Good Climate Change Article From Ron Bailey

Lynne Kiesling

Ron Bailey has a thorough and thoughtful article about climate change at Reason that is well worth a read. Part of the article focuses on the crucial role that technological change plays in affecting future resource use and climate conditions, and points out that such technological change is the main way that progress happens, but it can’t arise out of a dirigiste policy:

But how to spark an energy tech revolution? If replacing fossil fuels was easy and cheap to do, then clever inventors would already have done it. The fact is that while the costs of alternative energy sources have been falling they remain more expensive and cumbersome than fossil fuels for most uses. In addition, federal government spending on energy research and demonstration projects does not have a great track record. Consider the case of the North Dakota synfuels plant, built in response to the oil “crises” of the 1970s and backed by federal loan guarantees. The plant was once the largest construction project in the U.S. and cost $2.1 billion ($4.1 billion in today’s dollars) to build. In 1984, the price of natural gas plummeted and the plant went into bankruptcy. It was sold in 1988 to a local electric cooperative for $85 million; a little over 4 cents on the dollar. That $2.1 billion would have grown to about $6.5 billion at 5 percent compounded interest since 1984.

Relying on the wisdom of federal bureaucrats to pick the right research projects as a way to jumpstart an energy revolution is a chancy strategy. The fact that carbon-emitting fuels are so cheap that it doesn’t pay for researchers to develop low carbon energy sources suggests a solution—make carbon more expensive. There are two ways to do this: either create a carbon market or impose a carbon tax. Both strategies have advantages and disadvantages, but by making fossil fuels more expensive, researchers would have a strong incentive to find and commercialize low carbon technology breakthroughs.

The springboard for Ron’s article is a 1-day climate summit at the U.N. on Monday and a 2-day summit in Washington today and Friday. I’ll be interested to see if policymakers can restrain themselves from imposing top-down solutions, including technology mandates, that would stifle the type of distributed, diverse innovation that is most likely to lead to new technologies that economize on the use of carbon.

2 thoughts on “Good Climate Change Article From Ron Bailey

  1. Either a carbon market or a carbon tax will obviously increase the cost of energy. My assessment would be that the carbon tax would cause a greater energy cost increase, relative to the percent reduction in carbon emissions, because it would be applied indiscriminately to all carbon sources. The carbon market cost increase should be lower because the carbon market encourages those who can reduce or eliminate carbon emissions at the lowest cost to do so and sell the excess allowances they have available to those whose reduction or elimination costs would be higher. Even though the purchaser pays a premium and the seller makes a gain, the net costs to both should still be lower.

    The carbon tax has the additional disadvantage of pouring money into the maw of the holder of the virtual monopoly on rat holes, which it could be expected to attempt to fill with the revenue stream.

    Either approach applied in the US would increase US energy costs relative to energy costs in other countries. For businesses, this would provide further incentives to move energy intensive production offshore, especially to countries such as China and India.

    The investment in the advanced technologies would likely be very substantial. Perhaps worse, it would competitively disadvantage the US, relative to other nations, in the short term. In the longer term, we would most likely be required to share the advanced technologies with those not smart enough and aggressive enough to steal them outright.

    If AGW is a problem, it is a global problem and requires a global solution. Anything else is doomed to failure.

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