How to determine the reach of a socially optimal energy policy?

Abstract

The energy sector has since long been a popular playground for political interventions. In market oriented economies like the OECD countries, such policy actions are warranted only to rectify existing market failures. The present paper analyzes the goals and instruments of energy policy and finds that actual policy action has had a much wider reach than can be motivated by the rational pursuit of social utility. The politicians have assumed that they possess better foresight, and behave more rationally than market actors. In many cases the policies have had a hidden agenda to promote small interest groups rather than to contribute to the utility of society at large. The OECD economies would have been better off with much less ambitious energy policy efforts.

Keywords:

• Energy Policy
• Market failure
• Political failure
• Optimal Policy Reach

Notes

Or the ones with low income levels. However, as argued above, distributional issues should be handled by social policy or taxation, not by energy policy.

Note however the earlier argument that a dominant market actor can facilitate the establishment of infant industries and ameliorate the threat of resource depletion.