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Alternative Energy Policy

The Market Failures:

Policies should address market failures (which are causes) and not distorted outcomes (which are symptoms). Having too few wind turbines is an outcome (symptom) and a government wind-mill policy is not appropriate.

The main market failures:

  1. The price of carbon emission is zero (the carbon externality).
  2. Consumers are often short-sighted regarding energy efficiency when purchasing durable goods: cars, homes, appliances.
  3. Advanced research cannot capture most of it's social benefits.

Fixing the Carbon Externality

This one is easy. The proper fix for a low price on carbon emissions is to raise the price. Price carbon. Unfortunately, there is a tendency to try to subsidize everything non-carbon. A bit of this can be excused when carbon pricing is politically impossible, but there is no excuse for pricing carbon with cap-and-trade and then subsidizing your favorite technologies on top of that.

Supplementing the Private Sector