U.K. energy policy in the 1980s is reviewed in the light of the principal market failures in the energy sector--monopoly, fuel diversity, security of supply and externalities. The analysis is largely confined to the non-oil sectors. It is observed that the presence of excess capacity enabled the primary focus of policy to concentrate on competition, and thus on the use of existing assets. In the 1990s, the U.K. will move into an external energy deficit, and significant decisions on capacity levels and choice will be required in the electricity and coal industries. The market failures associated with investment decisions and environmental pollution will therefore again come to the fore. It is argued that although these longer run decisions will inevitably remain largely in public hands, the policy issues in the 1990s will focus on the development of a framework within which largely privately owned firms will operate. Copyright 1991 by Oxford University Press.