Designing a Durable Energy Policy

Although the U.S. energy system seems to resist the changes necessary to meet today's challenges related to energy security and climate change, the system has gone through massive change several times since 1850. A major driver in each of these earlier transitions was an economic value, such as mobility, that markets could capture. Because environmental and security values are public goods, changing today's energy system will require a policy that creates a market signal reflecting these values. However, it is also necessary to craft a policy framework that is both durable over a long time period and able to adapt to new information as it becomes available. This essay examines some of the possible attributes of a durable and adaptable policy. The discussion is necessarily preliminary because relatively little formal research exists on this topic. However, even a preliminary examination suggests that considerations of policy durability could affect the choice between a carbon tax and a cap-and-trade system.