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Free Market Will Generate Energy Answers

Throughout the latest discourse on energy policy and government-related endeavors in natural resources, I have come to a conclusion on the matter: We aren’t running out of resources as fast as some would have you believe.

So often we hear that our crude oil supply is decreasing at a rather alarming rate. Historically, however, scientists have underestimated our ability to extract natural resources. Steven Horwitz of St. Lawrence University recalls the expansion of the telephone grid. In a video on LearnLiberty.org, he shows that as phone companies strung more wire, copper grew in high demand, thus creating an economic incentive to invest in more advanced extraction techniques. As a result, copper mining companies were able to uncover far more of the natural resource than so-called experts had declared were available.

The free market comes through like the clutch batter for a slumping baseball team.  Above all else, the free market reassures people that they ultimately decide their own fate.  The incentive to find cheaper ways of production, the entrepreneurial spirit that arises to adjust supply, and the consumer-driven market that inspires beneficial products – these are the just a few of the hallmarks of a free-market society.

Discussions about natural resources often succumb to the lies and misjudgments of the opponents of a free-market system. We rely on the free market’s energy products to keep society functioning at optimum capacity. They fuel our cars, heat our homes, and sustain our physiological needs. These products and resources are conserved by some, used liberally by others, and not even consumed by a smaller percentage of the population.

But the speed at which we consume goods should not be limited for the purpose of what could be false notions of sustainability. In this lies the beauty of the free market system: The demand for goods fuels the engine of creativity and entrepreneurship. Resources such as oil have seen drastic increases in supply due to the exploration that occurred when demand rose in the marketplace. The supposed scarcity of a resource should not abolish the use of that good.

This is partially what the “green revolution” seeks to accomplish. It replaces the ability of entrepreneurs to solve the problems of supply by responding to price signals sent by consumers with the government’s highly-politicized decisions. For example, oil is considered a non-renewable resource, and portrayed as a rapidly decreasing resource in today’s marketplace. Rather than keeping with the tradition of finding more effective ways to extract this resource, developing more techniques to use it more efficiently, or allowing the entrepreneurs in the system to replace this resource as consumers see fit, the green movement forces consumers to operate under the false assumption that they should not have the ability to choose what goods and services they desire. Instead, taxpayers are forced to subsidize inefficient and far more expensive means of energy, while consumers are denied more affordable options.

If oil is actually being permanently depleted without any hope of increasing supply or improving on current extraction techniques, than let those entrepreneurs in the energy industry seek solutions to this problem.  Basic laws of supply and demand tell us that if a resource is actually becoming more scarce its price will rise. The natural response to higher prices will be more companies entering the oil industry, and for entrepreneurs to invest in more advanced methods of extraction to find more of that resource. The result will be the discovery of more oil not accessible at previous levels of extraction effort and techniques. Furthermore, the high price of oil will allow for opportunities for alternative forms of energy to become competitive in the marketplace.

The one similarity we need to recognize in all these examples is that in a free, competitive market consumers, along with actual resource availability, will dictate which direction entrepreneurs should pursue.  In this current discussion over sustainability and the use of controversial techniques such as hydraulic fracturing, let’s put aside the politics and let the free market work out the costs and benefits of each solution.

It is a noble gesture to be mindful of what you consume so that you allow others to partake in that resource.  However, it is foolish and immoral for government to operate under what could be a false assumption.

Mark Coggins is an intern at the Civitas Institute in Raleigh.

This article was posted in Environment by Mark Coggins on August 6, 2012 at 4:26 PM.

© 2011 The Civitas Institute. Visit us on the web at www.nccivitas.org.
This article can be found at http://www.nccivitas.org/2012/free-market-will-generate-energy-answers/

Comments on this article

  • 1

    Michael Varin
    Michael Varin Aug 09, 2012 at 13:21

    Our supplies of oil, natural gas, and coal are finite. Use of these resources will rise exponentially with population growth and this use negatively impacts the climate of our world. According to a comprehensive study of hydraulic fracturing conducted by Duke University, many of the more costly and invasive methods of extraction represent even greater risks to our environment. Alternative resources must eventually be found. These are facts, not “false notions of sustainability.”

    Our understanding of climate change and its causes are limited. However, very few scientists would deny that fossil fuels are one of the greatest contributing factors. Even the Koch-funded climate change skeptic Richard Muller has joined this consensus.

    Yet you suggest we rely on the free market to avert disaster. You say “it is foolish and immoral for government to operate under what could be a false assumption.” You would rather our government heed the advice of the .1% of scientists (paid by energy companies) who are still expressing doubts. That’s ridiculous. It would be foolish and immoral for the government to ignore the 99.9% of scientists who say we must find alternative energy sources and the longer we wait, the great our misfortune.

  • 2

    Mark Coggins
    Mark Coggins Aug 09, 2012 at 14:07

    I’m still not convinced that the government should be the sole arbiter of our energy development.

    False Scarcity is in fact real. You never refuted this point. As time goes on, estimates of energy reserves sky rocket. You know why? Because of efficiency in production. “In 1980, the federal government estimated that the US had 30 billion barrels of proved oil reserves, yet from 1980 through 2010 the US produced over 77 billion barrels of oil, or more than twice as much as the government estimated the country had” (IER)

    The same claims about scarcity that you state, were in fact present in 1980.

    Efficiency is always improving. It is a finite resource, but that does not make it obsolete, not even close to obsolete if we look a little further into the numbers.

    Did you know that North America has over 1.79 trillion barrels of oil, 4.244 quadrillion cubic feet of natural gas, and 497 billion short tons of coal? These resources will last us for over 430, at least, and yes I do realize population will increase. But so will efficiency. (IER)

  • 3

    Michael Varin
    Michael Varin Aug 09, 2012 at 14:55

    Where do you get your statistics from and why do you trust your sources? This is from an article by Nick Owen in “Energy Policy” (vol.38:8, Aug. 2010):

    “The status of world oil reserves is a contentious issue, polarised between advocates of peak oil who believe production will soon decline, and major oil companies that say there is enough oil to last for decades.

    In reality, much of the disagreement can be resolved through clear definition of the grade, type, and reporting framework used to estimate oil reserve volumes. While there is certainly vast amounts of fossil fuel resources left in the ground, the volume of oil that can be commercially exploited at prices the global economy has become accustomed to is limited and will soon decline. The result is that oil may soon shift from a demand-led market to a supply constrained market.”

    Time to move on to other energy sources. The only folks saying otherwise are oil companies and OPEC nations whose funding depends largely on the amount of oil they claim to have on tap. And nobody checks their figures. Even if the supply is endless, the use of fossil fuels is destroying our environment.

  • 4

    Andrew Blackburn
    Andrew Blackburn Aug 09, 2012 at 15:42

    Your very talk of hydraulic fracturing disproves Nick Owen’s point of scarcity. The new technology of hydraulic fracturing has lead to literally trillions of cubic feet of clean burning natural gas and billions of barrels of oil being tapped that otherwise were discounted as recoverable energy sources. Again, please refer to Mark’s comment about oil reserves constantly going up (the information which he got from the Energy Information Administration, which is hardly “in the pocket” of oil companies). Your idea of scarcity has literally been around since the late 1800s, with every prediction proving wrong. Scarcity is being pushed as a scare tactic to move people away from reliable cheap energy towards heavily subsidized inefficient energy. You pick which you prefer, and remember most people like having their lights come on at night.

  • 5

    Michael Varin
    Michael Varin Aug 09, 2012 at 16:18

    At present, alternative sources are prohibitively expensive and inefficient. Oil, coal, and natural gas are cheap and reliable. And toxic. If we had these resources in endless supply, we would still need to find alternatives. Subsidizing efforts to develop renewable energies is in everyone’s best interest. Everyone except BP, Chevron, etc..

    While oil companies don’t receive subsidies, they do recapture costs through tax credits. If we’re going to continue giving oil companies assistance through their most profitable years, I see no reason why the same should not be done for those trying to develop alternative energy sources.

  • 6

    Andrew Blackburn
    Andrew Blackburn Aug 09, 2012 at 17:13

    Subsidy levels in 2010 per megawatt hour (from The Energy Information Administration):

    Solar: $775.64
    Wind: $56.29
    Nuclear: $3.14
    Hydroelectric: $0.82
    Coal: $0.64
    Natural gas: $0.64

    With subsidies so ridiculously high taxpayers should see a return on investment through cheap reliable energy. Instead what we’re seeing is money wasted on jobs that never manifest and companies that go bankrupt despite the government doing everything in its power to stop them. We have been trying to develop alternative energy sources for decades, and its not worked. Meanwhile, emissions from coal are down 64% despite our consumption going up. Our future is in continuing to clean conventional energy, not invent new faulty sources.

  • 7

    Larry Hubbard
    Larry Hubbard Aug 28, 2012 at 21:26

    Michael, you quote only what is fed to you. Oil, coal and natural gas are true bio-fuels. The 92 elements that make up our world have always been here and will erode to its’ basic elements in the end. The planet is dynamic, if too much CO2, plants will grow to absorb it. Using food crops are not the answer. If we could somehow burn the BS that liberals beleive in, now that’s a sustainable fuel.

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