This book is addressed to a limited aspect of energy policy, namely the state of competition in domestic production of fossil and nuclear fuels. The findings are applicable to the question of the effectiveness of competition in these markets and the role of public policy in ensuring an effective working of market processes.

It should be emphasized at the outset that a lack of meaningful data has been a major constraint. Deficiencies such as limited information concerning the ownership pattern of fuel reserves, and the nearly total lack of insight into the internal operations of major energy companies, are serious obstacles to formulating long-run public policies. This lack of information to policy-makers makes it only too likely that past errors in policy selection will be repeated. This is a risk and cost that society currently bears but, with increased flows of information to policy makers, such risks could be substantially reduced.

The general conclusion of this book is that government imposed restrictions on free markets are responsible for many of the energy problems facing the U.S. Government intervention has ranged from the adoption of administrative decision-making as a substitute for market processes in determining price, as in the case of natural gas, to attempts to influence the pattern of resource allocation by various subsidy programs. Examples of the latter are market demand prorationing and the use of import quotas in oil.

A major effect of government intervention has been to change the incentives or profit opportunities available to firms. In other words, firms have faced a different set of incentives that would have existed without government intervention. As an example, the use of foreign tax credits had the effect of causing investment in new oil capacity to be more attractive, i.e. profitable, in foreign markets relative to the U.S. Oil company investments responded accordingly, leaving the U.S. in the position of having a shortage of refining capacity. This movement was advanced further by the fact that after years of stimulating U.S. oil production through tax subsidies, the remaining prospects in the U.S. were poor relative to foreign oil prospects. Resource allocation problems exist in most of the energy sources not because market mechanisms failed to operate but because of government policies, both federal and state, imposed on the market.

The higher prices and shortages of energy in the U.S. are easily observed. In such situations, a strong tendency exists among the public, to