Thursday, October 20, 2005

US Energy Policy (II)

In our last energy posting, we discussed the process by which new energy standards get introduced and approved. As I said before, I met my energy policy source for lunch last week and discussed a myriad of issues, most of which centered directly on US energy policy. At one point during our conversation, I asked my source for an ideal energy policy. The answer came in two parts, just as energy issues do - first, there is the transportation side of the energy issue, and then there's the electricity side. Both have their own set of problems and possibilities.

The first is particularly messy since the US has essentially painted itself into a corner with its history of short-sighted transportation policies. Fuel standards have never been as high as they could have been and except in a pinch (OPEC crisis) consumers have rarely been encouraged to conserve. At the level of infrastructure, the post-war incentives for returning GIs to build outside the urban areas, Eisenhower's interstates which cut through city neighborhoods, and the eventual white flight that drained the urban areas has led to the suburban sprawl that one sees so much of today. The problem is that the current model is unsustainable over the longterm. It relies on a non-renewable resource to fuel it. Eventually, the US will have to come back to more high-density living, which happens to be the most cost-effective. But to do so will require a major paradigm shift on the part of suburban homeowners, unless they can afford the inevitable premium price on a gallon of gas. So transportation is one issue, the solution being better fuel-efficiency standards and better incentives for high-density living which allows more options for public transportation.
The other side of the energy equation, electricity, is going to take some real ingenuity. Right now the two main sources of electricity are coal and nuclear. While nuclear is attractive, it also poses some serious long-term health risks due to waste transportation and storage. Coal is non-renewable and has its own evironmental baggage to go with it (strip mining and acid rain to name only two). For an idea of what's being discussed on the coal front, see the discussion taking place in Montana with its Democrat Governor, Brian Schweitzer. One issue that is rather new to the whole electicity equation, is the inclusion of environmental costs. The environment has never really figured into the cost/benefit equation when doing the analysis, but it is beginning to. And more and more, environmental groups are working WITH industry officials to work out a more eco-friendly approach to producing electricity. The whole credit system whereby one company can sell its clean-air credits to another is just one example. We also got into deregulation, which we both agree has done more harm than good in this sector. Why do utilities need to be private if they are providing a basic service at an affordable price? The basic rule of human behavior states that unless there is a rule against nasty behavior, someone will take advantage of the system for their own benefit. Enron just found all the nice little loopholes in the California rule book. They gamed the system. Why? because they could.
There is obviously much more that could be said about US energy policy, but just dividing it into two sectors that have little to do with each other is a good start. I'm not sure Bush has figured this out yet.


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