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15 The regulation of energy: issues and pitfalls Colin Robinson and Eileen Marshall Introduction Almost always and almost everywhere the energy industries are regulated by governments. Of course, government involvement in market transactions is common, even in ‘market economies’: it often goes well beyond the establishment of essential market institutions (such as enforceable property rights, the maintenance of law and order and the provision of defence) that virtually every one would agree is an appropriate function for government. Governments try to regulate markets, steering them in particular directions, which, they claim, are in accordance with the ‘public good’. Energy markets are among the most prone to government intervention. Energy, it is sometimes argued, is ‘too important to be left to the market’. It is claimed, for example, that the energy industries have a significant environmental impact and that there are matters of strategy involved in energy supply, such as whether dependence on overseas sources of supply is desirable. This chapter examines the case for government involvement in energy markets and, where such involvement seems justified, the direction it can best take. First, however, it discusses what is meant by ‘regulation’. The meaning of ‘regulation’ ‘Regulation’ is not an activity exclusive to the state. In its broadest sense, regulation means the setting and enforcement of rules by some form of collective action. Such rules are an essential part of social and economic life, allowing individuals and organizations to deal with others in reasonable harmony. There is, however, an important distinction between...
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