Energy conservation is a vital part of the massive effort it will take to solve the global energy and environmental crisis. So it seems right, even morally imperative, for a government to encourage conservation through incentives such as subsidies and taxes. In fact, there are already many such incentives in the U.S., such as energy rebates and state gas taxes of about twenty cents per gallon. But should there be a more aggressive set of government incentives to cut energy consumption?
Incentives can be powerful and valuable. The nation owes its bountiful creativity to incentives in the form of patents and copyrights. But incentives specifically designed to influence fundamental market forces often have unforeseen consequences that outweigh their benefits or create new problems. For example, subsidies that allow American farmers to work profitably put poor farmers in developing countries at a tremendous disadvantage. Incentives are clearly a double-edged sword and should be used only when absolutely necessary.
In the case of general energy conservation, market mechanisms are already hard at work doing the right thing. The cost of energy has stimulated exciting conservation trends in the free market that are more easily traced to profit motives than to government intervention. Many large companies such as Adobe and Google have reduced their operating expenses by investing in "green buildings" that save millions of dollars each year. Households, likewise, are finding that buying popular hybrid vehicles and compact fluorescent lights can reduce gas and energy bills. Smart conservation is being fueled by the rising cost of energy.
The airline industry, for example, has employed aggressive conservation tactics in light of rising jet fuel prices. Planes are now designed to be fuel efficient and are carefully managed to reduce as much weight as possible. However, unlike gasoline for cars, there is no tax on jet fuel, and therefore no government incentive at work. Conservation efforts are simply good business for airlines. Taxing jet fuel may push conservation efforts even further, but would also cause tremendous costs for U.S. airlines that are already struggling to compete in a crippled industry.
But even if incentives are not always efficient, many proponents suggest that governments should err on the safe side and employ them anyway, given the importance of energy conservation. This idea is dangerous, though, because government incentive programs are expensive and often have only short-lived effects. Furthermore, the private conservation programs that grow in response to incentives often become dependent on those incentives to be financially viable. As we consider a new conservation incentive, we need to consider what will happen after the incentive ends. There could be a counterproductive backwards shift in conservation, as in the mid-1970s after a short-lived national push for alternative energy.
Our nation’s clumsy experiences with import tariffs and nationalized industries, such as railroads, demonstrate the mistake of manipulating markets as a quick-fix to larger problems. On the other hand, when the U.S. has invested broadly in a long-term future, the results have been extraordinary. Government-funded research, for example, has a strong history of radical breakthroughs, such as with the NASA space program and the Manhattan project. Similar results in energy research would change the world, while greater subsidies would simply dull the push for genuinely transformational progress. Instead of crudely altering private markets, a more sound investment would be in energy research and development, which could have far longer-term effects than an incentive program.
Energy conservation is a private-market undertaking and is best left as such. Corporations, industries, and households already have incentives to conserve their energy consumption, just as they reduce any other cost. It is rare that such a good natural incentive exists to solve a complex problem. The dangers, bureaucracy, and unintended consequences of additional heavy government incentives are best avoided as much as possible.