“We find that the arguments marshaled to support the hypothesis that a transition to a soft energy economy is inevitable are riddled with economic errors and are thus less than compelling. Moreover, we can’t help but note that past predictions by soft energy advocates about the future of the energy economy have proven wildly incorrect.”
– Jerry Taylor and Peter VanDoren (1999)
Twenty-one years ago, Jerry Taylor and Peter VanDoren of the Cato Institute published a journal article, “The Soft Case for Soft Energy,” in a special issue of the Journal of International Affairs, Fueling the 21st Century: The New Political Economy of Energy (Fall 1999). This article remains sound and prescient, with political energies continuing to be government-dependent versus their superior rivals.
This 11,000-word, 101-footnote essay is the longest and most comprehensive of Jerry Taylor’s career–and the most notable journal article he has published. And it stands today as a refutation of his current views on energy, pragmatically adopted to gain Left-funding for his breakaway think-tank from Cato, the Niskanen Center (see here and here).
Taylor/VanDoren cite the present writer 26 times, relying in particular on two Cato analyses I authored, Renewable Energy: Not Cheap, Not ‘Green’ (1997) and The Increasing Sustainability of Conventional Energy (1999). I continue to stand by these studies, while only wishing I had then recognized how tax-favored wind and solar could ruin the marginal cost economics of baseload generation to drive coal and nuclear capacity into premature retirement.
The Abstract and Conclusion of Taylor and VanDoren’s “The Soft Case for Soft Energy” (footnotes omitted) follow.
Since the 1970s, North American and European governments as well as many policy analysts have believed that fossil fuels will gradually be replaced by “softer” sources of energy–mainly renewable energy sources such as windpower, solar power, biomass, geothermal power, speculative hydrogen power technologies and energy conservation.
These soft energy sources have been considered more environmentally benign than coal or oil and nearly as attractive economically Soft energy advocates believe that only a moderate amount of government intervention is necessary to increase the use of soft technologies and the efficiency of the economy.
The state and federal campaigns against fossil fuels, however, have not produced the quick victory that advocates predicted. Instead, they have taken on the characteristics of the Vietnam War. For over 25 years now, between $30 and $40 billion has been spent to force soft energy onto consumers(1) in a campaign employing a dizzying array of federal and state taxes, subsidies, preferences and consumption orders.
Indeed, victory over fossil fuels is nowhere in sight. Renewable energy–wind, solar, geothermal and biomass–comprise only 1.5 percent of the energy market, and revolutionary advances in natural gas technology, not soft energy, are fundamentally reshaping the energy industry. Still, soft energy advocates continue to proclaim that an energy revolution is upon us and that just a few more subsidies and mandates are necessary to bring us into the progressive energy promised land.
Soft energy advocates including Amory Lovins and Christopher Flavin justify their call for governmental intervention in energy markets by relying on four arguments.
First, they argue that energy markets are riddled with “market failures” that lead to economic inefficiencies.
Second, government is said to have subsidized fossil fuels, artificially tilting the market against soft energy.
Third, such advocates predict that global warming will inevitably force governments to dramatically restrict the use of fossil fuels, making the advent of a soft energy economy a question not of “if” but “when.”
Finally, soft energy policy experts assume, if implicitly, that they have superior information and insights that market actors simply lack or choose to ignore. Government intervention, they conclude, is the only way to achieve the “best” use of energy.
This paper briefly examines the economic and environmental rationales behind the ongoing campaign to promote soft energy Those rationales, while superficially attractive, do not hold up well to scrutiny. There is no compelling reason to believe that soft energy will play any larger role in the 21st century than it does today.
Conclusion: The Perils of Prognostication
Will a technological breakthrough make some soft energy sources suddenly competitive with conventional energy? Will catastrophic global warming compel nations to adopt strict policies to end our reliance on fossil fuels? Will advances in conventional energy technologies suddenly grind to a halt? Will conventional energy reserves suddenly run dry? Such events are unlikely, but they are theoretically possible.
Policy analysts should be warned that, in the game of dueling predictions about the nature of the 21st century energy economy, clues about the veracity of the opposing analyses can be gleaned by examining both the economic foundations of the arguments and the track record of the various parties pertaining to past predictions.
We find that the arguments marshaled to support the hypothesis that a transition to a soft energy economy is inevitable are riddled with economic errors and are thus less than compelling. Moreover, we can’t help but note that past predictions by soft energy advocates about the future of the energy economy have proven wildly incorrect.
As of 1990, the United States used 55 percent less energy per $1,000 of GNP than it did in 1929. The fact that those gains have occurred steadily through time suggests that market forces and autonomous technological change–rather than governmental efficiency mandates–are the cause.
Clearly, government’s record of success when it intervenes in energy markets has left much to be desired. Thomas Lee, Ben Ball, Jr. and Richard Tabors argue that “the experience of the 1970s and 1980s taught us that if a technology is commercially viable, then government support is not needed; and if a technology is not commercially viable, no amount of government support will make it so.”
Heeding that lesson will serve us well as we enter the 21st century.