Since when is regulation optimal?
I like Jeffrey Sachs, and I generally agree with what he has to say about poverty, health, and the obligations of the rich to look after the poor. But he gets it dead wrong in the current Scientific American:
Even with a cutback in wasteful energy spending, our current technologies cannot support both a decline in carbon dioxide emissions and an expanding global economy.
Says who? Why can’t we find ways to dramatically lower our primary energy use per dollar of GDP? Not because we’re already so perfectly balanced. And not because the electric industry (amounting to 40 percent of U.S. GHG emissions) has done a damn thing to increase their energy efficiency in the last 50 years.
Even if every industrial facility in the country had optimally designed their factories for energy efficiency (they didn’t), we still would need to confront this reality: an optimal capital allocation when natural gas was $3/MMBtu, coal was $1/MMBtu, oil was $20/bbl, and electricity was 6 cents/kWh looks pretty suboptimal when natural gas is up to $10, coal is pushing $3, oil is north of $100, and electric is running towards 9 cents.
Yes, technology is good. But we have to get beyond the idea that regulation is optimal, all capital is optimally deployed, and there are no significant opportunities for energy efficiency.