Addressing issues concerning energy and the environment: A short course on energy policy analysis

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By David J. Bjornstad and Alexandra Brewer

Executive Summary

With the presidential election decided, a renewed debate on energy and environmental issues will begin.  This Policy Brief can serve as a primer for assessing these issues.

The Brief is divided into a short introduction and three topical sections.  The first section provides a short overview of the inputs offered by three influential groups to the debate over energy and environmental policy choices.  The first of these groups, the American Petroleum Institute, puts forth four principles, around which it argues the debate over policy should be organized.  The first principle, a commitment to access federal lands, calls for opening the potential energy portfolio to broad development.  The second principle, a commonsense regulatory environment, calls for greater regulatory certainty. The third principle calls for removing barriers to private sector energy investments, and the fourth calls for sustainability, interpreted as shifting the energy decision making balance from the public to the private sector.  In all, the approach avoids specific recommended actions, and recognizes the need for public oversight, while deferring key choices to the private sector.

The second group, whose collection of work is provided in Daedalus (Spring 2012), seeks to reframe energy and environmental choices as integrating the private costs of energy production and use that are compensated through the prices paid by energy consumers, e.g., the payments to productive factors – land, labor and capital –with the uncompensated social costs that result from production and consumption, e.g., pollution, carbon emissions, damages to environmental resources, and the like. It is notable that regulations effectively internalize some of these costs; the key is to choose the proper level of regulation.

The third group, a collection of papers by Brookings Institution scholars, seeks to reframe energy and environmental topics within the larger debate over taxes, federal debt, and job creation.  It would call, minimally, for carbon taxes that would provide incentives for carbon abatement while contributing to debt reduction, and for sensitivity to the global leadership role of the United States.

The second section delves into the “tool box” that economists use to frame, constrain, and analyze policy topics.  In its simplest form, the economic approach seeks to define the choices to be made, to measure the entirety of costs and benefits these choices affect, and to analyze the fundamental tradeoffs that different choices imply.  The values of the governed are then used to evaluate tradeoffs.  For example, are the health risks to coal miners compensated or uncompensated costs?  How should regulators balance the personal choices of miners with the interests of the larger national community?  The conclusion is ultimately a value judgment, but one that should be reduced to its most fundamental terms to facilitate explication of basic choice elements and communication with affected stakeholders.  Other topics in this section include: market failure, benefit-costs analysis, considerations of future stakeholders, and conflicts between values and uncertainties.

The third section introduces four topics that are likely to rise to the forefront as the energy/environment policy debate evolves.  These include: climate change, regulation of fracking, choices over energy saving technologies and products that embody them, and the smart grid.  In each case, the elements of advice contained in section one can be applied to shape choice outcomes, and the tools of section two can be used to untangle the advice, or perhaps to tangle it more, at the user’s discretion.

In all, it can be argued that there are no singular answers to energy/environment choices, because answers follow from values, but that for any value set, choices can be improved through an open dialogue.  We encourage readers’ comments, criticisms, and suggestions that may stimulate that dialogue.

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