Strategies for the Energy Crisis

Here's an interesting interview examining energy policy and greenhouse emissions.

After nearly 30 years at Caltech as a professor of theoretical physics and, eventually, provost, Steven Koonin took a leave of absence in 2004 to become BP's chief scientist. After a year of study, he recommended a strategy for the company that has included investments in unconventional sources of oil as well as renewable energies such as solar.
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TR: What's the best way to reduce gas consumption?

SK: Raising the price of driving is the simplest way to induce conservation and efficiency. Look at how much response we saw when the price of gasoline went up to $4.50 a gallon. We've seen it work over the last year. But raising gas prices is very difficult politically to do. In fact, you see the candidates going in the opposite direction.

The prices for gas and for carbon need to be high enough to make some difference, so that means there will be some pain. And it needs to be stable enough so that people can make long-term investments for deploying alternative technologies.

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TR: So the markets aren't going to solve these problems?

SK: Left to its own devices, the market will not price the externality of carbon dioxide, nor will it effectively deal with the security-of-supply problem. I think [that's] because it's longer term, and the markets have a shorter-term focus. I think markets are good for tactical allocation, but it's not obvious to me that they're the right thing for strategic allocation [or] longer-term planning.