ABSTRACT
This chapter examines some of the major issues associated with the allocation of energy resources over time and explore how economic analysis can clarify our understanding of both the sources of the problems and their solutions. Economic analysis reveals that no single strategy is sufficient to solve the national security and climate change problems simultaneously. Subsidizing domestic supply, for example, would reduce the share of imports in total consumption, but it would reduce neither consumption nor climate change emissions. The menu of energy options as the economy transitions to renewable sources offers a large number of choices. It is far from clear what the ultimate mix will turn out to be, but it is very clear that government policy is a necessary ingredient in any smooth transition to a sustainable-energy future. The potential for an efficient and sustainable allocation of energy resources by our economic and political institutions clearly exists, even if historically it has not always been achieved.
