I have written in the past about how recent discoveries of natural gas discoveries using fracking methods have had unintended consequences which have proved devastating to the solar, coal and nuclear industries. But not all unintended consequences are negative. The lower cost of natural gas used to generate electricity is translating into substantial and heretofore totally unexpected reductions in the price of electricity. In my state, one which has been notorious for high energy costs, electricity prices are coming down by one third or more.
The positive unintended consequence of this development is that consumers will have more money and in some cases substantially more money to spend on financing their mortgage or possibly even making a new purchase such as a car. The intricate web woven by decisions never fails to amaze me. In this case, oil men, seeking personal profit, explored and found sizable quantities of natural gas which many experts now think will help the US actually achieve energy self-sufficiency in the near future. The transmission of the effect of the natural gas finds to electric utilities and now on to their customers has the potential to stimulate consumption in the national economy, which would generate new jobs, which would all multiply into higher levels of GDP and personal income. No one could possibly have anticipated this unintended consequence. But in this case we should all relish it and hope for a light at the end of the economic crisis tunnel.
Readers interested in learning more about unintended consequence may wish to read my book, Unintended Consequences: How to Improve our Government, our Businesses, and our Lives. Also, there is more on similar topics at my blog at harlanplatt.com.
Yesterday's post about the demise of solar was somewhat premature as it now appears that cheap natural gas has done the same thing to the nuclear power industry. The unintended consequence of cheap gas is that of the 29 new nuclear reactors proposed several years ago only two are proceeding.
Unintended consequences make planning and long range thinking very difficult. The 29 new nuclear plants were proposed as a consequence of high oil prices. And at that time they made sense. Planners could not anticipate the success of fracking for gas and as a result the new plants were mothballed or otherwise put aside in favor of new natural gas plants.
To learn more read, Rebecca Smith's "Cheap Natural Gas Unplugs U.S. Nuclear-Power Revival, The Wall Street Journal, March 16, 2012, page A1.
Energy independence is a goal of most American politicians. For years experts scoffed at the idea. Congress worked on the edges of Independence by providing subsidies to energy industries such as solar. Even the most widely optimistic assessments never suggested that solar could reach even 10% of our energy needs.
Along the way oil companies started to use fracking methods in the search for natural gas. They were successful beyond almost all imagination. The best way to track this success is with the price of natural gas which fell from about $12/mcf to about $2.50/mcf today. The potential exists for a century or more of abundant natural gas.
The unintended consequence of fracking for gas is the partial demise of the solar industry. When gas was $12/mcf solar, with government assistance and tax credits, was almost competitive. At $2.50/mcf solar is a nonstarter. Companies like Solyndra LLC (the recipient of a large government loan guarantee) which went bankrupt in the Fall of 2011, are probably the tip of the iceberg as the whole solar industry contracts.
This example illustrates the difficulty/futility of governments trying to influence outcomes. Market forces are usually more powerful than governments. The best thing government can do is to encourage innovation and to be sure that consumer face prices that reflect the true cost of what they are buying.