Lynne Kiesling
Harvard economist Ed Glaeser has a nice column in today’s Boston Globe in which he proposes a “road map for environmentalism” (HT to Greg Mankiw). I think it’s a thoughtful and substantially correct analysis and pragmatic set of proposals; in particular, his emphasis on the importance of rethinking current policies and the extent to which they fail to meet our objectives:
But smart environmentalism doesn’t just mean more government programs, it also means rethinking current policies. Our emissions policy, which requires regular emissions tests for newer vehicles, is expensive to operate and poorly designed to fight climate change. After all, it does nothing to induce less driving. Even more problematically, by letting owners of older cars off the hook, the current system imposes costs on the Prius driver but exempts the drivers of the vintage gas guzzlers that create the most emissions. We should require different emissions tests and even higher emission taxes for older cars that generate higher environmental costs.
With respect to energy efficient technology, he’s on the right track with respect to vehicles, but misses the boat with respect to energy use in buildings:
New technologies are likely to be our best weapons against climate change and we should try to encourage more energy-efficient innovation. Our patent system is poorly suited to encourage these innovations, since successful innovations will create environmental social benefits that far exceed the private revenues earned by the innovator. Patents also make it less likely that technology will be transferred to the developing world. A better system might be to offer large public prizes that reward innovations, which are then made freely available throughout the globe.
Yes and no. Notice how much technological change there’s been in vehicle engines, an area that has more robust market processes than other areas of our energy consumption. Transactions occur through market processes all along the value chain both in gasoline and in vehicles; price signals are omnipresent and transparent. However, price signals are gagged with political mufflers in electricity and (in many states) natural gas markets. How can we choose to conserve in response to high price signals if political elites take it upon themselves to “protect us from high energy prices”? That kind of protection leads to more energy use to produce building heating, cooling, lighting, and communications. How is that good for the environment?
If you want to encourage more energy-efficient innovation in buildings instead of vehicles, it’s not the patent system that is the primary culprit. It’s the stultifying effects of non-market electricity and natural gas prices due to obsolete retail regulation.
Innovation is not the issue; the innovations exist in the market. They are thinly adopted for the reasons Lynne suggests.
The patent system preserves for the innovator the exclusive right to exploit the technology. Most such inventions are the result of either manufacturer-funded RDD&D or the work of independent inventors who license their inventions to manufacturers for commercialization. Once the patent has been applied for and/or granted, the government may, if it chooses to do so, compete to purchase the rights to the invention on an exclusive or non-exclusive basis, with the right to sublicense or to make the technology available to all comers. I suspect that the cost of acquiring the rights to a significant and successful invention would be higher than the value of any prize the government might agree to award beforehand.
The federal prize approach would likely eliminate any incentive for manufacturers to fund their own research, since they could use the technologies developed by others without cost and risk.
Professor Glaeser seems to assume that Americans who drive older cars do so out a perverse desire to stick it to affluent and ‘oh! so socially responsible’ Prius owners. Not so. He has made yet another of those, ‘Let them eat cake” pronouncements that so often emanate from cosseted, tenured, university faculties.
Lynne makes some important points about the contrast between vehicle design and domestic consumption of energy. I would like to add one. LeCorbusier defined a house as “a machine for living in”. It is in the design of this machine that we are most short of innovations. Yes, new systems for heating and cooling residential properties can be designed, but there is little revolutionary thinking in the design of the machine itself. Building houses requires enormous energy, and running them even more.
Why has the approach to designing houses changed so little? One reason is that the public is somewhat conservative. For the large majority, buying a house is a huge investment. It is likely to be much the largest asset in an investment portfolio. People are naturally cautious. But the existence of building codes and planning consents seems likely to be the biggest obstacle. Unregulated markets simply don’t innovate this slowly. Without such codes, it seems likely that house design would change too.
Codes tend to lock in current technologies. In many areas planning consent reduces the incentive to develop cheaper methods of building. Where land with consent to build is in short supply and very expensive, actually building on it is a small marginal cost. The cost of constructing a house, after all, does not vary much from one place to another. Location, location, location, is what drives pricing. If you had permission to build a house in the NY commuter belt you would have no incentive to economise on construction. It would be much more profitable to build for the luxury end of the market.
Quentin Langley
Editor of http://www.quentinlangley.net