Energy policy II

Writing about energy policy last week I said "Here's an idea: why don't we just let markets work?"

Today I found this paper from the Dallas Federal Reserve (via the PSD blog) that concludes:

To a great extent, rising oil prices are self-limiting. Higher oil prices encourage conservation and development of unconventional oil resources and alternative fuels. Higher oil prices should also help overcome at least some of the difficulties in developing the vast conventional reserves not fully connected to the market. In the long history of natural resources, the prospect of scarcity and higher prices has provided ample incentive for innovation.

So basically, in order to argue in favor of a national energy policy, one has to believe that government is smarter than the market.