Guarding against energy policy fallacies: Lim Hng Kiang

Lee Jia Xin Straits Times 14 Oct 10;

MINISTER for Trade and Industry Lim Hng Kiang urged students to be on guard against popular fallacies in economic policies.

He made this statement at the annual MTI Economic Dialogue held at the Nanyang Technological University on Thursday.

In his speech to a 200-strong audience from NTU, the National University of Singapore and the Singapore Management University, Mr Lim stressed that economics can be a powerful tool to clarify complex issues in public policy.

He cited Singapore's energy policies as an example, elaborating on the energy trilemma - cost competitiveness, energy secuity and environmental sustainability - that Singapore faces, and went on to elaborate on how popular fallacies in energy policy can be shattered with careful economic thinking.

Mr Lim also presented the MTI (Economist Service) Book Prize and the MTI (Economist Service) Best Thesis Prize to the top Economics students and the best Economics thesis from each of the three universities.

The MTI Economic Dialogue, into its third year, gives undergraduates from the three local universities the opportunity to engage economic experts from the public and private sectors in a panel discussion.



Energy policy fallacies.

Fallacy No. 1: The best way to achieve a reduction in carbon emissions is to set regulatory standards.

In fact, regulation imposes a 'shadow price', so is the cost of implementing regulation worth the benefit of improved energy efficiency?

Mr Lim also warned: "If we force through regulatory measures without properly accounting for the underlying economics, the high resultant costs will sap the public will for carbon abatement over time."

Fallacy No. 2: Regulations give certainty over the amount of carbon reduced.

Mr Lim said that there is a need to put a price on carbon so that the consumer knows the marginal cost of his carbon emission and adjust his behaviour accordingly

He added: 'Unlike regulations or subsidies, a uniform price will let each individual, firm, or industry work out the most efficient response.'

But the minister was quick to clarify that not all regulations are undesirable.

Fallacy No. 3: Tiered pricing.

Setting a lower price for the first block of electricity will only encourage all households, rich and poor, to consume more energy, said Mr Lim.

'A more efficient way to help lower income households is to have a single higher price for electricity or carbon, and to give them direct cash transfers to partially or fully offset the impact of the higher price,' he suggested.