How will we meet our future energy demands and what are the environmental consequences of our choices? We’ll have a better chance at crafting successful policies if we recognize three vexing realities.

First, fossil fuels are our cheapest, most available sources of energy. “Renewables” (e.g., solar and wind) will play only a limited role in the short and medium term and can only augment, not replace, base load generation. Unless we embark on a major effort to expand nuclear power generation, for the next few decades almost all new energy demand will be met by fossil fuels.

Second, billions of the earth’s poorest are just climbing out of desperate poverty. Secure, reliable, and affordable energy is essential to their successful escape -- and they know it.

Third, all energy production has environmental impacts. For example, wind farms cause visual and noise pollution and kill birds. Montana’s Rocky Mountain Front contains oil and gas deposits but is also excellent grizzly country. In this prime habitat animals roam between high plains grasslands and mountain forests. Drilling can disturb this habitat; and burning fossil fuels causes air pollution and contributes to climate change.

Energy policy must balance imperfect alternatives.

Good, responsible answers are more likely if we correct a fundamental error. Here it is: Most environmental problems are due to modernization or affluence. In fact, across time and cultures, technological advances and economic growth have proved the only sure path to a cleaner, safer environment. The air and water are cleaner in developed countries because their citizens have both the inclination and the resources to care for the environment. Every serious analyst acknowledges this. As former Indian Prime Minister Indira Ghandi put it, “Poverty is the worst polluter.”

In order to harmonize energy production and environmental quality, our institutions should generate incentives that promote energy development while protecting environmental values.

There is no one perfect system for economic and social coordination. Markets, governments, and private nonprofit organizations each have predictable benefits and flaws. When advocating specific environmental reforms, we should consider each of these systems, focusing upon the information and incentives each produces. Here’s an example of how private property and markets can be used to foster mutually beneficial arrangements.

For nearly fifty years the Audubon Society encouraged limited oil drilling on its Rainey Preserve, a 26,000-acre migratory bird sanctuary in Louisiana. With close monitoring, there has been little if any significant negative environmental impact. Instead, oil companies competed to drill and produce in environmentally sensitive ways and Audubon has received royalties with which it expands sanctuaries.

The economics supporting this proposal are straightforward. When an organization owns a resource, it controls the conditions of its development. It can set environmental standards as high as it wants, e.g., “to minimize impact, all exploration must be from helium balloons,” but it faces the costs of these restrictions.

Good institutional arrangements, like Audubon’s ownership of Rainey, make decision makers responsible for both the costs and benefits of an action, lessen political confrontation, and foster cooperation. Property rights and markets help managers weigh trade-offs.

In the long term, technological improvements and productivity gains allow us to use fewer material inputs -- and to emit ever fewer pollutants -- per unit of economic output. This reduces both our economic and ecological footprint. The poorest countries are beneficiaries as they adopt our more efficient and less environmentally damaging technologies -- shortcutting the road to environmental quality.

Another sign of progress is the slow but constant “decarbonization” of our energy systems. The quantity of carbon used to provide one unit of energy or economic output has steadily declined for the past 100 years. This is good news for the environment. For it’s the spills and emissions of carbon that oil beaches and warm the climate.

How can we account for this progress? The answer is straightforward: In a competitive economy, and when people are held accountable for the consequences of their actions, pollution and waste indicate inefficiency. As a result, inefficient processes are filtered out. The market process, like evolution, is a constant search for fitness. In the long run, companies face persistent economic and social pressures to become Green.