The congruence of private gain and social good in energy markets is reason to give thanks this holiday season.
— Published with Permission of fee.org —
Depletion … pollution … security … climate change. These flashpoints of energy sustainability have been invoked time and again to advocate forced (government) transformation away from fossil fuels. But each complaint has been highly exaggerated for the purpose of demoting the primary role of mineral energies (natural gas, coal, and petroleum) in modern living.
The congruence of private gain and social good in energy markets is a great reason to give thanks this holiday season. Consumers in good conscience can stay warm with natural gas and fuel oil, as well as travel on gasoline and diesel. Electricity, too, can be generated with the cheapest and most versatile carbon-based energy without regret.
Energy sustainability is an offshoot of sustainable development, classically defined in a 1987 report by the World Commission on Environment and Development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
The so-called Brundtland Report led to the 1992 United Nations conference in Rio de Janeiro and Agenda 21, a 350-page action plan by the United Nations for global sustainable development, signed by 178 countries, including the United States. For implementation ideas, the Clinton/Gore Administration created the President’s Council on Sustainable Development (1993–99), which defined sustainability as “economic growth that will benefit present and future generations without detrimentally affecting the resources or biological systems of the planet.”
According to the “Vision Statement” of PCSD’s Sustainable America: A New Consensus for Prosperity, Opportunity, and a Healthy Environment for the Future (1996):
Our vision is of a life-sustaining Earth… A sustainable United States will have a growing economy that provides equitable opportunities for satisfying livelihoods and a safe, healthy, high-quality life for current and future generations. Our nation will protect its environment, its natural resource base, and the functions and viability of natural systems on which all life depends (p. iv).
Given this definition, are mineral energies “sustainable”? The answer is a resounding yes under a free-market interpretation of sustainable development:
A sustainable energy market is one in which the quantity, quality, and utility of energy improve over time. Sustainable energy becomes more available, more affordable, more usable and reliable, and cleaner. Energy consumers do not borrow from the future; they subsidize the future by continually improving today’s energy economy, which the future inherits (Bradley, Capitalism at Work: Business, Government, and Energy, p. 187).
The energy sustainability triad has been depletion, pollution, and climate change. A fourth area, energy security, primarily relating to unstable oil imports from Middle Eastern countries, arose in the 1970s and peaked with the Gulf War in 1990–91.
Depletionism concerns resource exhaustion, better known as Peak Oil (and Peak Natural Gas), where demand outraces supply to result in increasing prices. Pollution has centered around the criteria of air pollutants: carbon monoxide (CO), sulfur dioxide (SO2), particulate matter (PM), nitrogen oxides (NOx), lead (Pb), and volatile organic compounds (VOC). Climate change has shifted from brief worry about anthropogenic global cooling to an ongoing concern of anthropogenic global warming.
Peak supply fears have been quelled by new generation oil and gas extraction technology that, yet again, has turned high-cost and inaccessible supply into economically mined resources. In response, fossil fuel foes have turned to a keep-it-in-the-ground strategy conceding that many decades, if not centuries, of oil and gas inventory await. And with the US becoming the oil and gas center of the world, earlier concerns over energy security have faded.
Regarding the once vexing problem of urban air pollution, the US Environmental Protection Agency has documented a 73 percent decline in criteria emissions since 1970, with further improvement expected. Technology in light of achievable regulatory rules has made fossil fuels and clean air a success story that industry critics did not think possible early on.
Climate change? This is an issue entirely separate from the above, but the direct benefits of carbon dioxide fertilization and moderate warming have made the debate over costs versus benefits of anthropogenic climate change ambiguous. The public policy takeaway is not to regulate CO2 but to embrace free markets at home and abroad to capitalize on the positives and ameliorate the negatives of weather and climate change, natural or anthropogenic.
Free Market Environmentalism
The energy sustainability debate relates to the larger intellectual tradition of free market environmentalism. The private property and voluntary exchange model was codified by authors Terry Anderson and Donald Leal as follows:
Free market environmentalism emphasizes the importance of market processes in determining optimal amounts of resource use. Only when rights are well-defined, enforced, and transferable will self-interested individuals confront the trade-offs inherent in a world of scarcity (Free Market Environmentalism, 1991: p. 22).
Private entrepreneurship seeking gains from trade is key to overcoming negative externalities:
As entrepreneurs move to fill profit niches, prices will reflect the values we place on resources and the environment. Mistakes will be made, but in the process a niche will be opened and profit opportunities will attract resources managers with a better idea (ibid., pp. 22–23).
“In cases where definition and enforcement costs are insurmountable, political solutions may be called for,” Anderson and Leal add, warning that “those kinds of solutions often become entrenched and stand in the way of innovative market processes that promote fiscal responsibility, efficient resource use, and individual freedom” (ibid., p. 23).
In a 1993 essay, “Sustainable Development—A Free-Market Perspective,” Fred Smith applied the Anderson/Leal framework as an alternative to sustainable development. Free market environmentalism, Smith states (p. 297), “recognizes that the greatest hope for protecting environmental values lies in the empowerment of individuals to protect those environmental resources that they value (via a creative extension of property rights).” He explains (pp. 298–99):
Sustainable development is not an artifact of the physical world but of human arrangements. Environmental resources will be protected or endangered depending upon the type of institutional framework we create, or allow to evolve, to address these concerns.
After going through examples of self-interested solutions to economic and environmental progress, Smith concludes: “The empirical evidence is clear: resources integrated into a private property system do, in fact, achieve ‘sustainability'” (p. 301).
Smith also insists that “government failure” be assessed alongside alleged market failure, noting how “individuals who make resource-use decisions in a bureaucracy are rarely those who bear the costs or receive the benefits of such decisions” (p. 304). In this regard, he contrasts the politicization of drilling in the Alaska National Wildlife Reserve (ANWR) with drilling in the Audubon Society’s Rainey wildlife sanctuary in Louisiana (ibid.).
In a 1999 policy analysis for the Cato Institute titled “The Increasing Sustainability of Conventional Energy,” I concluded:
[T]he technology of fossil-fuel extraction, combustion, and consumption continues to rapidly improve. Fossil fuels continue to have a global market share of approximately 85 percent, and all economic and environmental indicators are positive. Numerous technological advances have made coal, natural gas, and petroleum more abundant, more versatile, more reliable, and less polluting than ever before, and the technologies are being transferred from developed to emerging markets. These positive trends can be expected to continue in the 21st century.
Almost twenty years later, production and consumption trends for mineral energies remain robust despite determined, costly government policies to force wind power and solar energy into electrical generation and ethanol into transportation markets. The global market share for fossil fuels remains more than 80 percent, with the most recent year registering growth rates of 3 percent, 1 percent, and 1.6 percent for natural gas, coal, and oil, respectively.
It is not doom-and-gloom in the energy market but quite the opposite. New generations of technology have made our ever-increasing quantities of oil, coal, and natural gas environmental products, not just energy products. The sustainability threat is not free markets but government ownership and direction of resources in the name of energy sustainability. That supreme irony must be the subject for another day.