HOW do free market economies respond to scarcity? They innovate. And while the presidential candidates haven’t said anything particulary interesting about energy policy – despite mayor of New York Michael Bloomberg’s endorsement of Barack Obama for his climate policies – US businesses have been showing us just how it is done. State governments have been getting out of their way, and have allowed them to invest and innovate with incredible success.
The US produced 155m barrels of oil in August 2008. In August 2012, the latest month for which data is available from the Energy Information Administration, it produced more than 190m barrels. For all the talk of fossil fuels running out, the US has managed to increase production by more than 20 per cent in four years.
In some states the picture is even more extreme. In North Dakota, oil production has increased from less than 6m barrels to nearly 22m barrels a month over the same period. And, of course, shale gas has revolutionised the market.
Meanwhile, Britain has been debating whether to build even more wind turbines to meet an arbitrary renewable energy target, with no basis in the real needs of the UK economy or the global climate. Instead of pressing ahead with developing our own resources, the government has made the development of shale gas more difficult than it needed to be and has imposed crippling taxes on the North Sea, thereby deterring investment.
In 2009, Citigroup estimated that Britain would need to invest €229bn (£183.3bn) between 2010 and 2020 to meet current environmental targets. Politicians have vainly tried to reassure investors that returns on that massive investment would be safe from a future government, looking to satisfy a public angry at rises in prices and profits in the sector. In reality, a government will always find a way, even if it means taking a deeply counterproductive windfall tax.
The creativity of Britain’s policymakers was spent on attempts to find new and elaborate ways of promising big subsidies to big businesses for fundamentally poor investments. By contrast, in the US there has been serious thinking about how you can make low carbon energy cheap over time, rather than making conventional energy expensive.
There is simply no way that the major developing economies are going to replace cheap energy with the more expensive alternatives on offer at present. Forcing the deployment of extremely expensive sources of energy, like offshore wind, is silly when we are responsible for barely 2 per cent of global emissions. Directly supporting technological research is a much more manageable way to push forward the development of more affordable options.
The presidential debate might be ugly at times. But, for all the simplistic attack ads and institutional deadlock, the US system has got the energy job done far better than we have. As a result, our manufacturing industry is now at a punishing disadvantage. We can no longer afford to be left behind.
Matthew Sinclair is chief executive of the TaxPayers’ Alliance.