The Myth of Affordable Energy - Interview with Ed Dolan

by James Stafford (Oilprice.com) We were fortunate enough to speak with the well known economist Ed Dolan on various energy and economic issues.
In the interview Ed talks about the following:
•    Why cheap energy is not vital to economic growth
•    Why high oil prices aren’t necessarily a bad thing
•    Why the U.S. Oil and gas boom is hurting Russia’s global influence
•    Why Obama’s desire to cut oil industry tax breaks could be a great idea
•    Why energy policy needs to be completely reformed
•    Why Russia’s Arctic Exploration could cause the worst environmental disaster to date
•    Why renewable energy investors should be very worried about the Natural gas boom
•    Why the EU was flawed from the start
•    Why subsidies for renewables are just plain wrong.
•    Why we should give QE3 a chance
•    Why abundant natural resources can bring a curse of riches
Ed writes the popular economics blog Ed Dolan’s Econ Blog and has just recently released a book: TANSTAAFL (There Ain't No Such Thing As A Free Lunch) - A Libertarian Perspective on Environmental Policy, which you can find out more about here
... Oilprice.com: Renewable energy is more expensive than fossil fuels, so how can people be persuaded to choose the less economical option of renewables over the likes of coal and natural gas?
Ed Dolan: There is only one right way to promote renewables, and that is to introduce full-cost pricing of all forms of energy. Full-cost pricing is a two-part program.
First, it means pricing that covers the full production costs for every form of fuel. No subsidies for anyone—not for oil, not for ethanol, not for wind or solar.
The second half of full-cost pricing is to include all of the nonmarket costs, what economists call the “external costs” or “externalities.” The most publicized of these are pollution costs, whether those take the form of local smog, oil spills, climate change, or bird kills. Some people, I am one of them, would like to count in something for the national security costs of dependence on unfriendly and unstable foreign sources of energy supply.
Full-cost pricing accomplishes two things. First, it levels the playing field so that each form of energy competes on its economic merits, not whether corn-growing states have early primaries or oil companies have big SuperPacs. Second, by raising prices to consumers to a realistic level, it accelerates the trend toward energy efficiency that is already underway.
Subsidies for renewables are just plain wrong, even if you look at them from a hard-core environmentalist point of view. With a subsidy, on the one hand, you say, “produce more green energy” and other the other hand, you turn around and tell the consumer, “waste more green energy.” We don’t want to waste energy from wind or solar any more than we want to waste oil and gas. We shouldn’t forget that even the greenest renewables can have significant environmental impacts.
The whole “affordable energy” idea is based on the myth that if we don’t include those external costs in the price—the pollution costs, the national security costs—they just go away. They don’t. Keeping prices artificially low just transfers those costs to someone else, someone unlucky enough to live downwind, someone who owns beachfront property that gets eroded away as the sea level rises, someone who has to go off to fight a war to keep the shipping routes open. There are two things wrong that. First, it’s immoral. If we believe in the market economy, the rule of law, and all that, we have to respect people’s property rights and their human rights. Second, it’s inefficient. It doesn’t strengthen our economy, it weakens it. If there’s one thing we can’t afford, it’s “affordable energy.”
Oilprice.com: Obama has made clear his desires to cut the $4 billion a year tax breaks given to oil companies. What affect do you believe this would this have on the US economy and the US oil industry?
Ed Dolan: If it is done as part of a comprehensive move toward full-cost pricing, it could only strengthen the US economy. The oil industry would whine, but if we cut subsidies and tax breaks for competing energy sources at the same time, oil will remain a competitive part of the energy mix for many years to come.
Oilprice.com: The oil industry has enjoyed decades of subsidies and grants, so do you think it is unreasonable to already start cutting the subsidies to renewable energies and expect them to survive on their own?
Ed Dolan: As I explained above, the answer is yes, provided it is done as part of a package that reforms our energy policy as a whole in the direction of full-cost pricing.   READ MORE