A DIRECTION FOR ENERGY POLICY?
| Date | 01 February 1982 |
| Author | Chris Rowland |
| DOI | http://doi.org/10.1111/j.1467-9485.1982.tb00442.x |
| Published date | 01 February 1982 |
Scottish
Journul
o/Polilicul Economy,
Vol.
29.
No.
1,
February
1982
Q
1982
Scottish
Economic
Society
0036-9292/S2/000W~000 $02.00
Review Section
A
DIRECTION
FOR
ENERGY
POLICY?
CHRIS
ROWLAND
University
of
Surrey
J.
M. GRIFFIN and
H.
B.
STEELE,
Energy
Economics
and
Policy,
Academic Press,
1980,
pp.
370.
E9.00.
P.
R.
ODELL
and
K.
E.
ROSINC,
The Future
.f
Oil,
Kogan Page,
1980,
pp.
265. €20.00.
D.
PEARCE,
L.
EDWARDS
and
G.
BEUKET,
Decision Making
for
Energy Futures,
MacMillan Press,
1979,
pp.
296.
€10.00.
Since Adam Smith first drew attention to the
operations of the invisible hand, microecon-
omic policy prescriptions have taken over a
century
to
turn full circle. From initial praise of
the free market, economists then pushed for
multiple
roles
for government
before
the more
recent calls to curtail restrictions on price
allocations. Policy prescriptions in energy
economics have covered much the same
ground-although in more of
a
random than
an ordered sequence-in the time of about a
decade. Unlike other disciplines in microecon-
omics, energy economics covers the full spec-
trum
of
economic principles. It covers all the
familiar problems of externality, imperfect
market structure, public good and other areas
where the market allocation is suspect. It also
covers problems which are unfamiliar outside
energy, such as those embodied
in
the non-
renewable nature of most conventional forms
of energy supply. Energy economics is also
closely connected with macroeconomic prob-
lems. Perhaps
its
most distinguishing feature
rests in the long-run nature of any changes
sought either for energy demand, which is more
related to the purchase of durable energy using
equipment than to short-term decisions on the
utilisation of that equipment,
or
for energy
supply, which is determined more by capacity
decisions taken from
5-50
years previously
than to short-run production decisions on flow
rates. But this feature is not conceptually
different, it is a matter
of
degree. When looking
for a framework to clarify energy economics
debates, one must fall back on principles
derived in general welfare economics. Indeed
only by reflecting on the development
of
these
principles is it possible to compare different
treaties on energy, to describe the state of
energy economics, and to forecast where the
discipline may develop.
Conventional positive microeconomic
policy prescriptions emerge from a comparison
of an allocation deemed to be efficient and
desirable, with the allocation that results in
practice. If these allocations-
or
more usually
if the characteristics of these allocations-fail
to match, then an area for government inter-
vention has been identified and some correc-
tive policy is recommended. The Pareto cri-
terion is applied, value judgements on income
distribution are averted, and
if
the policy
is
implemented economic welfare improves.
Thus Pigou
et
d.
saw an active role
for
government that still remains in many econ-
omic writings. This approach is adopted and
applied
to
energy problems in Griffin and
Steele’s
book.
Starting with a descriptive account of the
role
of energy in developed and developing
economies, Griffin and Steele review the static
and dynamic criteria
for
Pareto efficient re-
source allocation. Whenever the marginal
social cost of production diverges from the
marginal social benefit a potentially rectifiable
distortion is present. The causes of such distor-
tion are seen
to
come
from
one
of
two
sources-either from an area
of
market failure
or
from inappropriate government policy.
Externalities, public goods, oligopoly control,
and decreasing costs of production are given as
examples
of
market failure; while inapprop-
riate government policies are assumed to arise
whenever policies are guided by criteria other
than those of economic efficiency, for example,
when interference with the price system is used
for income redistributional targets.
Rectifying any distortion will depend on its
source. If it is because of market failure the
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