Energy-Efficient Economy - Literature review Example

US energy policy The United s has over the years been so much dependent on the use of fossil fuels as a source of energy for the whole country. The use of Oil and coal was rampant in the U.S. energy production during the 20th century. During the post-world war II era, the US was mainly reliant on carbon-related energy sources to sustain its economic and technological expansions. Coal was the primary source of energy for manufacturing plants and even homes. Oil was for transportation and petrochemicals for goods production. It was only after the 1970s that the US decided to change its over-reliance on fossil fuels and started looking for alternative sources of energy. It got dubbed the "long transition" from fossil fuels to new environmental friendly energy sources. The lack of proper regulation of the production and consumption of energy in the US has been a major reason the country has been unable to move from fossil fuels to cleaner energy sources. Almost 50 years later, the government is still struggling to identify sustainable environmental friendly (green energy) sources of energy. Today, over 84% of energy used in the US is from fossil fuels. Hydropower and nuclear power make up the remaining percentage of energy production. America is a massive consumer of energy in the world consuming over 26% of total global energy production. Canada remains the largest exporter of energy to the US. Other countries that export energy to the US include Russia, Saudi Arabia, Mexico and many others (Armaroli &Balzani 12). The federal, state and local authorities in the US have the mandate to determine the energy policy within their jurisdictions respectively. These plans are made to manage certain aspects of energy that includes production, consumption and the distribution of such energy. Several legislations have passed within the country such as building codes gas mileage standards among others with the aim of ensuring a safer environment. The government has a well worked out plan to govern the conservation of energy. They offer subsidies and incentives in different forms of energy to encourage investments (Yacobucci 4). Taxes are also imposed by some energy sources as a way to regulate their consumption. Several states have enacted laws that govern the use of energy within the country. Several crucial Energy Policy Acts have been passed within the country in recent years the main ones being the 1992, 2005, and 2007 acts. These laws were made to offer a means of conservation of energy. Certain provisions were created such as grants and tax incentives for renewable energy and non-renewable energy. Bodies were also designed such as the Energy Star program, Corporate Average Fuel Economy (CAFE), Strategic Petroleum Reserve among others. According to the recent energy policy that was enacted recently on 18th September 2014 by the Congress, the three primary goals of the policy are to “assure a secure supply of energy, keep energy costs low, and protect the environment.” These three goals form the basis of the formation and implementation of the Energy policy in the US (Yacobucci 5). Market structure of energy The 2005 energy policy recommended the market structure of the energy sector (electric power/ petroleum/natural gas/coal) in the US to get changed into a competitive environment. The competition would help minimize the supposed inadequacies of traditional cost-based regulation. This strategy aimed at reducing costs mainly because prices were expected to guide the consumption of energy. It would lead to low prices that would in turn influence investment decisions in the country (Childs, pg. 1). These combinations would result in more economically active investments and lower costs than under traditional cost-based regulation. This law made the prices of energy become market-based thus prices would be influenced by the value customers place on energy. Production Decision The decision of how much energy to produce in the United States depends mostly on the demand for energy. The demand for energy in the United States varies across different states. Most energy in the US gets used in residential, commercial, transportation and industrial functions. According to the U.S. Energy Information Administration (Web), the country was able to satisfy 84% of total US energy demand in 2013 (Energy Industry in the United States, 2014). It means that the production (supply) of energy within the country is less than the demand meaning prices are likely to go up. It also means the country must export more energy to meet the demand within the country. The energy suppliers determine the prices and output of energy in the market, and this enables them to increase their profits. Looking at all these factors, we can derive that energy suppliers are more likely to make more profit due to the high demand. Evolution of competitive markets Competitive markets are the types of markets where there exist several producers that are in competition to satisfy the wants and needs of the large number of consumers. In this case, the producers cannot dictate how the market functions and the consumers also cannot dictate how the market operates. The energy market in the US is competitive markets where neither the producers nor the consumers can single-handedly change how the market operates. The competitive market of energy in the US has evolved over time, and this has led to producers having an upper hand in the market compared to the consumers. It means the producers are more likely to influence prices of energy through their supply (Sloman, Norris, and Garnett 141). Several factors guide the current market of energy in the US. The producers get driven by a desire for profit and acts as an incentive for them to join. There is a rivalry between the consumers in the quest to obtain energy. The consumers have perfect knowledge of the market, and this makes the able to make an informed judgment. The changes in the market have enabled producers to make individual decisions that guide their businesses. The producers can make decisions regarding the amount of energy to produce due to the changes. Owing to the difference in prices of energy across the country, producers can make informed decisions regarding the markets in which they operate. The consumers also have perfect knowledge of the market and are in a state of competition with each other. Government Regulation Many have argued for the US energy policies and their impact on the energy sector. The country has several policies adopted to govern energy production, transportation and consumption among other issues related to energy. However, there are those that believe these policies are either not addressing the real problems, or they are not being followed as it should be. The primary goal of the US energy policy is well spelled out as means to minimize energy costs, ensure secure and constant supply of energy and also to ensure the environment gets protected during this whole process. One can argue that the policies have been unable to fulfill either of these goals. The country is still overly dependent on fossil fuels that in turn contribute to environmental pollution. The supply of energy in the country is not stable as most the country still imports energy from other countries, and the fact that they depend on petroleum products make the energy sector perilous. The prices of energy are still very high in the country and the world over. Therefore, these policies are still unable to control the energy sector to fulfill the goals they were meant to meet (U.S. Energy Information Administration, 2014). According to the American Council for an Energy-Efficient Economy, the US has developed several national policies (Web). These policies are aimed at “improving energy efficiency as a way of reducing oil imports, improving the reliability of the U.S. electric grid, saving consumer’s money, reducing air pollution, creation of jobs, and reduction of prices.” This body together with other agencies such as the Department of Energy (DOE) and Environmental Protection Agency (EPA) offer crucial national energy efficiency programs such as ENERGY STAR and the Energy Information Administration. These bodies are formed with the aim of ensuring the sanity within the energy market. They have a mandate to ensure the energy sector does not exploit the consumers of energy and also to provide the energy produced is of acceptable standards. Merits of US Energy policy Achieving the goals of the US energy policy has seen significant roadblocks ever since its creation. The diversity of consumption and supply of energy in the US has made it difficult to achieve these goals. However, the US energy policies have been successful on several other fronts. On the first policy goal of conservation and energy efficiency, the policies have been able to help in the setting of fuel economy standards for automobiles and trucks. More effort has been put on research and development programs to try and identify energy-efficient technologies (O’Brien and Woolverton 8). Hybrid vehicles are as a result of such study and research. The “Smart Grid” initiative in electric power distribution systems has been successful in encouraging efficient use of electricity recently. On the second policy goal of increasing domestic supply, these policies have ensured that production of oil within the country is done in a safe and efficient manner. On the issue of fuel prices, these policies have tried their best to shield the whole country against unfair prices. However, the have only a limited role within the country as fuel prices worldwide are influenced by the world market. The Strategic Petroleum Reserve (SPR) which was set up to control disruptions in the supply of oil also affects prices. The energy policies have also ensured increased use of renewable energy and nuclear power which do not emit greenhouse gasses. The last goal of replacing conventional energy sources has also witnessed few levels of success (Yacobucci` 2). Weaknesses of US Energy Policy The US energy policy has witnessed several failures that have hampered it from achieving its goals. There has been reduced government funding for programs that enhance conservation and energy efficiency due to the budget cuts that are being implemented. The policies have been unable to help change the country’s over-reliance on petroleum products, and this has led to increasing environmental pollution due to the greenhouse gasses emitted when these fuels are burned. More coal is still burned to provide electric energy and in the process polluting the environment. The policies have been unable to help come up with a viable option from the conventional energy sources. The energy policies have also been unable to reduce the country’s dependence on oil imports thus making the country depend on the volatile international prices of oil (Yacobucci 3). Application to Micro-economics The US energy market is a competitive market where there are many producers and consumers. It is the characteristic of all individuals and firms to make decisions rationally based on self-interests. The firms (producers) will make rational decisions with regards to profit while the individuals (consumers) will make rational decisions about satisfying their wants. These decisions are essential since all resources are scarce. In this case, the energy being produced is limited, and so producers will make rational decisions with a view to gaining profit. Consumers, on the other hand, will make the decision to purchase only if they want to satisfy their wants. Macroeconomics is based on seven core principles. The first principle is the principle of scarcity. In this scenario, the producers have the energy but they are in need of the money that consumers have. The consumers, on the other hand, have the money, but they are in need of the energy. The second core principle is the principle of cost-benefit analysis. In this case, no transaction can occur between consumers and producers unless the marginal benefit derived is greater than the marginal cost. The third core principle is the principle of incentives matter (Sloman, Norris, and Garrett 126). In this case, we can make a comparison of the cost-benefit analysis in order to make predictions about the decisions that people will make. The fourth principle is the principle of comparative advantage. In this scenario, the producers would concentrate on producing enough energy to meet the demands of the consumers, and consumers focus on consuming. The fifth principle is increasing opportunity cost. In this case, the consumers have to choose the energy with the lowest opportunity costs while producers also must elect to produce at the lowest opportunity cost. The sixth principle is the principle of equilibrium (Sloman, Norris, and Garrett 127). In this case, producers are using all means possible to ensure they satisfy consumer’s wants, consumers also use every means possible to ensure they satisfy their wants. The seventh principle is the principle of efficiency. This principle enables the producer to increase his production as the consumer increases consumption. In this case, energy producers will have to raise their production efficiently as consumers also increase consumption effectively. The demand for energy in the US energy market will always have an effect on the supply and vice versa. If consumers enhance their demand for energy, producers will have to ensure they can meet this demand. In the process prices for energy will go up. A case whereby more energy is being produced than consumption, prices will likely go down due to an increase in energy. The prices of energy in the US are, therefore, determined by the market forces. It means that producers continue producing with the knowledge of the market conditions and consumers also continue consuming with knowledge of the market. Conclusion In a nutshell, the US energy policies were created with three primary goals in mind. Most of these objectives have not been achieved, but there have been some improvement towards ensuring safer, cheaper and efficient energy within the country. The energy market is slightly regulated by the government meaning prices are determined by market forces. Energy sources such as petroleum products are still depended on world prices since most of it is imported. The government through its policies has increased consumption of renewable sources of energy such as hydro and wind power. Nuclear power production has also grown within the country. Works Cited American Council for and Energy-Efficient Economy (ACEEE). National Energy Policy, 2013. Web. 29 Nov. 2014. . Armaroli, Nicola, and Vincenzo Balzani. "The future of energy supply: challenges and opportunities." Angewandte Chemie International Edition 46.1‐2 (2007): 52-66. Childs, William. Energy Policy and the Long Transition in America. Origins, 5.2 - November 2011. Web. 29 Nov. 2014. . O’Brien’ Daniel, and Mike Woolverton. “Trends in U.S. Energy Use and Supplies – How Biofuels Contribute.” Kansas State University, 2009. Web. 30 Nov. 2014. . Sloman, John, Keith Norris, and Dean Garratt. Principles of Economics. , 2013. Print. U.S. Energy Information Administration. Today in Energy, 2014. Web. 30 Nov. 2014. . Yacobucci, Brent D. Energy Policy: 113th Congress Issues. Congressional Research Service, 18 Sep. 2014. Web. 29 Nov. 2014. . Read More