Energy
Energy is vital to life and prosperity. But so are food, shelter and clothing. It does not follow that government must intervene in something simply because it is vital. The question is: are there public goods, externalities, or cases of market failure in the energy sector that require the government to intervene in order to correct material flaws?
Anthropogenic Global Warming (AGW)
The most well-known externality from the production and supply of energy is the release of greenhouse gases, their possible role in AGW, and specifically the harm that may result from these effects. We deal with this separately, because the energy sector is not the only sector that needs to be covered by measures to respond to the risk of AGW, nor does all energy have a substantial AGW impact.
The critical point that is often forgotten or ignored in energy policy is that measures to deal with AGW should not be mixed up with measures to deal with other issues. If we are concerned about local air quality, implement separate measures to deal with that. If we are concerned about energy security, implement separate measures to deal with that. But don't use concerns over local air quality and energy security as an excuse to corrupt and complicate measures to deal with AGW. Let the intersection of the separate policies to deal with the separate issues decide the best way to take account of the various issues in each case. Any other approach produces a bugger's muddle, usually complex and bureaucratic, and usually promoted by those who see rent-seeking advantage in the mess.
So, to address AGW risks in the energy sector, we apply a carbon tax to emissions of greenhouse gases, as we would in any other sector (see the pages on the Environment). We do not target any technological or behavioural solution. We allow the market (with the social cost of the AGW externality internalized through the carbon price) to choose the balance of deployment of technological and behavioural developments to mitigate or adapt to the risk. If we believe the market is not reacting strongly enough, we increase the level of the tax, we don't pick winners.
Other diffuse externalities
From time to time, other externalities (besides AGW) are identified that have a wide-reaching (rather than local) effect. Sulphur emissions and acid rain was one, depletion of the ozone layer was another (and, like AGW, neither of these is uncontroversial). To the extent that science presents a persuasive case of a material risk, governments should put a price on the pollutants where the risks can be mitigated satisfactorily through the market, and consider prohibiting the emission of those pollutants where even mitigated impacts cause material harm to people or property.
Local air quality
Combustion technologies release emissions into the air, which may (depending on their constituent molecules and concentrations) have impacts on the health and wellbeing of those who live or work within the influence of the polluted air. This is a bog-standard externality. Government should intervene to protect people and their property from being involuntarily affected in this way.
Other local impacts
Different energy technologies have different impacts. Some may involve volumes of traffic to bring fuel. Some will produce waste products that need to be disposed of in a suitable manner. Some may present a risk of pollution of the ground or the water. Some may intrude into people's customary enjoyment of their property through excessive noise or vibration.
Some people would add visual intrusion to this list, but we take the view that no one enjoys a right to a view over someone else's property. If views are an externality in any way, they should be regarded as a positive externality provided by the owner of undeveloped land, and if neighbours wish to continue to benefit from this externality, they should pay the landowner enough to persuade him not to develop on it.
Energy security
Fuel poverty
