Market forces are giving Americans cheaper, cleaner energy. We would all be best served to let those forces continue unabated.
Throughout the industrial age, energy has proven to be one of the most difficult sectors of the economy to centrally plan. While the notorious boom and bust nature of energy markets has no doubt contributed to this difficulty, rapid technological advances have made modern interventions into energy markets all the more futile.
Corporate Welfare and Economic Interventionism Are Not Solutions
Despite failures like the Obama administration’s disastrous green energy loan guarantee programs, environmental groups continue to make the case that the government must intervene with a heavy hand to save us all from the effects of global climate change. Conversely, a memo leaked in June directing the Department of Energy to bail out the floundering coal and nuclear energy sectors has shown once again that the Republican Trump administration is no more committed to free-market principles than its predecessor. These brazen acts of corporate welfare ignore the general trend in energy markets that should please both sides of the aisle—market forces are giving Americans cheaper, cleaner energy. We would all be best served to let those forces continue unabated.
There is no debating that both factors—cost and environmental—play into nationwide demand for energy. The former is more obvious on its face. For the latter, data has shown that a clean environment is what economists call a luxury good. Consumers spend more—in terms of both real costs and opportunity costs—on luxury goods as their incomes increase. A prime example is the trend of deforestation, which has been thoroughly reversed in North America and Europe but still persists in poorer nations worldwide.
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The internal logic makes sense: Rising sea levels could very well come to cause unimaginable global upheaval, especially for developing countries. But it’s difficult to sell this as a primary concern in the short-term for developing nations that are actively bringing millions out of extreme poverty by reaping the economic benefits of industrialization and global trade. Thinking of a clean environment as a luxury good refutes a presumed trade-off between economic growth and environmental concerns. Further, it shows why anti-growth, interventionist policies in energy markets will always fail to deliver on their environmental promises.
Let the Market Decide
When it comes to the Trump administration’s folly on coal, there is actually a much simpler economic concept at play. In what has been dubbed the “Natural Gas Revolution,” technological advancements allowed for energy companies to more efficiently tap into the vast reserves of shale rock the United States sits on. Thanks to the discovery of these reserves and the process known as hydraulic fracturing—or “fracking”—the share of natural gas as a source of American electricity went from 21 percent in 2007 to over 31 percent in 2017, overtaking coal’s share in the process.
Returning again to the factors America, as a developed nation, considers important with regard to energy—cost and environmental concerns—this revolution is a positive development by all accounts. By pure forces of supply and demand, natural gas’ abundance in America makes it a cheaper fuel than coal and other renewables. Considering the shaky “national security” grounds on which President Trump is justifying his coal bailout (among other big government policies), one would think he would show some concern for the United States’ energy independence that is well within reach thanks in large part to natural gas. Finally, although isolated incidents like spills and leaks have raised concerns about the safety of fracking and burning natural gas, its lower output of carbon dioxide when burned is a net positive for the environment.
The market trends don’t lie—natural gas is what economists call a “substitute good” for coal. It’s cheaper, it’s cleaner, and the fact that Americans value those characteristics means that coal simply will not be able to compete. Like all industries that fall by the wayside as a fatality of a competitive market, it would be best to let the market direct resources away from coal to more efficient sectors rather than making taxpayers foot the bill for a bailout that is sure to fall flat.
The natural gas story also illustrates a larger point about energy and the environment going forward. Central planning fails for many reasons, chief among them being that politicians and bureaucrats are human, and thus really bad at predicting the future. In the mid-2000s, no elected official or EPA regulator could have foreseen that America would be on the cusp of energy independence ten years later thanks to a new technology for harvesting natural gas. But here we are. Any energy policies—regulations, subsidies, tax breaks, bailouts—implemented before this advancement would have relied upon an economic calculation that would soon be proven totally incorrect.
I always try to convince environmentalists that the problem of climate change will not be solved by electing the right politicians or by the signing of a bill in Congress. Instead, advances in technology, some that are already underway and others we cannot yet conceive of or predict, will lead the developed world toward an energy regime that is cleaner, cheaper, and more efficient. The process has already begun, and it will take us as far as we allow it to.