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.