CleanTechnica, a blog about...clean tech...has a post up about the perverse incentives that American energy producers face thanks to government regulation. The thesis of the article – a guest post by Sean Casten, CEO of a green energy company – is that electricity generation hasn't improved in efficiency since 1957 because the government has been removing the incentives to generate energy cheaply and efficiently. It's a pretty bold claim, and he only backs it up with two examples: regulation that forces companies to take profits only on capital costs, and the Clean Air Act (which one, it's unclear) which mandates specific technologies that may not actually be that effective at reducing overall air pollution. It's an interesting read, though I feel entirely unqualified to judge the veracity of some of its claims (though they jibe with what I'd expect). However, the part about regulation forcing companies to make money only on capital costs is pretty easy to understand:
Our century-old electric regulatory model pays utilities a return on their capital investment, but compels them to pass along all operating costs to consumers at zero mark-up. This creates a great incentive to build capital-intensive boondoggles. It completely isolates electric utilities from the economic principles that drive “normal” businesses, wherein capital and operating cost reductions are a route to greater profits. This has conspired to make our electric sector openly hostile to efficient power generation. It explains why their efficiency hasn’t moved since 1957, and why that sector now accounts for 42% of US CO2 emissions.
Some questions I have: Is the US the only country to do this, or are there others? Are there any countries that adopt a more laissez-faire approach to energy generation (leaving aside Somalia), and who achieve better efficiency in energy production because of it? And what are the interests that keep this system in place, or has it kept going on sheer inertia?