Price mechanism in the energy market

Do prices reflect supply and demand? Does the mechanism work efficiently in providing signals and incentives to producers/consumers and in rationing the goods?

One market where prices have been changing, to reflect market conditions, and where, consequently the pattern of consumption has changed is the US energy market

U.S. Energy Use

If you compare 2016 with 2015, there has been very little change in the total amount of energy, though the relative importance of sectors is changing. Coal use is declining and as the price of solar panels has dropped, their use has increased. Wind power is also being supported by US government subsidies and supply conditions (choosing how to site and build wind generators) have improved leading to a shift to the right in the supply curve. But, at the same time, and with less favorable consequences for the environment, when the  price of oil and therefore gasoline plunged last year, Americans started driving more.

Overall, the energy market appears to be reallocating resources efficiently through the price mechanism. But also look at the “Rejected energy” box.  Inevitably whenever  raw materials are converted into energy, there will be some waste. However, the amount of waste produced appears to be more than the amount of consumption. I wonder if this can truly be called an “efficient outcome”.

I wanted to compare the US with Japan.  However, the most recent chart produced by the Lawrence Livermore Laboratory is only for 2011 and the units used appear to be different from those for the US charts. The proportion of “Rejected Energy” does appear to be less and I was interested to see that, even in 2011, the proportions of renewable energy were reasonably high. I hope that they have gone up further in the last six years.


Sources: I first read about these ideas at  and I found more charts at  the Livermore site


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