Negative Externalities and Energy Policy

Our co-blogger has asked why the government needs to be involved in an energy solution. I have pointed out negative externalities in comments on this blog here and here. Another thing to consider is the impact that government policy has on the choices that we make as energy consumers:

Americans can optimize their personal consumption decisions all day long, but without a policy in place to internalize social costs, they’ll still end up creating costly traffic jams and devastating climate change.

Along these same lines, I'm constantly annoyed that people insist that public transportation pay for itself. Gas taxes and vehicle taxes go a long way in paying for roads, but we also heavily subsidize the use of oil by spending income and sales taxes on roads. In addition, local governments provide services such as sewer, water, fire protection, schools, etc., to outlying suburbs. It is more expensive to provide these services over a larger geographic area, so local taxpayers subsidize the use of oil through local taxes.

A lot of people live in suburbs in part because it is cheaper. You can get more house and more land for less money. That wouldn't be the case if the costs of our automobile culture were not so hidden from individuals.

I'm not suggesting that we all be required to live in urban areas. I commute over 20 miles each day, love my car, and enjoy my few acres in the middle of nowhere. But aligning individual costs more with social costs makes sense.