Energy Policy Work

Tel: +1 973-761-6105 benveniste@en-aerion.com



Mathilde Benveniste, Ph.D.

"Efficiency and the Role of Government in Energy Policy"

Paper published in Energy Policy, February 1985.  Document (pdf)

Paper Description:  Part of the reason for high oil prices is that the nation is ill prepared to reduce oil imports in response to higher oil prices. The lead times involved in research and development and the construction of new plants make it difficult to respond as quickly to oil price increases as would be possible.  The risk associated with energy technology ventures delays private investment in this sector.  As a consequence, a laissez-faire policy does not ensure that the resulting allocation of resources meets consumers' needs at least cost -- that is, the allocation of resources is inefficient from an economic perspective.   A successful energy policy is one that achieves the goal of economic efficiency by anticipating oil prices and by timing the development of substitute energy technology properly.   

This paper provides the theoretical support for an energy policy that aims at economic efficiency for an oil-importing nation.  Adoption of price guarantees for alternatives to oil imports and initial subsidy of energy technology development, including subsidies for the installation of energy production capacity, are among the measures considered. Their effect would be to increase investment by the private sector in competing alternatives to oil imports and thus steer consumers toward energy use choices that meet their needs at a lower cost.  A mathematical model built on simple assumptions enables the computation of the  benefit-to-cost ratio for such a policy.  Its results show that the cost of the energy policy is out-weighed by the gains in benefits to the oil-importing nation.


 Contact: Mathilde Benveniste