Tuesday, July 10, 2007

Is energy a private good?

According to Richard Rudolph and Scott Ridley in their excellent and unfortunately out-of-print book "Power Struggle: The Hundred-Year War Over Electricity", during the early years of the soon-to-be U.S electricity industry, public power systems were being created twice as fast as private electric companies.
"During the decade of 1897 to 1907, between 60 and 120 new public power systems were formed each year. The 511 public power systems in operation in 1896 grew to more than 1,250 systems by 1907. And they continued to show marked cost advantages over private electric companies. Watching this trend, Samuel Insull and others pressed for state regulations as the only way to save private electric companies."

Massachusetts where I live has 41 municipally-owned light plants. One of these -- the town of Hull -- has been an innovative leader in renewable energy development. It has been over 75 years since the last "muni" was established in the state. The process is too onerous for most municipalities to even comtemplate. (GW)

Is Energy a Public Good?

By Christopher A. Simon, Ph.D.
Renewable Energy Access.com
July 2, 2007

It seems as if wherever a renewable energy forum develops, elected officials are sure to be present, using the open dais as an opportunity to pledge their support to green energy, to clean communities and a clean environment. Cynics may sense that what is really occurring are just symbolic politics -- elected officials appealing to constituents through public statements; establishing renewable energy incentive programs and offering various sums to "demonstration projects."

Is all of the chatter and policy of any importance? In reviewing the tremendous growth in renewable energy demand, the answer would be: yes, the politicians and their policies are effecting change. Green energy discussion groups and industry-related websites have proliferated in recent years. The phrase "sustainable community" has become an ever present element in public dialogue regarding municipal development or re-development.

An article in the Wall Street Journal this past May pointed to growing Chinese efforts to gain a share in international solar photovoltaic markets—U.S. public policy-incentives and mandates in state and local laws as well as the Energy Policy Act of 2005—has moved renewables from a niche to center stage.

The politicians and the interests behind them are having the intended effect—moving the renewable energy debate from theory to practicality. Nevertheless, as a percentage of energy consumed, renewable energy has made paltry gains—hence, a parallel dialogue about energy conservation and more efficient light bulbs. In essence, if you can't win on the numerator then trim the denominator. All that being said, it is unlikely that renewables will ever become the widespread replacement for fossil energy at least in our lifetime.

So, what is really going on here: it is the symbolic politics of the new millennium or is it something bigger? I suspect that there is more going on than symbolic politics. A substantive philosophical debate undergirds the proclamations of officialdom and the debate is certainly something worth paying attention to now and in the future. I contend that the energy debate is really about the nature of energy as a good. Is energy a private good? A public good? Or a marketable public good?

Before moving, let's pause and review quickly the nature of goods. Goods can be generally thought of along two dimensions-in terms of rivalry and excludability. Auctions are nice way of considering rivalry in the marketplace. At an auction, items are up for bid and the person with the highest bid gets the good or service. Essentially it is a "win-loss" scenario. Some individual or individuals "win" and some "lose."

Excludability refers to the nature of use of a good or service. If I'm using a good or service, can you simultaneously enjoy the good or service?

Private goods are goods that are both rivalrous and excludable—such as the auction item that was purchased. Pure public goods are neither rivalrous nor excludable—regardless of price, public goods cannot be denied because of their importance to individuals' very existence in society and basic human rights. A good example of a public good is potable water or air. Goods that do not fit neatly into either extreme category are often subject to political debate regarding their nature as marketable public goods or simply as marketable goods.

For example, even private toll roads are not excludable—others travel down the road, but the toll road is rivalrous to the extent that the driver pays for access. In traveling across the U.S. or other developed nations, one quickly notices the interstate system, which can in part be justified because the interstate could be seen as a marketable public good in a modern society—the interstate means that products and services and people can more easily move around so as to meet their basic sustenance in a modern society.

So, back to energy-private good? Public good? Marketable public good? The history of the 20th century would indicate that much of U.S. energy policy is built around the notion of energy being, in some respects, a marketable public good—particularly when it comes to electrical energy. The Rural Electrification Act of 1936, for example, was a government program to provide cheap and affordable electricity to rural areas.

At the time, private electricity generators, albeit often unreliable in supply, were opposed to government projects such as TVA that would effectively stunt their businesses. So, what would justify the great dam building exercise? Among other things, one could argue that it was an example of government accepting the idea that energy in one form was a marketable public good—in a modernizing society, electricity served a necessary function without which a large-scale modern citizenry could not easily exist.

The interstate system, mentioned previously, necessarily implies that something using stored energy—primarily fossil energy—was going to be traveling down the government-sponsored roadway, bringing the goods, services, and people to various locations. So, transportation is at least in some important aspects a marketable public good-sure, one needs to buy the car and the fuel to gain access, but the roadway is there to be used and is not strictly speaking excludable.

In addition to the obvious examples of marketable public goods, quickly consider the movement of public health and environmental concerns towards the perfect policy storm with regards to energy and its use. By this I refer to the debate over emissions and the impact of emissions. EPA standards regarding emissions, of course, signals to any observer that the topic of interest is much more than a debate—it is well-established public policy.

Within the public health and environmental health paradigms, one sees the best examples of energy policy moving beyond a debate about marketable public goods and directly into a debate about health being as a pure public good.

Beyond a narrow discussion of the U.S., realize that other nations of the world are further down the path. In terms of energy demand, European nations have well-established standards on everything from the use of low energy light bulbs to promotion of green energy. For the EU, the political debate has essentially ended and the public nature of energy is widely accepted. In terms of energy supply, Hugo Chavez's nationalization of Venezuelan petroleum could be viewed as certainly a very large step away from the private goods nature of one significant form of fossil energy.

So, what happens when and if energy moves closer to the "public goods" category? As a public good, energy stands a high probability of being mismanaged. Over-consumption is a problem, prompting one to consider Garrett Hardin's phrase, "tragedy of the commons." One current concerns focuses on Venezuelan oilfields—wells may suffer significant pressure drops due to mismanagement by government officials who are driven by different motives than private energy concerns once broadly entrusted with extraction and processing activities.

On a positive note, the evolving energy dialogue will force a debate about the nature of modern society. In many ways, one could argue that modernity increases the vulnerability of the individual; potentially enlarging our notion of public goods. Conversely, there are those who would argue that we haven't created more public goods; we've actually just expanded markets and we should let markets offer guidance.

For the latter group, government encroachment on what is seen as a market will take us further down Hayek's dystopian "road to serfdom." Alternatively, for those who favor the former perspective—the public goods perspective—a future involving increased government involvement in energy policy is seen in terms of social equitability.

Given what is at stake, the utterances of elected officials should be taken seriously and understood for what the words represent-a serious debate about the present and the future of a significant aspect of modern or post-modern existence.

Christoper A. Simon is an associate professor of Political Science at University of Nevada, Reno. He is the author of Alternative Energy-Political, Economic, and Social Feasibility (Rowman & Littlefield, 2007); Public Policy-Preferences and Outcomes (Longman, 2007).

The information and views expressed in this article are those of the author and not necessarily those of RenewableEnergyAccess.com or the companies that advertise on its Web site and other publications.


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