[Ed. Note: In this three-part series, Douglas Southgate, an economist and professor at Ohio State University, addresses key issues at the heart of Ecuador’s claims of “reckless environmental damage” against Chevron, and, through them, international oil companies (IOCs). Part II and Part III will address two other charges: that the small, South American nation has benefited little from energy-resource development, and that environmental damage is the responsibility of foreign firms alone.  These postings are timely in light of a recent article in The New Yorker,[2] a new book about the construction of a trans-Andean pipeline,[3] and other literature in which IOCs’ actions in Ecuador are criticized.]

Part I in this series challenges the charge from the Ecuadorian régime’s (and its U.S. backers) that:

(1) Ecuador was an innocent seduced by the siren song of Big Oil, and became a vassal to their interests;

(2) Ecuador’s relationship to its oil potential was merely passive; and

(3) Oil development monies did not benefit Ecuador.

Act I finds the protagonist boldly proclaiming an original and bold explication of the economics and history of the gas and electric industries. In Act II, we use the weapons developed by our protagonist to render much that passes for sound energy policy both tragic and comedic.

In Act III, we search deeply within ourselves to discern if the protagonist provides answers to the modern vexations that ail us. Come let us listen to Friedman Milton as he disarms the protagonist.

Black and White–or Gray?

The Bradley Project seems to dichotomize the world into free market capitalism and political capitalism. To paraphrase George Orwell, free markets good; political markets bad.

I have no quarrel with Bradley’s conclusion that both energy generally and natural gas and electricity in particular have been victims of political capitalism in all its hoary forms.…

One of the nation’s important energy analysts is Michael Giberson, an economist at the Center for Energy Commerce in the Rawls College of Business at Texas Tech University. Giberson, who has occasionally posted at MasterResource,  teaches energy courses at Tech such as U.S. Energy Policy and Regulation and Energy Economics.

Giberson is also a principal (with fellow energy expert Lynne Kiesling of Northwestern University) of the energy-centric Knowledge Problem, described as “Commentary on Economics, Information, and Human Action.”

A month ago, Giberson critically reviewed a study by the Breakthrough Institute that claimed, basically, that government energy activism crucially enabled the shale gas (and oil) revolution that is now sweeping much of the United States and many countries around the world.

“New Investigation Finds Decades of Government Funding Behind Shale Revolution,” announced Breakthrough on December 20, adding:

Breakthrough Institute research and interviews show the direct and sustained support federal agencies provided to the gas industry leading up to the modern natural gas revolution.

The market order encompasses the concept of sustainability, which has been defined (Brundtland Report) as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”[1]

In a sustainable energy market, the quantity, quality, and utility of energy improve over time. Sustainable energy becomes more available, affordable, usable, and reliable. Energy consumers do not borrow from the future; they subsidize their progeny by enabling the expansion of technology and upgraded infrastructure.

The catchphrase sustainable energy encompasses the goals of security and reliability, energy availability, and environmental progress. Critics of industrial modernism censure fossil fuels, beginning with coal and continuing with oil. Relatively cleaner-burning natural gas is preferred of the three, but sometimes only as the transition fuel to an envisioned post-hydrocarbon economy.…