We’ve gotten two very different reactions to our post on the Obama adminstration’s exploring of curbs on energy speculation (Read entire article). There those who believe that it is time for government to step in and regulate prices and that energy speculators should “go to Hell”, and there are those who believe that a free market should determine the price and that the government should stick it up their… well, you get the idea.
The idea of curbing energy speculation is tougher than it looks, and once again shows how complicated the energy issue can be. There is definitely an argument against speculation of energy price. It came in the form of $150 a barrel oil. For those who don’t remember, go check your scrapbook and pull out a gas receipt from around that time. There is also an argument against the government regulating the energy market. Unfortunately, their ineptitude is well-documented in most things the government regulates. So which direction is the right one?
To start we have to assume a couple of truths: 1) We need fossil energy, primarily in the form of natural gas and oil. I know. It might be hard to swallow, but we need fossil energy now and, most experts on all sides of the issue believe that will we probably need some natural gas and oil deep into the future. 2) This energy will always have an extraction price, and any business would like to exact a price that enables them to make a profit (like it or not, this is a capitalist system).
This sets up the textbook “supply and demand” system. As long as the demand is there, then the supply will be there. In energy’s case, the price implications of swings in supply are pretty huge. Fossil energies are present everywhere in our lives. Energy cools our homes, gets us to the grocery store, cooks our food, etc. The market for energy is usually fairly decent at self-correcting. This was until recently when speculation, feeding on itself like a Ponzi scheme, drove energy prices to unsustainable heights. Dizzying fuel prices were incredibly difficult for all of us. As a result, our spending came to a screeching halt, providing a catalyst for the current global economic crisis. As a result, curtailing speculators doesn’t seem like such a bad idea.
I believe that there is a way for the government to regulate speculators, keep prices fairly stable, and help clean and renewable energy develop more quickly. The general idea would be to build in price triggers on the top and bottom of the domestic energy market (i.e. energy that is found in the US). I’m sure there are some libertarians that are about to jump my train, but I beg for a bit of patience. In order to keep the energy companies exploring for huge finds like the Haynesville Shale, the government could set a price floor for oil and gas. Now libertarians are really getting mad. Some might even throw the epithet ”corn subsidy lover” at me. To that point, keep in mind that corn is as abundant as a farmer wants to make it. Energy, on the other, hand is a finite resource.
Back to my point: When prices fall below the price set by the government, they subsidize the difference. Therefore, the gas and oil exploration companies will always know they have an incentive to look for new sources of energy. The novelty of this plan is the trigger at the top of the market. When the prices of domestically found gas and oil rise above a certain price (a level that allows the individual companies to benefit, but not high enough to be crippling to the nation), the government then places a high tax on the difference. In other words, above a certain price, the gas and oil companies have made their profit and the government essentially gets the rest. This taxed money then goes into a pool. The pool provides two purposes: 1) to pay for the subsidy on energy and, more importantly, 2) to go into a trust fund that distributes the money to clean energy and renewable energy research and to provide low interest loans to clean energy start-ups.
We’re living in an amazing time. Through this economic meltdown, we have basically pressed the “reset” button. As a result, we’re finally paying attention to energy and the way use it, as well as the way we find and produce it. I truly hope we’re smart and take advantage of this time and create a system that makes sure that energy is always available and also abundant.
Gregory Kallenberg, Director of Haynesville