The use of energy by humankind has been an essential element in both the development of organized society and in the supply of food and physical comfort. Energy requirements were relatively modest for most of human existance, generally limited to the use of fire for warmth and cooking. In addition, wind and human “energy” permitted transportation by water, while the invention of the wheel gave similar advantages on land. Only in comparatively recent times have wind and water energy been harnessed to provide significant sources of power.

The first significant increase in humankind’s energy requirements came with the dawn of the Neolithic Revolution. Humans moved from hunting and gathering to primitive agriculture with interrelated developments such as cultivation of plants, domestication of animals, settlement of communities, development of pottery, and improved tool-making. However, with a relatively small human population and modest per capita consumption of heat and power, it was still possible to maintain a balance between renewable energy sources and demand.

The development of mechanical equipment based upon water and wind power led to a substantial increase in the magnitude of power that could be harnessed. Watermills were initially used for irrigation and for grinding cereals, but were later used to drive sawmills. Windmills were used for similar tasks, although their value was limited by their intermittent operation. It was not until the development of metal technology that power supply sufficient for the output of “energy intensive” products was required.

Copper was the first metal to come into widespread use. Iron, while more abundant than copper, is much more difficult to “win” from the ore and was not widely used until furnaces that could smelt iron were developed around 1100 BC. New tools made from iron transformed farming practices across Europe, although not without significant environmental impacts in England, the prime supplier of iron and iron products.

By the early Middle Ages, the forests of England had become badly depleted and prices rose because of the relative scarcity of wood. The place of wood in household use was taken by coal, despite increased pollution due to impurities in the coal. Demand for coal was further stimulated in the early 18th century by the discovery that coal’s impurities could be removed by heating, making the resulting product (coke) ideal for reducing iron ore.

The development of the coal-fired steam engine drove the British Industrial Revolution of the 18th century and generated immense demand for coal. The evolution of the internal combustion engine and methods of transportation such as the automobile were associated with corresponding growth in the petroleum industry, and oil rose to join coal as the dominant fuels of the 20th century.

Development of coal-fired generators in the 1890s saw the growth of an electricity market. Electricity provided a new way of generating power, heat, and light. Electricity was initially very expensive and was limited to small areas, varying in quality and subject to interruptions. However, technological developments led to the creation of a very homogeneous, reliable, and time-saving energy carrier. This new form of energy supply extended the importance of coal, but in the last quarter of the 20th century, nuclear power and natural gas grew in importance. Thus, despite the thermal losses associated with transforming fossil fuels into electricity, households and many forms of economic activity have tended to become increasingly electricity-intensive.

The 20th century also witnessed growing awareness of the impacts of large-scale energy use on the environment, although many of the same concerns were evident in more localized areas for many hundreds of years. Historically, regulatory instruments have been the basic mechanism for enacting environmental policy throughout the industrialized world. Environmental quality has been regarded as a public good that the state must secure by preventing private agents from damaging it. Direct regulation involves the imposition of standards, or even bans, regarding emissions or discharges, and product or process characteristics through licensing and monitoring. Legislation usually forms the basis for this form of control and compliance is generally mandatory with sanctions for non-compliance.

The more recent proposal to impose taxes on pollution is also far from new, having been proposed in the early years of the last century by British economist Arthur Cecil Pigou as a means of reducing London’s famous fogs. His proposal was to tax pollution by means of a so-called externality tax in order to internalize the damages caused by pollution within ordinary market transactions and to avoid passing on the costs of pollution to the public. At the time, Pigou’s proposal was regarded as an academic curiosity and largely ignored, but several generations later it was revived as the core of the “polluter pays principle.”