Government Subsidies to Correct Externalities Essay

Government Subsidies to Correct Externalities Essay

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Government Subsidies to Correct Externalities


The provision of energy is riddled with market failures. For instance, the U.S. maintains a military presence in the Middle East at least partly in order to secure energy supplies, but to what extent do U.S. consumers pay for that at the pump? Anecdotally, petrol costs about half in the States what it does in Europe. For another example, short haul flights are often cheaper than train tickets to the same destination, and yet, air travel is about ten times worse for the environment than is rail. Does the cost of either ticket account for this difference? Both the production and consumption of energy give rise to economic costs that are difficult to allocate. These externalities are a long-recognized economic problem.


That is why we are in the midst of boom times for the alternative energy industry. For the most part, alternative means alternative to derivatives of crude oil, but it also seeks to substitute for coal and to a lesser extent nuclear energy. In many cases, demand for alternatives has exceeded supply. Similarly, demand for investments in new alternative energy technologies has exceeded the stock of available good ideas (Green Dreams, 2006). But has this driven up the price? Well, sort of.


What has happened is governments around the world have stepped in to support alternative energy. According to The Economist magazine, 49 governments have made formal commitments. So while consumers by and large are still minimizing cost in the energy purchases, their elected governments have demanded dramatic changes in patterns of production (Investing in clean energy, 2006).


There are broadly three reasons for consumer preference for alternative energy....


... middle of paper ...


... to assure that society gets the package of output that it desires.




Works Cited


The answer, my friend? ? Can the windy Great Plains be a new power source, or is that just bluster? (2006, October 26). The Economist.


Green Dreams ? The flood of money into clean energy is better news for society than it is for investors. (2006, November 16). The Economist.


Investing in clean energy ? Tilting at windmills. (2006, November 16). The Economist.


Hammond, P., Gamble, B. (2006, February 16). Simmons Oil Monthly ? Solar Energy Overview. Retrieved 17 November 2006 from: http://www.simmonsco-intl.com


Campbell, J. (2005, February 12). NOPA Biodiesel Speech. National Oilseed Processors Association 2005 Annual Meeting.


Wind Power. Wikipedia. Retrieved 17 November 2006 from: http://en.wikipedia.org/wiki/Wind_energy

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