Quiz 7: The Allocation of Depletable and Renewable Resources: an Overview

Business

Nuclear energy uses elements such as Uranium that are radioactive in nature. This suggests that the cost that the nuclear power plants impose on the society are not only restricted to the financial expenditure in the current period. It also entails the costs of physical damage in terms of the genetic deformations. When the radiation comes in contact with the human in sufficient concentrations, they cause severe damage to the capacity of future generations, thereby reducing productivity. One can think of using the cost benefit analysis in this case but that would always underestimate the costs. In this way, the cost and the benefit analysis should only be taken as a complementary tool to be dominated by some other rigorous approach.

United States is very much dependent on the imported energy sources especially non-renewable energy sources like oil in order to satisfy its ever increasing industrial and household demand for energy. If United States imposes a tariff on oil imports equal to 100 percent of import price as suggested by the Economist Abba Lerner then this tariff may reduce some demand but will fuel the inflation in unprecedented manner. In such scenario, this step to reduce dependence on foreign sources as well as to discourage OPEC from raising price will act as self - goal for United States. This step would only be fruitful if United States domestically expands its production of oil to such an extent that it would be able to meet its majority of domestic demand itself. Also, if United States augments the renewable sources of energy in such a manner that they also contribute towards the meeting of adequate demand for energy domestically that such step would yield the desired result. In other words, United States have to move towards energy self - sufficiency if such type of ambitious public policy has to be implemented. If we take into account the current scenario then United States is far from achieving the energy self - sufficiency. Apart from this, economic and geo political issues will also prohibit the U.S. from implementing such policy. So, instead of formulating such type of public policy in current time period, United States should first work towards augmenting its production of non - renewable sources of energy so its dependence on imported oil itself gets reduced without taking such drastic steps of imposing 100 percent tariff.

Strategic Petroleum Reserve as created by the United States is largest reserve of crude oil in the world to be established by a country to be used at the time of emergency. Strategic petroleum reserve was designed to contain one billion barrels of oil which is sufficient enough to permit usage of 3 million barrels a day for around one year. However, U.S. strategic petroleum reserve has never reached the original one billion target. This system was build through a system known as Royalty - In - Kind system. Under this system, oil producers operating leases on the government owned Outer Continental Shelf have to provide between 12.5 to 16.7 percent of the oil produced to U.S. government which is used to build up the stock or strategic reserve. As per the Energy Policy and Conservation Act, U.S. President is authorized to withdraw crude oil from this reserve in case of energy emergency of which embargo is only a kind. There is other type of energy emergencies as well such as nation from which United States import significant amount of oil is at war with other nation thus disrupting the supply. Also, if any natural disaster occurs in United States affecting oil pipelines and distribution then also this reserve could be utilized to stabilize the domestic energy market. Therefore, Strategic Petroleum Reserve has never been used to offset shortfalls caused by an embargo does not mean that money spent in creating the reserve has been wasted.