Energy Systems and the Knowledge Problem: The Case of Biofuels

Discussions of energy and global warming policy presume that the energy mix is a system that can be engineered in order to achieve desired environmental, economic and social goals. This paper argues that such a conception can be misleading and counter-productive. Drawing on FA Hayek’s conception of the knowledge problem, and Vernon Smith’s ideas on rationality in economics, this paper argues that it is more accurate to understand the energy mix as a spontaneously emergent order that is the product of human action, not human design. The complexity of energy systems, the subjectivist nature of the human actions determining the outcome of these systems, and the unknowability of technological innovation mean that attempts at designing the energy mix, mandating targets for specific energy sources, or subsidizing specific energy sources are misguided and can be counter-productive.  Assistant Professor of Economics at Lebanese American University and Foreign Member of Columbia University's Center for Capitalism and Society. Email: [email protected]. Preliminary version: do not quote without author permission.