Reihan Salam responds to my argument on efficiency standards. He’s not buying my arguments (though I’m not particularly surprised by that).
His rebuttal to my claim that the only way to eliminate the spillover effect where someone else’s consumption affects the cost of my energy:
I think it’s fairly easy to argue for [individual contracting for generation, transmission and distribution services]. In New York city, electricity prices are considerably higher than the national average and this has appeared to have a significant impact on consumption. Granted, it’s not entirely fair, but gas prices also reflect the consumption choices of others and this hasn’t deterred calls for higher gas taxes.
“Fairly easy to argue for” individual contracting of generation, transmission and distribution services? I have to disagree with that. Competition among generators is certainly possible, though historial experience (California in 2001, anyone?) indicates that deregulation of generation sources needs to be carefully managed. My former colleagues Dr. C.K. Woo and Michael King have catalogued the potential costs associated with deregulation in this paper. They’re not guaranteed dealbreakers, but they call into question the efficacy of deregulation.
But individual contracting in the transmission and distribution sectors? I’m not aware of anyone actually proposing this, and frankly, it doesn’t make much sense to me. I can think of two ways that such individual contracting would work: (1) a single transmission/distribution provider contracts with individuals, opening the door for massive price discrimination due to the transmission provider’s monopoly power; or (2) multiple wires companies compete for customers, each operating their own grid. The first option seems likely to just result in massive profits for the companies that have the infrastructure, as they can construct individual pricing schemes to extract as much consumer surplus as possible. The second, meanwhile, seems wildly inefficient and likely to lead to skies criss-crossed with transmission lines if consumers are actually going to have real choices between transmission/distribution companies.