Pricing energy rationally

One of the most serious shortcomings in world energy markets is the failure of prices to fully incorporate the negative impacts (so-called social costs) that energy use imposes on society.

1. Perhaps the starkest failure to include social costs in the price of energy appears in the financing by the USA of the war with Iraq. The National Energy Strategy strongly rejected any security tax on oil on the grounds that it would increase inflation and reduce economic growth. With no fee on oil, American consumers will continue to regard oil as a cheap commodity rather than one safeguarded at the considerable cost of human life.

2. Internalizing social costs of energy does not lead to weakening of international competitiveness. The opposite may well be true: that artificially low prices do not encourage energy frugality.

    

3. Higher fuel prices would spur changes in travel habits, greater use of public transportation, and, ultimately, non-fossil transportation technologies such as electric or hydrogen vehicles.

1. Using full cost accounting
2. Promoting sustainable energy consumption
3. Managing energy resources
4. Integrating energy management
5. Advancing energy efficiency

1. Removing energy price subsidies
2. Reforming energy markets
3. Introducing carbon taxes

1. Using renewable energy resources
2. Uncoupling economic growth from growth in resource use
3. Conserving energy

1. Integrating national energy efficiency policy

1. Designing more fuel efficient engines

1. Volatile energy prices
2. Economic inefficiency

1. Underpricing
2. Overpricing
3. Energy