January 4, 2006
The recent battle between Russian and Ukraine over steeply rising natural gas prices -- and the impact on EU gas supplies -- highlights the political and economic vulnerability that we all endure due to our dependence on fossil fuels. While the response in the US to interruptions of energy supplies from wars, hurricanes, and other unnatural disasters has been to "streamline" large-scale fossil fuel energy development, obviously the road to energy security requires renewable energy. The interesting question is whether the energy industry will successfully induce reliance on large-scale renewable developments from which they can derive profits or whether more individuals, businesses, and communities will choose off-grid or grid-tied-but-not-dependent relatively small scale renewable energy. Energy regulation, i.e. energy law, and even relaxation of environmental laws, will not be the harbinger of this choice. Instead, look at what we choose to subsidize. Do we provide tax breaks to the energy industry or do we provide subsidies directed at energy consumers? The latter ensures large-scale energy dominance. The latter provides choice for consumers to engage in small-scale projects or simply consume renewable energy from large-scale projects. These questions are not new. They harken back three decades to the good old days of the oil embargo, when I studied energy regulation with Marc Roberts and Tom Graff and worked with Al Alm on Harvard's Environment and Industrial Fuel Use Decisions project. Scale matters. The economies of scale in energy are not necessarily with large-scale development. But, more important than efficiency [believe it or not], scale of development strongly determines the degree of concentration of political and economic power. A variant on the "money is power" theme.
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