NEW GAO REPORT ON ENERGY DEMAND IN THE 21ST CENTURY

Lynne Kiesling

On Wednesday the General Accounting Office issued a report on prospects for meeting energy demand in the 21st century. From the abstract:

America’s demand for energy has, in recent decades, outpaced its ability to supply energy. As a result, the country has witnessed rapid price increases and volatility in some markets, such as gasoline, and reliability problems in others, such as electricity, where the blackout in 2003 left millions in the dark. …

GAO believes that a fundamental reexamination of the nation’s energy base and related policies is needed and that federal leadership will be important in this effort. To help frame such a reexamination, we offer three broad crosscutting observations. First, regarding demand, the amount of energy that needs to be supplied is not fate, but our choice. Consumers, whether businesses or individuals, choose to use energy because they want the services that energy provides, such as automated manufacturing and advanced computer technologies. Accordingly, consumers can play an important role in using energy wisely, if encouraged to adjust their usage in response to changes in prices or other factors. Second, all of the major fuel sources–traditional and renewable–face environmental, economic, or other constraints or trade-offs in meeting projected demand. Consequently, all energy sources will be important in meeting expected consumer demand in the next 20 years and beyond. Third, whatever federal policies are chosen, providing clear and consistent signals to energy markets, including consumers, suppliers, and the investment community, will help them succeed. Such signals help consumers to make reasoned choices about energy purchases and give energy suppliers and the investment community confidence that policies will be sustained, reducing investment risk.

Not having yet read the report, the abstract is very promising. Leading off with the crucial fact that our energy consumption is our choice, the choice of every individual, and that we each have to take ownership of that choice is a good start. The second recommendation, that we should take a portfolio view of the energy supply and not take any particular source off of the table as we move forward, is a direct recommendation to re-engage with nuclear power. I think this makes sense, particularly from a portfolio diversification and risk management perspective, taking into account all of the risks that we know of that are involved in energy consumption.

But nuclear only gets you so far as long as electricity consumption varies so substantially over the course of the day. Nuclear power is useful as baseload, because you don’t want to incur the high costs of powering it down and starting it back up again. So as long as we artifically suppress retail price signals in electricity and continue to subsidize the use of electric power at peak times, that political gutlessness takes away some of the advantage of using nuclear power.

Which gets me to their third recommendation, which is so important that I will repeat it here again in isolation:

Third, whatever federal policies are chosen, providing clear and consistent signals to energy markets, including consumers, suppliers, and the investment community, will help them succeed. Such signals help consumers to make reasoned choices about energy purchases and give energy suppliers and the investment community confidence that policies will be sustained, reducing investment risk.

In most dimensions of energy consumption, we do not send or receive accurate price signals. Transparent communication of the true value of the energy we consume is constantly subverted by regulation, by taxation, by subsidy, and by the relentless march of rent-seeking activity on all sides of all energy industries. This combination of interventions and subversions is typically draped in the cloak of “the public interest”. But that cloak is actually the emperor’s new clothes, inside which is a core of using political processes to achieve private benefits by sabotaging market processes.

I hope in reading the GAO report to find that they call out this labyrinthine web of interferences that leads individuals to choose to consume large amounts of energy without providing the institutional framework in which those individuals could be empowered to choose to consume less energy.