Fueling future growth

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By Richard Paterson

"A crisis is a terrible thing to waste," economist Paul Romer once said. At first blush that comment doesn't sit quite right, but on reflection, its simple wisdom becomes apparent. Not to learn from a crisis is to waste an opportunity. The current energy crisis is a case in point. When oil, gas, and power prices were skyrocketing only a few months ago, the call for long-term solutions was loud and widespread. But now, as prices fall and the crisis seems to wane, we are in danger of once again being lulled into complacency. Will we act now to avoid a more severe and damaging crisis in the future? Or will we waste the current crisis by failing to formulate a sound and sustainable energy policy for the United States? Author Richard Paterson argues that such a policy should be established and should be based on an understanding of the energy realities that face us, along with follow-on actions that will help promote a more secure energy future.

The US is in the midst of its third major energy crisis in the last 30 years. Companies, as well as consumers, are understandably concerned about rising energy prices and unpredictable availability. While elected officials have given lip service to energy policy for decades, little has been accomplished, to the detriment of our economy and our standard of living. With energy prices now dropping precipitously, the time is right for US policy makers to get beyond the sound bites and rhetoric of the election and develop a solid and sustainable energy policy that supports economic growth in an interdependent world.

The fact that the energy crisis is not the only crisis we're facing complicates matters. The financial crisis, too, is likely to have a profound effect on energy supply. Feeling the credit crunch, many companies are cutting back on their energy investments-either voluntarily due to price volatility or involuntarily because credit may not be available or is too costly. Fewer investments will surely mean less energy to go around. The result? Higher price spikes and greater competition for limited supplies when the evolving global recession recedes. Failure to act now will harm the long-term prospects for our economy and, ultimately, our national security.

The stakes, therefore, are high for our nation, its consumers, and its businesses. While government is in the forefront, a sound and sustainable energy policy is everyone's responsibility. Many options and approaches are possible, but if we are to successfully mitigate the risks to US business and to America's economic future and national security, then a comprehensive, well-conceived energy policy that is grounded in reality rather than rhetoric is essential. At its foundation, such a policy should fully recognize four basic realities:

  1. Past cycles of one-off, short-term solutions must be broken and give way to a long-term planning horizon-30 years or more. Long-term thinking must be applied not only to energy policy, but also to tax and regulatory policy, with which it must be fully aligned.
  2. An energy policy that fosters the investment needed over the long term cannot be fully effective unless there is a clearly defined approach to carbon reduction requirements.
  3. Policy makers must embrace a multiresource mind-set. No single energy source will provide a solution in the near term.
  4. The public and private sectors should collaborate on initiatives that leverage technology and people to promote increased supply and reduced demand.