Best US energy policy would rely on free markets

Nov 13, 2001 01:00 AM

The best energy policy for the United States would rely on free markets to determine prices and spur development of new energy sources, Federal Reserve chairman Alan Greenspan said. Greenspan said all current forms of energy, including oil, natural gas, coal and nuclear power, will play major roles in the coming years. He also endorsed development of renewable energy sources and research into such exotic forms of energy as nuclear fusion.

In all of these activities, Greenspan stressed, it is crucial that policy makers allow markets to operate freely with as few government constraints as possible. "We must remember that the same price signals that are so critical for balancing energy supply and demand in the short run also signal profit opportunities for long-term supply expansion," Greenspan said.
"Moreover, they stimulate the research and development that will unlock new approaches to energy production and use that we can now only scarcely envision." Greenspan's remarks, delivered to an audience at Rice University in Houston, marked the second major address he has given this year on energy. In both speeches, Greenspan emphasized development of all sources of energy and increased efforts to promote conservation and renewable energy supplies such as solar power.

Greenspan said in his June speech that the US economy would escape without long-term harm from various energy problems it was then facing. Greenspan noted that the sharp jump in natural gas prices, home heating oil and gasoline that occurred last winter, along with electric power shortages in California, had all been dealt with effectively through the market.
The price spikes generated increased production and reduced demand, which brought the costs of the various fuels down, he said. During a question period, Greenspan disputed suggestions that the Fed's lack of an impact on the economy despite 10 interest rate cuts this year showed that monetary policy is not as effective as it once was. "All evidence that we can produce is that monetary policy is as effective as it has always been," he said.

On energy, Greenspan said breakthroughs in exploration already are lowering the cost of finding new sources of oil and natural gas. He predicted further advances in the years ahead.
He also spoke favourably about nuclear power, which supplies 20 % of America's electricity. He stressed the importance of addressing "concerns of making plants safe from terrorist attacks" and finding acceptable ways to dispose of spent nuclear fuel. "We cannot say with certainty how these technological possibilities will play out in the future," he said, "but we can say with some assurance that developments in energy markets will remain central in determining the long-run health of our nation's economy."

Source: The Canadian Press
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