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Audio Transcript
Introduction
Welcome to The Ripple Effect, where we explore how policies impact our economy beyond the surface level.
Today, we’re diving into a crucial policy area that affects small businesses: energy policy. Whether it’s gas prices, electricity costs, or government incentives for certain energy sectors, the way we manage our energy resources has deep ripple effects on small businesses across the country. But what happens when the government starts picking winners and losers in the energy market? And how does a heavy reliance on diesel trucks for transportation and energy loads at night to power lights factor into the equation? In this episode, we’ll explore the first, second, and third-order effects of energy policy on small businesses.
First-Order Effects: Immediate Impact
Let’s begin with the most immediate consequences of current energy policies: rising energy costs and environmental changes. Government incentives that prioritize renewable energy like solar and wind while reducing support for traditional energy sources such as oil, natural gas, and coal create an uneven playing field. For many small businesses, such as Mile High Logistics, a regional trucking company that depends heavily on diesel to fuel its fleet of trucks, this can be a critical issue. Diesel fuel prices will climb due to reduced investment in fossil fuel infrastructure, driving up transportation costs.
For Mile High Logistics, the increased fuel costs mean either raising delivery prices or reducing their service area. Other small businesses—like a local bakery that depends on Mile High Logistics for ingredient deliveries—also will feel the pinch as rising transportation costs get passed down the supply chain.
On the positive side, the air quality might be better, especially in urban areas that switch to electric vehicles and renewable energy. Fewer emissions could improve public health, and businesses that market themselves as eco-friendly may benefit from this shift. However, these benefits are immediate and localized, leaving us to question what happens next.
Businesses that rely heavily on nighttime operations, like Sunset Manufacturing, which produces custom lighting fixtures, will see rising electricity costs. This is because the energy grid depends more on fossil fuels during the evening when solar panels stop producing energy, and wind generation often slows down. While renewable energy is effective during the day, it doesn’t match the needs of businesses that must keep running after dark.
Second-Order Effects: Strategic Shifts and Hidden Costs
Moving on to the second-order effects, we begin to see the strategic adjustments that small businesses make in response to energy policies. Many businesses will feel pressure to align with government incentives, prompting investments in renewable technologies like solar panels or electric vehicles. While this may sound like a positive move, not all small businesses are equipped to handle these changes. For example, Sunset Manufacturing might consider installing solar panels, but the majority of their production takes place at night, rendering this investment less effective.
Another major sector facing challenges is agriculture. Farms depend on diesel-powered equipment like tractors, combines, and trucks, with few viable alternatives available. As fossil fuel prices rise, farms will experience significantly higher operational costs, which will drive up food production expenses. These increased costs will eventually pass on to consumers, leading to higher food prices. This impact is felt most by low-income families, who are less able to absorb the rising costs compared to wealthier households. Small, local food producers are also hit hard, as they often operate with tighter margins and have fewer resources to manage the increasing expenses.
Additionally, the more hidden cost comes from the fact that while we may reduce pollution locally, we are effectively exporting pollution and other negative environmental effects to countries with less stringent regulations. Much of the equipment, solar panels, batteries, and even electric vehicle components are manufactured overseas, often in countries with fewer environmental protections. As U.S. demand for green technology increases, these countries bear the brunt of environmental degradation and industrial pollution, contributing to more global climate change, not less.
While local air quality improves, these second-order effects show that the environmental costs are merely shifted elsewhere, creating a global imbalance in how we handle pollution and energy consumption.
Third-Order Effects: Unintended Long-Term Consequences
Finally, let’s consider the third-order effects—the long-term, unintended consequences of current energy policies. Small businesses like Mile High Logistics may not survive in a market where fuel prices continue to rise, and government incentives favor only those businesses that can adopt green technologies. As small trucking companies lose ground, larger companies with the capital to invest in electric fleets will eventually dominate the market. This creates monopolistic behavior, where large corporations can afford the energy transition while small businesses struggle or fail.
Furthermore, exporting environmental costs to less-regulated countries not only affects those nations—it also worsens the very environmental problems that energy policies are trying to fix. These countries often have weaker environmental protections, meaning their contribution to pollution and climate change will likely be even greater. This exacerbates global warming, which ultimately circles back to the U.S. economy. Severe weather events, rising sea levels, and other climate change impacts can disrupt supply chains, damage infrastructure, and harm small businesses that are least prepared to handle such shocks.
Additionally, as the traditional energy sectors shrink, small communities that once depended on coal, oil, or gas industries will suffer. Moreover, businesses that serve these workers—like restaurants, repair shops, or healthcare providers—may be forced to close as more traditional energy jobs disappear. These effects are long-lasting and difficult to reverse, especially for rural towns that don’t have the resources to pivot to new industries.
Conclusion
Energy policy is more than a local issue; it ripples across the entire economy and impacts small businesses in profound ways. While the first-order effects might include rising costs and cleaner air, the second-order effects reveal hidden costs as we export pollution to less-regulated countries. The third-order effects demonstrate how these shifts could destabilize local and global economies in the long run.
Thanks for tuning in to The Ripple Effect. Join us next time as we explore the far-reaching consequences of another key policy.