In tonight’s State of the Union speech tonight, President Obama is expected to call for increased reliance on domestic energy. In particular, the president will call for more oil and natural gas production. He call attention to decreased oil imports- although as the Wall Street Journal notes, this is mostly due to lessened demand in a still-feeble economy. His call for increased fossil fuel usage- although domestic- will surely meet opposition from environmentalists. While increased oil and natural gas production has potential to create jobs, it carries great negative externalities. Both the extraction and subsequent burning of the fossil fuels cause pollution, raising marginal social costs of expanding production. While increasing production of oil and natural gas carries some benefits, I believe such benefits are outweighed by the environmental harm. As peak oil draws ever nearer, the U.S. is better off expanding the green energy sector and preserving the fragile environment than reverting to harmful fossil fuels.
Great application of welfare economics. I find it interesting to note that you uncover a policy inconsistency with the President's call for more oil and the market's decreased demand for the resource. Does this create a market inefficiency? could this, in the long run, create a surplus or, heave forbid, market failure? Great job!
ReplyDelete