There are two futures for energy, depending on which socioeconomic system we adopt. The free-market promises a bright energy future, while the opposite path of political energy is dark. In that sense energy differs little from other goods and services (such as health care): its supply will depend on whether economic laws are allowed to work or are hampered by political intervention.
Free-Market Energy
As the late Julian Simon explained, the future for free-market energy is positive. “It’s reasonable to expect the supply of energy to continue becoming more available and less scarce, forever.”[1] So Simon said in his most influential book, The Ultimate Resource. This prediction riled his Malthusian critics, who labeled Simon a naïve romantic. He responded: “I am not an optimist, I am a realist.”[2] In fact, Simon himself had once been a Malthusian and concerned about overpopulation and scarce resources, until the data reversed his thinking.[3]
But abundant free-market energy requires free-market institutions: private property rights, voluntary exchange, and the rule of law. This framework produces abundant energy by unleashing human ingenuity and problem-solving entrepreneurship, which Simon called the ultimate resource. The problem of scarcity, he explained, comes not from too many people or too few resources but from a “lack of political and economic freedom.”[4]
Doomsayers notwithstanding, our known resources of hydrocarbon energy are actually expanding. The historical record indicates that, despite ever-growing consumption, we have found new deposits of oil, gas, and coal as fast as or faster than we have consumed them. Thus, the total of the globe’s speculative resources, probable resources, and proved reserves has not depleting but just the opposite. According to current estimates, we have consumed only 1.5% of our physical hydrocarbon base.[5]In physical terms, then, the hydrocarbon era is still young. And this is good news indeed, because of the limited ability of dilute, intermittent energies such as wind and solar to power the industrial age.
Energy Statism
Unfortunately, free-market energy is not the only path, and its bright future not the only possible outcome. There is also the path of energy statism and the dark future it would bring.
Energy statism is both international and domestic. Internationally, as we know all too well, oil and gas resources and infrastructure are commonly government owned and operated, contributing to inefficiency and underutilization—as well as to political turmoil. This international statism is responsible for much of the price volatility experienced in energy markets. There is little America can do directly to neuter or end foreign energy politics except to lead by example with a domestic free market. Competition and capitalism are powerful forces.
But we can help ourselves by not making matters worse, as we did with the price and allocation controls that put Americans in the gasoline lines during the 1970s. Such regulation is thankfully absent today, yet do we have thousands of small edicts that make energy more expensive than it would be otherwise. Wealthy consumers can absorb such artificial scarcity, but poorer consumers must either cut back on their energy use or have less money to spend elsewhere. Thus energy taxes, whether explicitly enacted or created through regulation, are regressive.
Today, energy statism is driven largely by the overblown issue of climate change. In the name of a supposed need to “stabilize the climate,” energy planners at all government levels are restricting energy usage via mandates or tax policy. On the supply side, government promotes uneconomic “green” energy that is more expensive to both produce and transport and is less reliable than the energies that consumers would voluntarily choose. Meanwhile, federal laws lock up the large quantities of oil and gas on government land, off the east and west coasts, and in the Arctic National Wildlife Refuge.
Energy politicization will reach disastrous proportions if the U.S. Senate follows the House in voting for H.R. 2454, better known as the Waxman-Markey climate bill. This 1,428-page bill is an energy road to serfdom for America, and that is why it has become a rallying cry for the free-market community. Americans must stop the growth of politicized energy and move in the opposite direction of free-market energy. Nothing less than our industrial way of life is at stake.
[1] Simon, Julian. The Ultimate Resource 2. Princeton: Princeton University Press, 1996, p. 181.
[2] Simon, Julian. Population Matters. New Brunswick: Transaction Publishers, 1990, p. xi.
[3] Simon, Julian. A Life against the Grain. New Brunswick, NJ: Transaction Publishers, 2002, pp. 237–243.
[4] Simon, Julian. The Ultimate Resource 2. Princeton: Princeton University Press, 1996, p. 11.
[5] See Robert Bradley, “Are We Running Out of Oil? Functional Theory Says No,” PERC Reports (September 2004) at http://www.perc.org/articles/article452.php.
