Friday, October 12, 2007

Let's wander a bit...

Jerome a Paris has an interesting piece on energy deregulation. Basically, the CATO institute (!) has come out against energy deregulation. Jerome comes to the conclusion:
Which means, as the CATO writers conclude, that in a really, really free market, players would end up with something that would look amazingly similar to a fully regulated market, based on long term contracts and smoothed out price formulas.

So why bother with deregulation? To be sure that the choice they make is actually that one? As they point out, deregulation has been botched, incoherent and/or inconsistent every single time it has been tried, for various reasons. The time spent to get to a perfect "free market" has actual costs in real life, and it is worth asking if they are worth paying.

Re-regulate. Even CATO points that way.
Sean Casten, at Gristmill, disagrees. But it's a mark of how bad the history of energy deregulation is that I think Casten makes a weak case -- and he's making one of the strongest cases for deregulation that I've seen since Enron. It's an odd day for me -- choosing the nutbars at CATO over a co-blogger at Grist! Shocking!

What's more important than a relatively narrow regulate-or-don't debate is something else at Grist: David Roberts brings us this little gem: an experienced energy analyst arguing that the primary choice for energy is fundamentally political, not economic or technological. I'd like to highlight this part in particular:
All in all, what with assorted, perverse and often enormous subsidies to fossil fuels and nuclear power, and more modest but more visible subsidies for renewables; with inadequate accounting for risks; and with arbitrary and distorted provisions for externalities, only one conclusion can be drawn. As far as comparative costs are concerned, the choice of generation is political, not economic. Electricity costs stated as so many cents or pence per kilowatt-hour are just window-dressing after the fact, an artefact of prior decisions otherwise concealed.
Anybody, in any debate, will eventually try to tell you they've demonstrated an objective conclusion. This is possible, in some cases, but you've frequently got to call people on their bullshit. Energy is a perfect example. Any statement has to be prefaced with the assumptions. For example, any statement like "renewables are too expensive" or "coal is cheap" needs to be prefaced with the assumptions that coal will continue to be given subsidies by the bucketful, and that not only do we not put a price on pollution, but we'll continue to let polluters pollute for free forever.

There's a similar dynamic in politcal science, where International Relations scholars frequently bring up the idea of "national interest" without contextualizing it. For example, "it's in the US' national interest to keep forces in the Persian Gulf" that makes absolutely no sense unless you assume that the US has an interest in keeping oil flowing, and you believe that the US plays that role. If you disagree with either of those statements, then clearly the US doesn't need to be in the Gulf.

For example, there's good reason to believe that the Gulf oil producers would sell to whoever wanted their oil, regardless of US presence. Their populations are too large now, and their economies too dependent on oil exports, to cut off their noses for very long. Ergo, any military act to re-open the oil supplies would almost certainly be more expensive than the disruption caused by a cutoff. Doubly so, when you consider that strategic oil reserves are ubiquitous in the world today. Therefore, there's no US interest in keeping forces in the Persian Gulf.

And that's before we even get in to the question of whether the US "needs" oil in the first place!

So theorists -- political or economic -- who talk like this are doing a disservice to their fields. They're using the language of their fields to conceal reality, not illuminate it.

But back to energy: one of the things that intrigues me is how policy proposals in the US are rapidly catching up to the Kyoto-loving Liberal Party in Canada. You've got both Obama and Edwards putting forward very, very good proposals as far as cap-and-trade systems go, and some measures that in fact go further -- Edwards sorta-moratorium on coal plants is something that I think Dion would have a really, really hard time with.

Meanwhile, in Ontario, I watched during the election as the owner of Bruce Power claimed to be a "private businessman", and nobody called him a liar. His "assets" were built with public money, his access to the market (transmission lines) were built with public money and the use of state power in the form of eminent domain, he's got guaranteed insurance from the Province in case of an accident (something Ontario drivers can't get!) and his contracts with the government stipulate a guaranteed demand, regardless of market conditions. This, the fruits of Ontario's so-called privatization. (And yes, Bruce Power's been given a pretty shady handout from the Province. Journalism, anyone?)

Not to get back on an old argument, but this is where economics fails us. Economic arguments about whether nuclear will be more or less expensive than solar or wind are frankly meaningless. The first questions are political, not economic or technological: what forms of energy do we want for the future? Economics and technology are really secondary in this debate -- if we want solar and wind, there's really no question that we can make it affordable, especially once you start analyzing the assumptions behind our current system.


NonyNony said...

Ah energy deregulation - a field that, if religious convictions are left at the door - is such a patently obvious BAD IDEA that no one in their right mind would ever advocate for it.

Unfortunately, knee-jerk worshipers of the Invisible Hand constantly insist that somehow, in a market with captive consumers and perverse incentives for production, the Invisible Hand will make everything okay and the deregulated market will work out better than the regulated one - you know, the one that tries to account for the captivity of the consumers and the perverse incentives.

I'm going to need to read the CATO editorial to make sure that Jerome is interpreting it the way I would, but if he is it really says something. CATO is practically a cult of the Invisible Hand - if the true believers at CATO think there might be an Immovable Object that the Invisible Hand can't handle, that says a lot.

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