Cheap energy has for decades been the energy policy of the United States and is once again. This is no surprise as cheap energy is very popular with everyone except environmentalists, who dislike it because higher prices encourage efficiency and accelerate the shift toward cleaner technology.

Two events have conspired to defeat any momentum toward raising the price consumers pay for energy. The first was the recession and rising unemployment, which at a minimum makes the timing bad. The second event was the shift in power in the Senate resulting from the election in Massachusetts. There is now a belief widely expressed in the Senate that cap and trade or any other scheme that raises the price of energy during the recession is dead. The focus of policy has shifted mainly to the supply side – cheap natural gas, nuclear power, renewables and, of course, off shore oil – all justified mainly by energy security rather than climate change.

Cheap energy misaligns incentives and undermines any effort to meaningfully deal with climate change. There are two options left:

• Regulating efficiency does work as we have seen, particularly in California. Tough and rising standards make it harder to be inefficient. But they are also politically difficult to achieve.
• Senator Maria Cantwell has proposed something else that just might fly, Cap and Dividend. The idea is that the money made by selling permits under the cap would be sent as dividends to consumers to compensate for the higher price of energy. It is not piece of rhetorical twist and might be more popular.  For an excellent overview on Cap and Dividend, see this February 4^th article from the Economist.

Unfortunately, however, for the near future cheap energy will encourage demand and extend the time horizon needed to recover investments in efficiency and new technology.

Several events in recent weeks demonstrate clearly why climate change may be the most difficult challenge our civilization has ever faced. The uncertainties in the science, both perceived and real, still remain, leading to a broad spectrum of concern ranging from “What, me worry?” to literally “The sky is falling!” The things we must do [...]

I have been impressed with China’s recent response to climate change. While the scientific community in China has been engaged for years, Hu Jintao seems to have discovered climate change only a few months ago. He is now a passionate campaigner, having taken a scientific and engineering approach to the problem in keeping with the [...]

As a scenario planner I always ask myself how I could be wrong. The question usually leads to interesting scenarios. In my first post I laid out my basic thinking, but in the last week I had two conversations that suggested how I could be wrong in an important way.
In times of major technology [...]

The unofficial energy policy of the United States for most of the last fifty years has been to maximize demand, minimize supply and buy the rest from the people that hate us the most. This perverse reality was not the intended result of energy policy. Rather it was—and is—the result of many policy choices, only [...]