Venezuela, home to the world’s largest oil reserves, is a case study in how central planning can cause difficult to imagine economic failures.
Starved of adequate investment and maintenance under central planning, Venezuelan oil output has declined to its lowest level in decades. This has led to output slumping in 2020 to as low as 339,000 barrels a day at one point. At its peak, Venezuela produced 3,453,000 barrels per day.
Iran and Nigeria have had to supply Venezuela oil.
This outrageous situation is playing out in a mini-version in Texas during the current cold freeze. There are rolling blackouts in a state that is a huge energy producer. It is causing millions to freeze.
As usual, at the epicenter of the problem is a central planning agency. In Texas, it is called the Electric Reliability Council of Texas. One thing you can count on is that government agencies are the exact opposite of what they are named. Social Security, as it runs on fumes, is really social insecurity. Who really knows how it will survive and in what form? The Department of Defense is really the Department of Offense. And the Electric Reliability Council of Texas, the energy regulator in Texas, is certainly the exact opposite of reliable.
I talked to several energy experts to understand what a free market in energy would look like but not one could seem to get their head around the concept of a free market in energy. Every one of them was "ERCOT did this wrong" or "ERCOT needs to do this."
They just could not think in terms of anything but statist energy solutions. When I point blank asked them, "What would a free market in energy look like if it was only between an energy provider and a customer?" I was greeted with silence and, eventually, a point was made on a different subject.
Here is what we know for sure.
It has been all about blunt instrument statist regulations by ERCOT. The regulatory agency took a blunt instrument risk for all in Texas that appears to make little sense--and will certainly result in some freezing to death.
Alex Epstein, author of The Moral Case for Fossil Fuels, makes the best points on what has gone down:
- The TX focus on wind has come above all at the expense of coal, which has the resiliency advantage (along with nuclear) of being able to store large quantities of fuel onsite; gas mostly requires "just in time" delivery from pipelines.
- [Wind created energy is very unreliable].To lessen the price increases from "unreliables" governments try to get away with as few reliable power plants online as they can get away with. TX is no exception. The Public Utilities Commission of TX has called their grid's margin for error ("reserve margin") “very scary.”
- Additionally, the expense and distraction of accommodating "unreliables" takes away money and focus from resiliency. In CA this meant not maintaining power lines. In TX it may have meant not focusing enough on making the reliable power plants resilient enough to winter weather.
- We know how to produce enough low-cost, reliable electricity for every situation. You just build a whole bunch of reliable power plants, including those with on-site fuel storage--such as coal and nuclear. You place a premium on reliability and resilience. That's it.
- TX is having an electricity crisis during bad winter weather because it did not focus enough on building reliable power plants and infrastructure--because it was obsessed with getting as much unreliable wind/solar electricity as possible. Let's all learn from this mistake.
NEW: Patients are being evacuated from St. David’s South Austin Medical Center after the facility lost water and heat. pic.twitter.com/PYbkANEB85— Matt Largey (@mattlargey) February 18, 2021