The last few months have shown what is wrong with the energy market and that, in a word, is volatility.
Once a field is established it’s dirt cheap to pull oil or gas from the ground. When energy prices cratered early this year Saudis and others still made money.
But oil and gas are also political assets, hence subject to disruption. The recent price run-up, and a possible new spike over Iran, attests to that.
So what the market most needs is price stability. That’s what cap and trade, the most controversial aspect of the President’s energy and climate proposal, is designed to provide.
While it’s being pushed as a bill to slow climate change, cap and trade can also have a very positive impact on the energy market.
It raises the price of oil and coal, acknowledging the real costs of burning it, which brings those costs closer to what alternatives like solar, wind and geothermal bring to market.
It’s not a perfect market solution. To my mind, a price floor would be better. Set it at a price that delivers profits to those with solar, wind and geothermal resources, and you have the assurance they need to invest.
But for now cap and trade is what’s on the table. And where arguments over polar bears and glacial melting are nice, they won’t do for businessmen with short-term profit goals.
It’s a reduction in volatility that’s the winning political formula. The way to assure new investors a profitable market for long-term projects is to wipe out the price advantage old, unreliable feedstocks. And the best way to grow all manufacturing is to provide price stabilitiy to the energy market.