You can't read the newspapers or surf the web without coming face to face with the pivotal human problem of energy resources: what sources we should produce and consume, the environmental impacts, and who should control energy development.
"Fracking" has rejuvenated the natural gas industry, but some are attacking the process as unhealthy to humans and the environment.
The U.S. armed services have begun to experiment with "alternative" fuel sources in order to reduce battlefield deaths and rising fuel costs.
Corporations market themselves as firms dedicated to "energy conservation"—"green" companies whose management strategies rest on the efficiencies of "sustainability."
And when it comes to energy, much has changed in recent decades. A half century ago fracking, alternative fuels, energy conservation, and sustainability were neither everyday news items nor were they significant forces within American energy policy-making.
In the 1960s, carbon-based fuels sustained the ongoing postwar economic expansion. Coal-fired electric plants served factories and homes. Oil refineries produced fuels for transportation and petro-chemicals for consumer goods (such as plastics and fashions).
A convergence of historical trends in the 1970s, however, "shocked" American energy markets. From that point, energy policy-making entered what analysts call the ongoing "long transition" away from carbon-based fuels.
This long transition is characterized by two strands—deregulation of markets on the one hand, and an environmental sensibility, on the other hand, that recognizes that earlier policies, which encouraged increased consumption of carbon-based fuels, are no longer sustainable. Instead, around the globe, states, scientists, entrepreneurs, and consumers are emphasizing different approaches to developing energy sources that sustain this more recent environmental perspective.
This long transition, however, is not complete, coherent, nor accepted by all interests involved in energy policy-making in the U.S. The fact is that coal still dominates our electric generation and oil still drives transportation. As has been the case since the beginning of the industrial revolution in the early 19th century, there is a lot of both still to be mined and produced around the world, while the prices of both remain lower than alternative sources.
Comprehending the complexities behind energy policy-making is a daunting task. A recently published book that attempts this, Daniel Yergin's The Quest: Energy, Security, and the Remaking of the Modern World, is 800 pages long and covers only the last 20 years. And some reviewers point out that this world-renowned expert's analyses are incomplete!
By focusing here on four themes—the paradox of abundance, the patterns of regulation, the transition decade of the 1970s, and the parameters of the long transition—we can untangle a few of the many complex strands that make up the history of energy policy in America. And that, I hope, will enable readers to conclude for themselves whether and how future energy needs will be met—or not.
Generally speaking, much of the economics and politics that shaped energy policy-making before the 1970s continue to influence the story. There is one major difference, however. The environmentalism that emerged in the 1970s has promoted multiple, new approaches to policy-making and ways of thinking about energy, including attempts to conserve energy, reduce pollution, and improve public health.
The Paradox of Abundance
Energy policy involves how people decide to use the available natural resources that make up energy markets. A central tension sits at its heart.
On the one hand, following from the concept "the commons," natural resources are seen as belonging to every citizen, and every citizen has the right to participate in deciding how they are used. On the other hand, in the American economic system, we have given to entrepreneurs and private interests the right to extract natural resources, process them into useable things or services, and make money from that process, sometimes even subsidizing them, as long as they follow rules established by the political process.
American energy policy has floundered at times on the inherent conflicts between joint ownership and the exploitation of natural resources by private interests. How much should be exploited now? How much should be conserved for future generations? Who should govern the exploitation and the conservation? Should public or private interests be privileged?
Complicating the question of control over natural resources is the fact that the U.S. has enjoyed an abundance of energy throughout its history: from the founding of the country in the 18th century (wood and water for heating and small-scale manufacturing), to the 19th and early 20th centuries (coal and water for steam engines and electric generators for manufacturing, lighting, home heating and cooking), to the mid-20th century and beyond (oil for transportation and nuclear-powered electricity and natural gas for heating and cooking).
This existence of abundant energy has masked another fact, that the U.S. has long utilized a mix of energy sources, and that mix has changed over time.
For example, even though petroleum has appeared to be the dominant fuel of the 20th century, the consumption of coal has increased to the point that in 2011 coal-fired plants still generate about 50 percent of the electricity in the U.S. Production of electricity from hydro-electric dams, which expanded from the 1930s to 1970s, has declined as a percentage of total electricity production since the 1980s in part because environmental groups have successfully argued that the dams constructed earlier in the century were unnecessary and damaged the environment.
Nuclear power is potentially unlimited, yet sustains only 20% of America's electrical production. (That percentage compares in interesting ways with other nations. France, for example produces 75% of its electricity through nuclear plants.) Some predict, moreover, that over the next several decades natural gas will overtake coal as the fuel of choice for electricity generation.
Thus, there has long been and continues to be an abundance of energy sources. Americans have structured the mix of these abundant natural resources according to the unique costs of production and distribution and interest-group political influences.
Patterns of Energy Regulation
Energy regulation has encompassed two separate but related regulatory stories—the regulation of electricity and natural gas systems and the regulation of the oil industry. The former involved domestic policy, while the latter connected domestic issues with international developments.
The regulation of electricity and natural gas systems began in the late 19th century, and expanded throughout the 20th century as more Americans moved to urban areas. Various interest groups—some representing the competing interests within the coal, oil, and natural gas industries, and others representing various consumers' groups—clashed in the political arena to determine levels of private and public control over energy resources.
These clashes resulted in a regulatory era in which municipal, state, and national commissions shaped the markets in two general ways.
First, regulators promoted industry interests. They restricted competition, guaranteed returns on investment, and encouraged expansion of services. Second, these actions enabled regulators to better protect consumers. In exchange for shielding the utilities from competition, regulators insisted that they furnish reliable, abundant, and cheap energy to all consumers desiring service.
That was the theory, at least. In fact, regulators faced difficult tasks because the economic structures of electric utilities and natural gas utilities were complex and disparate. As a result, energy regulation happened on an industry-by-industry basis, with no real attempt to coordinate policies across the entire market.
Sometimes government actions expanded markets to consumers at low prices (Tennessee Valley Authority and Rural Electrification Administration in the 1930s); and sometimes government policy undermined the market with ill-chosen policies (regulation of natural gas and nuclear plant construction in the postwar era).
The regulation of oil occurred at the same time as the regulation of electricity and natural gas, but remained mostly a separate policy story (even though oil and gas were often produced from the same wells).
In the late 19th century, after kerosene was overtaken by electricity as the main source of lighting in American homes, oil industry entrepreneurs transformed their operations to serve the internal combustion engine and transportation interests (autos and trucks, ships, and airplanes).
Beginning in earnest in the 1920s, and continuing into the mid-20th century, automobile clubs and the tourist industry supported gasoline taxes to expand construction of highways across the country. Over the same period, various interest groups, including the states, oil producers, and consumers, created a regulatory policy that matched oil supply to demand and kept retail gas prices low.
In matching oil supply to demand, regulators stopped the "boom and bust" cycle of crude oil markets where overproduction drove down the price of oil below the costs of drilling and production.
The regulatory policy was defended on the basis of "conservation": Booms often resulted in economic waste (oil was sold at less than its real value) and physical waste (the oil would not be available in the future). Yet, the conservation argument was undermined by other energy policies that ensured that retail gasoline prices remained low. Low prices stimulated more demand, which encouraged more drilling and production.
The emphasis on increasing demand through maintaining low prices not only frustrated conservation efforts, it also forced Americans to seek more oil from foreign sources as domestic production could not keep up with growing demand.