Is Energy a Public Good?

By

Christopher A. Simon, Ph.D.

©2007 Simon, Christopher A.

Why do politicians get involved in the energy debate? Wherever a renewable energy forum appears, elected officials are sure to be present, using the open dais as an opportunity to make another pledge to clean-up our communities and our environment, to push for more green energy. Cynics believe this is just symbolic politics—elected officials appealing to constituents through public statements; pledging renewable energy incentive programs and offering various sums for “demonstration projects.” Is all of this chatter and policy of any importance? In reviewing the tremendous growth in renewable energy demand, the answer is: yes. The politicians and their policies are effecting change, they are moving the debate from the theoretical to the practical.

Green energy discussion groups and industry-related websites have proliferated in recent years. The phrase “sustainable community” has become a permanent mantra in public dialogue related to municipal development or re-development. Demand for “green energy” and the associated renewable energy technology is on the rise; solar panel shipments have taken a dramatic leap forward in recent years. The Chinese are attempting to gain a share of the international solar photovoltaic markets (WSJ, May 23, 2007, pg. C1, “The China Solar Hotbed”). US public policy is moving renewable forms of energy from a niche to center stage. However, externalities also exist, as pointed out in the WSJ article on the evolving food supply for domestic livestock (WSJ, May 21, 2007, pg. A1, “With Corn Prices Rising, Pigs Switch to Fatty Snacks”). Nevertheless, as a percentage of energy consumed, renewable energy has made paltry gains and is unlikely to make significant advances for quite some time.

So, what is really happening? Is it the symbolic politics of the new millennium or is it something bigger? A substantive philosophical debate under girds the proclamations of officialdom; it is a debate certainly worthy of public attention. The debate is about the nature of energy as a good. Is energy a private good? Is it a public good? Or, is energy a marketable public good?

What is the nature of goods? Goods can be thought of along two dimensions—in terms of rivalry and excludability. An auction is a way of considering rivalry in the marketplace. At an auction, an item is up for bid and the person with the highest bid gets the good or service. Essentially it is a “win-lose” scenario. Some individual or individuals “win” while others “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? Consider a canoe ride. When we pay to access a private lake, do we enjoy private use of the lake or do others use it simultaneously?

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 exclusive because they are important to everyone, to every individuals’ very existence. A good example of a public good is potable water or clean 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 private goods. For example, private toll roads are not excludable—others travel down the road at the same time you do if they pay for the privilege. In traveling across the US or other developed nations, one quickly notices interstate systems. These roads can be justified because interstate roads can be seen as a marketable public good in a modern society—public interstate systems mean that products and services and people can more easily move around so as to meet their basic needs in a modern society.

So, is energy a—private good? Public good? Marketable public good? The history of the 20^th century would indicate that much of US 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 were opposed to government projects such as TVA. They would effectively stunt their business. 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.

More recently, energy has move further down the path towards public goods status with policies that extend beyond our earlier goals—EPAct of 2005, for instance, covers a whole host of energy priorities. States effectively mandate green energy production shaping both significant aspects of energy supply and demand. Anxiety has created the perfect storm—energy supply, public health, and environmental policy are the key issues. An accepted reality, “peak oil,” threatens to disrupt the foundations of modernity; an oft-overlooked “commons,” the platform upon which all other interchange occurs. Concurrently, ever-tightening EPA emissions standards signal to any observer that fossil energy produces a public goods dilemma impacting the environment and public health.

Other nations of the world are further down this path. European nations have well-established standards on everything from the use of low energy light bulbs to public health and promotion of green energy. For the EU, the political debate has 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.

What happens is the U.S.A. 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, commonly called the “tragedy of the commons.” One current concern 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.

CHRISTOPHER 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).