing that – in the aggregate – they did not cost taxpayers a penny. Those reactors (together with hydro) gave Sweden the cheapest electric energy in Europe – perhaps in the world. As for all your anti-government talk, save it for the next Republican National Convention. People elect governments to do certain things for them, and although they might not know it, providing reliable and inexpensive energy is high on their list. By the way, I’m a Democrat (although I have voted Republican), however Mr Obama’s energy philosophy strikes me as being wrong.

And Mr Fulmer, I’m not the least afraid of subsidies – as long as they make sense by my standards. According to the American business magazines I read and tell my students to make sure that they read, it appears that at least a small amount of ethanol can be produced without subsidies, and I suspect that I could go along with subsidies to help producers who, eventually, might be able to make the cut. Subsidizing CCS is something I cannot go along with, and I see no point in subsidizing wind and solar, although I don’t know a lot about those two items. I don’t intend to reject arguments in favor of subsidizing them until I study them carefully, which I have made absolutely no plans to do.

Finally, Finland is my favorite country where nuclear is concerned. They are installing a reactor that was supposed to cost 5 billion dollars, but will actually cost 8. Fortunately, the French manufacturer will have to eat those costs. It was not easy to get the Finnish parliament to approve that reactor, but while critics were shouting how terrible it was to buy that reactor, the Finnish government has approved two more by a large majority.
You see, they know that in Y years fossil fuel might cost as much as diamonds and rubies.

29 E.G. { 07.21.10 at 12:37 pm }

Mr Banks while you may think my argument are “wrong” and a streak of “anti-government” sentiment, they are not. They are pragmatic arguments. The issue being not whether nuclear was the appropriate thing to do or not, but rather what were the financing mechanisms for these reactors and the driving force behind those decisions. The effects, Mr Banks, go far beyond simply providing cheap electricity. The effects have to do with the crowding out of other projects in the market place through government subsidies, taxation and worst, debt. While you may not recognize these as real effects, they are certainly real.

Now I don’t know much about Sweden’s energy markets and the degree of government financing of these projects. I doubt however that everything from hydro to oil to coal to nuclear is, even in Sweden, government financed. Of course even these mutli-billion dollar nuclear projects don’t reduce Sweden’s dependence on oil (considering that it still imports a large quantity of its energy, precisely from oil sources). Sweden’s “good luck” in energy has mostly to do with its geographical and climactic conditions, which allow it and the regional market around it to have abundant access to cheap hydro.

So, I’m not sure by what calculations you determined that the multi-billion dollar investments in nuclear did in fact lead to a “break” with oil dependency in Sweden, or how they managed to pay for themselves (which again by itself doesn’t tell us much).

But the real issue remains that when financed through government intervention and distortions, even when they may seem to be a “good” thing, there are multiple consequences which may not be visible to people who are only concerned with “optimum” schemes of production.

I guess the only thing left to say is that I hardly think the role of government is to “provide cheap energy”, or that it can achieve this objective any better then the free market, even if it wanted to. And that isn’t even an ideological argument of Dem vs Rep or Sweden vs The World. It is a practical one; one that even your government recognizes very well when it participates in regional electricity markets.

30 Ferdinand E. Banks { 07.22.10 at 4:14 am }

Mr E.G., your arguments are based on a complete inability to understand how logical governments work or should work. Voters want and need energy. Energy is, as Mr Bradley says, the master resource. They don’t want their politicians standing around with their hands on their hips trying to figure out what to do about ensuring an adequate energy supply when it appears that they may not be able to afford to use their cars or heat their houses.

As for the Swedish decision to build nuclear, I would have been in favor of that if Swedish soldiers had come into my house and emptied my kids’ cookie jars in order to help finance it. You see, the issue for me is not ‘choices’ – as dumb David Newbery at Cambridge tries to argue – but inexpensive and reliable energy. In other words NUCLEAR. As far as I am concerned the Swedish government constantly does stupid things – like going into the EU, giving a lot of money to corrupt stone age countries, sending soldiers to Afghanistan, etc – but the decision to construct those reactors was brilliant. Incidentally, nobody has a chance against me in a seminar room or conference who takes another position, because my tolerance for naiveté is very low these days, so please don’t show up at this university some fine day demanding to meet me in a debate.

About the situation in the US. McCain wanted to build more reactors and perhaps reprocess more spent uranium, while Palin wanted a pipeline from the North down to Chicago. I wouldn’t vote for either one of those two, but they were right about that, at least at that time, and Obama simply didn’t/doesn’t get the energy message. What do I mean by that? I mean that he doesn’t know anything about that subject, and he has some of the wrong people in his Energy Department. Hopeless, actually. What he should have done was to have adopted a large part of their energy program.

About the free market. I think that Big Oil and Big Gas have done alright by the American people. Big electricity is quite another matter. But the last time I looked the young ‘Masters of the Universe’ on Wall Street had decided that nuclear was the wrong way to go. For me there is only one conclusion to draw from that: if they won’t help to finance nuclear, then the government will have to do it. Of course, maybe the Masters only said that, because like OPEC they know that they can always say one thing, while doing another.

31 E.G. { 07.22.10 at 1:17 pm }

Professor Banks, simply because you refuse to recognize all the costs associated with any particular project, doesn’t mean that those costs are imaginary and therefore inconsequential. There can be no “cheap” electricity, if to achieve it requires a cost to society that is…or can be…greater than some other alternative which might give higher electricity prices on face value (perhaps).

Its is a simple economics concept…the cost of electricity is hardly just the face value cost per kwh faced by the producer and consumer. You simply insist on ignoring all the costs; which is understandable since you already declared that you are a Democrat. (tongue in cheek)

But the market takes all costs into consideration, and therefore makes more appropriate and efficient…and COST efficient decisions than a government could ever make.

So yes I do reject the idea that the government must act to provide cheap electricity for the “people”, not on any ideological ground (because that would be a very poor argument), but simply because it can’t. Not when ALL the costs associated with achieving that supposedly low level of kwh price, are taken into account. What the market does, and no government expert can, is take all costs into account, including arbitrary regulatory costs put forward by government experts to solve or create imaginary problems.

You may be fine with the government taking your kid’s cookies to finance such projects. I however am not. When the government makes the decision (through experts such as yourself), I don’t have that choice (since you will steal my money and my cookies through higher taxes, higher inflation or by taking away my investment opportunities).

But then again you also forgot to address whether indeed Sweden managed to really “rid” itself of fossil fuels or not, despite all these multi-billion dollar “investments”. By my sources, there’s a hefty import of oil, gas and coal-produced electricity into Sweden. Or for that matter why Norway which is mostly hydro, manages to have equally low energy costs (i.e…you forget to take into account ALL inputs and options).

So your conclusions of “if the people don’t want it, we shall just have to force it on them”, is precisely the problem. I won’t try to convince you of that, since I probably won’t be able to.

32 E.G. { 07.22.10 at 1:19 pm }

…of course if we assume that getting rid of “oil gas and coal” is indeed the “desirable” thing to do. But I’ll assume it for the sake of conversation.

33 Ferdinand E. Banks { 07.23.10 at 3:22 am }

I’m sorry Mr E.G. This is Fred Banks, and where this topic (NUCLEAR) is concerned, I haven’t forgotten anything. The bottom line here is reliable and inexpensive energy, and given its place in the scheme of things, if the market cannot provide it then the government will have to do what is necessary. That’s why people elect governments. On THIS PARTICULAR TOPIC I place my knowledge on a higher level than yours and people who disagree with me because – as the tennis player Jimmy Conners once said – I probably have worked harder than you.

Please note that although I have taught just about every topic in economics, I no longer consider myself qualified to discuss many of them. I’m just not interested. On the other hand, I recognize some of the things you are saying, and you may be correct, but that is irrelevant where THIS issue is concerned.
The US government should be thinking about the amount of nuclear power and other energy options that will be needed in the future instead of trying to impose American concepts of freedom and democracy on foreign cultures. What the hell do I care about voting practices near the Khyber Pass.

Let me tell you what I think is amazing: everyone doesn’t agree with me. I don’t expect people to read my textbooks, but why not read the business press. It’s all there, and for the most part in plain English. What are people doing these days besides talking into cell phones?

34 Exceptional article: A Free Market Energy Vision | ChristianGovernance.ca { 07.24.10 at 2:28 pm }

[...] Read the complete article here. [...]

35 Furfari { 07.25.10 at 2:52 pm }

I am very surprised that such an interesting article end-up to such a strange debate …

[RLB (editor): Fair enough. Professor Banks has spoken his peace, I hope.]

36 E.G. { 07.26.10 at 7:44 pm }

I apologize to anyone else who may think this discussion is “strange”. I do too.

Mr. Banks. I think I have come to the conclusion that I disagree with 100% of what you say. That is quite the rarity.

The people do not elect governments to provide them with cheap electricity. For the same reasons they do not elect governments to provide them with cheap food, which is even more essential than electricity. And there is a simple reason for this.

Government cannot do it. And this doesn’t depend on the particular kwh price the government may or may not guarantee and enforce. It has to do with the fact that such a thing cannot exist.

Once more, nuclear or not, if the government is spending dozens of billions of dollars from the economy on a particular project, and interfering in multiple other ways in the energy markets and in energy investment opportunities, it is irrelevant what the kwh price is at the end of the day. The relevant thing is…what is the actual COST of getting that kwh price.

You not only haven’t touched on that subject, or explained how it is that you came up with such a conclusion that “it paid for itself” (which by itself isn’t good enough at all), but you seem to take pride in avoiding the subject altogether. If I take dozens of billions of dollars out of the economy, either through taxes, bonds, or inflation, I am limiting by a similar amount investment in other areas of the economy, or in other energy projects themselves. And there can be little doubt that the end result will not be as efficient in its use of resources than the equivalent investments made in the private sector. After all, government investment will hardly be judged on returns.

Of course I’m not suggesting this is the strict way these projects were financed in Sweden, or the US. There’s plenty of private involvement. The problem is the government involvement which distorts the actual costs and the actual benefits.

And this makes investment in the energy sector less appealing to the markets, and makes innovation and use of resources less efficient then it would be otherwise. And thats precisely the point of the article above.

Now what I find strange is that a few posts above you said something to the effect that the people on Wall Street had already decided that nuclear wasn’t a good investment option (perhaps also due to a quite heavy government restrictions and involvement), and therefore it was necessary to “force it” upon them. And then in this post you say something to the effect of, ” if you read the business press…” I thought they didn’t know what they were talking about. What does it matter what they say anyway?

If what you say is correct, I have an even easier solution for you to getting cheap electricity, rather than this supposed Swedesh “self-reliance” and “getting rid of oil” or “investment” in government financed nuclear. Simply…set a price ceiling on electricity to $0.01/kwh, and you will have now reduced the price of electricity considerably. Why not? That is essentially what you do when you carry out subsidies of any sort.

PS: You didn’t explain to me how a country like Norway with 98% hydro manages to have similar prices to Sweden without having to invest dozens of billions on government-financed nuclear. Might it have something to do with…geography and climate…that Sweden and Norway manage to have such a dependent energy regime, and not FDR-like “investments” (which were, arguably, total failures in the US)? Might it have to do with…trade? (mostly in oil-produced electricity)

PPS: The things you may agree with but think are irrelevant to THIS particular topic, are especially relevant to this particular topic, given that this particular topic is entirely distorted in terms of actual risks and benefits due to government interventions (not just the US but all over the world).

37 J.T. { 10.03.12 at 1:17 pm }

I’m concerned about the lack of citations supporting the arguments for using free markets to dictate energy production decisions. Even if one accepts the assertion that air and environmental quality show positive correlation with fossil fuel production, correlation does not equal causality. The “non-economic” environmental regulations you cite should be studied in order to assess whether policy has succeeded in spite of fossil fuel production, or if markets have prevailed in spite of government meddling. Merely suggesting correlation is an insufficient metric for settling this issue. Further, experience in China suggests that fossil fuel consumption has led to significant environmental degradation (particularly air quality): http://en.wikipedia.org/wiki/Pollution_in_China. I do not expect to convince the author that externalities exist and are unaccounted for in existing fuel prices. Still, I raise my opposition to the ad hoc dismissal of them.

However, this is not a post intended to demonize the role of markets in making energy production decisions. Implicit in this post is the suggestion that fossil fuels have thus far succeeded on their own economic merits. Of course, this is far from the truth. Fossil fuel producers have long benefited from favorable tax policies. According to the Environmental Law Institute, fossil fuels have received some $72 billion in tax subsidies, compared to $29 billion for renewables. Granted, these two camps are producing energy on vastly different scales, but it is fallacious to suggest that fossil fuel producers have operated in a purely free market. One option might be to remove all subsidies for all forms of energy and let the markets work. There may be merit to this approach, but it also overlooks the infrastructure that fossil fuel producers have developed in conjunction with federal subsidies. Is it reasonable to expect emerging industries to compete with this advantage without similar regulatory benefits?

Lastly, with respect to market failures in the energy industry, I highlight that an entire industry is built around addressing one particular market failure: energy efficiency. Studies have shown that many energy-efficient technologies and practices can be implemented cost effectively (http://www.aceee.org/research-report/u092). Yet without government intervention, few are.

In sum, externalities, imbalanced incentives, and market failures do exist. I would not suggest that all government interventions in the energy market are successful. Still, the fossil fuel market has neither operated freely up until now, nor have markets adequately accounted for costly externalities that will increasingly manifest with increased fossil fuel consumption.

38 rbradley { 10.03.12 at 5:03 pm }

J.T.:

Thank you for your nice tone with the critical comments.

All the points raised are important and contentious. My article is a survey piece that was assertive rather than well documented.

Relative energy subsidies are way in favor of renewables on a per kWh basis: EIA study here: http://www.instituteforenergyresearch.org/2011/08/03/eia-releases-new-subsidy-report-subsidies-for-renewables-increase-186-percent/ CBO study here: http://www.instituteforenergyresearch.org/2012/05/31/12704/

Energy efficiency is an economic concept, not an engineering one. In the real world, there are sunk costs and information costs–and government failure in addition to market failure. MasterResource has posts here on this subject that I invite you to peruse: http://www.masterresource.org/category/energy-efficiency/.

The history of government intervention in energy markets is vast–I have written about it in seven books with many thousands of footnotes. My survery piece needs a ‘best of’ literature review to go with it.

- Rob Bradley

39 Book Review: The Energy Gap by Doug Hoffman and Allen Simmons | wryheat { 02.02.14 at 8:15 pm }

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