In Response to “A Prosperous and Cleaner Future…” by Lynne Kiesling

If I were to describe Lynne Kiesling’s publication “A Prosperous and Cleaner Future: Markets, Innovation, and Electricity Distribution in the 21st Century” as anything, it would be that she is the Friedrich Hayek of energy policy. This paper methodically, and almost poetically, describes a major issue facing the energy and environmental policy world today: archaic design, a design that was put in place during the 19th century Progressive Era which put regulators “as agents, custodians, and stewards of ratepayer resources” (Kiesling 2015).

However, putting regulators in a dynamic and ever-changing market as custodians gives rise to what Austrian economist Friedrich Hayek describes as “The Knowledge Problem” in his 1945 essay “The Use of Knowledge in Society,” in which he says:

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. (Hayek 1945).

Politicians and regulators are generally the butt of many party jokes as being incompetent and foolish, however this is a misunderstanding of why regulators stifle markets and innovation. Energy regulators will make bad decisions on what is best for the energy market or the environment not exactly because they don’t know what is best, but because they can’t know what is best.  The same could be said about a CEO of an energy company. Lynne Kiesling explains this idea by saying “[i]n dynamic markets with diffuse private knowledge, neither entrepreneurs nor policy makers can know a priori which goods and services will succeed with consumers and at what prices.”

Thus, it is not the free market assertion that private sector forces know better than public sector forces, per se. However at first glance, it seems that a solution in energy and environmentalism problems can never be found if no one actually knows enough to solve it.  This is not the free market assertion either. Instead it is that a free market is the quickest trial-and-error process for determining solutions based on the dispersed knowledge of private sector actors, which is determined through prices and profit. This is the crown-jewel of competition, which is absent in today’s energy market because of government sanctioned monopolies. Public sector action is simply too slow to enact this trial-and-error method, nor would they be able to determine what is and isn’t successful quite like consumers and the market can. Furthermore public sector forces are too slow to keep up with the innovation of today’s market, which is illustrated by Kiesling through the emergence of new technology like smart-grids, nuclear energy, and combined-cycle gas turbines. Kiesling as a result concludes that our regulation methods are inherently far too static for the dynamic market and technology we see today:

Many of the assumptions of this regulatory model are increasingly untrue in our modern society. The assumption of a single production technology with a declining long-run average curve has long been incorrect, as shown by the smaller-scale combined-cycle gas turbine (CCGT) innovations in the 1980s and the ensuing unbundling of generation from the vertically integrated firm and the liberalization of wholesale energy markets in restructured states in the U.S. This assumption is becoming even more problematic in the face of recent innovations in smaller-scale generation technologies, including natural gas, renewables, and even small modular nuclear power. (Kiesling 2015).

If Kiesling and Hayek are correct, it is clear that a feasible solution to problems we face today in energy and the environment, which are increasingly complicated topics, is the free market, and not an expansion of archaic regulation methods.

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What does it mean to be agnostic on energy?

Simplistically, it means that we support the free market methods of finding a preferable energy source, whether it be renewables, fracking, nuclear energy, or some other energy production method.

It seems that there are many conservatives and libertarians across the United States that are against renewable energy, namely wind and solar, in and of itself. However, this shows a complete misunderstanding of the free market position. Oil and natural gas are not libertarian sources of energy, whatever that may mean. The whole point of a free market is that it is undesigned. There are no winner and losers chosen, but instead our energy source is “chosen” through consumer demand, prices, supply, and a multitude of other factors.

The truth is that I have a soft spot for renewable and clean energy. The environment is important to me, and I wish for people for years to come to enjoy the same Rocky Mountains I have enjoyed my entire life. I hope most people would think it would be absurd to claim otherwise. However, I still do not think it is appropriate for the government to mandate or skew markets for the sake of what a few may determine is a preferable energy supply, as it would most certainly be arbitrary.

For example if I were to choose, I would probably choose nuclear energy as a preferable form of energy production as it is clean, really awesome (totally not a value statement), and relatively effective. However, nuclear energy is not perfect as it can be really expensive to build the infrastructure for and takes incredibly specialized professionals to do the job. If some environmental leftists were to choose, I assume they would choose wind energy. Wind energy production doesn’t create emissions, and the wind is a resource that won’t be going away anytime soon. However, wind is not a reliable enough source of energy to depend on and the materials used to build these farms are not environmentally friendly either. Similar things could be said about solar energy. If a traditional conservative were to choose, they might choose hydraulic fracturing, which is relatively cheap and cleaner than crude oil drilling. However, fracking is not emissions-free and is also not currently politically desirable in many ways.

So when we set up a system that chooses winner and losers, the winner is only dependent on who the chooser is, which is not something that I think anyone is particularly interested in.

However, that does not mean we can’t have an effect on the energy being used today. We certainly can, but we can’t use government preferences for these ends. Consumer demand is a powerful element of a market, and it is something that we all can affect. If you are interested in cleaner energy, educate people about it. Make people really desire having cleaner energy or whatever form of energy you think is best. This isn’t an impossible task, but it is more difficult than using the government as a tool to your ends.

Furthermore, as surprising as this may sound, we must check our own privileges when discussing sound energy policy. Yes, the environment is important and we should protect it, but this does come with a higher bill. While this higher bill is mostly affordable to the high and middle class, the same can’t be said for the less fortunate and lower class. While they would certainly benefit from a cleaner environment, I am not sure they would find the tradeoff of being able to afford more food, better clothes, and so on desirable. However in a free market of energy, they could make such a choice if they so desire.

When it comes down to it sound energy policy is quite difficult, and even more so when you think the government should pick winners and losers in the market. People think that it is so easy when they post things to Facebook like “of course the government needs to subsidize renewable energy” yet they know very little about the costs of such a policy and who it effects. Likewise, people think it is so easy to say “oil and gas is the cheapest therefore the best”, but they don’t even bother to consider the externalities of such a decision or how different people may value its environmental effects.

Trevor Burrus, a research fellow at the Cato Institute, recently wrote about the difficulties of gun policy in which he explains that the gun control argument is not as obvious of an argument as its advocates would like you to believe and the gun rights argument is not as obvious of an argument as its advocates would like you to believe. The same could be said about energy policy, and most policy matters. It is hard. It is nuanced. There is no cure all policy or energy source, for that matter.

This is why I am agnostic on energy sources, and this is why the free market is so important. There are certainly market failures in addressing issues throughout history, but freeing up the market takes the hard decisions out of the hands of an arbitrary decider, or deciders, and into a complex system in which we all are a part of.