Steven Chu, the US Secretary of Energy and
a Nobel laureate, has argued that what the world
needs is a handful of Nobel-level breakthroughs in
energy technology. They sure would come in handy
in the fight to avoid the worst consequences of
global warming. But counting on breakthroughs is a
crapshoot. We cannot rely on a miracle to navigate
away from our current head-on collision with the
planet.
That hasn't stopped Breakthrough
Institute co-founders Ted Nordhaus and Michael
Shellenberger from arguing - as they did in a
recent article for Yale Environment 360 - that
technology research will stop the runaway train of
climate change.
You don't have to bother
limiting emissions through a carbon price
or cap, they say, because
energy innovation will come to the rescue.
Frankly, this is bunk. Reasonable people
may disagree about what policies will best fight
climate change. But climate science makes one
thing clear: The planet must limit carbon
emissions, or face a bleak future. And we will
never get there unless we make policy changes that
align market incentives with this goal. It's
Economics 101.
There's no way to avoid
making polluters pay for the damage they cause, or
they'll keep causing it. That either starts with a
price on carbon or, ideally, a cap on carbon
emissions.
Nordhaus and Shellenberger
argue that taxing or capping carbon pollution is
tough, so its better to invest in new pollution
control technologies instead (though they don't
say where those investments would come from - the
deficit-obsessed US Congress doesn't seem poised
to provide major new funding for clean-energy
R&D).
Certainly, it's true that it
will be tough to keep polluters from passing on
the costs of their pollution to the rest of us, as
they always have. It's also true that innovation
in governance has never been easy. Ask Niccolo
Machiavelli, who wrote in The Prince, back
in 1505:
The innovator has for enemies all
those who have done well under the old
conditions, and lukewarm defenders in those who
may do well under the new.
And, yes,
greater investment in clean-energy R&D will
likely produce important advances, especially if
government takes a more active role, as urged by
the American Energy Innovation Council, whose
leaders include hardheaded business types like
John Doerr, Bill Gates, Chad Holliday, and Jeff
Immelt.
But no one, including the American
Energy Innovation Council, would seriously suggest
- as Nordhaus and Shellenberger do - that we just
focus on innovation and dismiss the hard but
all-important task of capping or pricing
pollution.
R&D alone just isn't
enough. There's an all-important second "D" -
deployment. And clean energy deployment won't
happen by itself. The world already has a US$5
trillion-a-year energy industry that makes lots of
money for lots of people, and does so while
forcing the rest of us to pay enormous socialized
costs of its pollution.
That's okay, say
Nordhaus and Shellenberger. All we need to do is
subsidize new technologies to bring down their
price. They aren't the first to make this claim.
Ted Nordhaus's uncle, the Yale University
economist William D Nordhaus, has written
eloquently on the topic. Companies don't care that
their inventions may set the stage for others to
create profitable new products, he says, and as a
result, they don't invest enough in research. The
logical prescription: Spend public money on
research.
But the elder Nordhaus, like any
good economist, also understands that the only way
to make these subsidies effective is "directed
technical change" - that is, subsidize in order to
generate needed innovation, but also put a cap or
a price on pollution to make sure the innovation
does what we want it to do.
This is what
the European Union does. It subsidizes
R&D(&D) through a variety of direct and
indirect means, while employing a cap-and-trade
system that covers almost half of EU emissions.
It's difficult to determine the portion of
emissions reductions achieved by each of these
policies, especially given the economic downturn
and other external factors. What is clear is that
total emissions in the sectors covered by the EU's
Emissions Trading System have declined by 4% from
2007 to 2010, the last year for which
comprehensive data are available. The decline is
expected to continue in the years ahead.
Nordhaus and Shellenberger try to argue
that Europe's cap has been counterproductive. To
support their claim, they focus on emissions
intensity - the emissions per unit of economic
output. That is fundamentally the wrong metric.
The planet doesn't care about emissions per
dollar. It's absolute emissions that count.
Moreover, Nordhaus and Shellenberger are forced to
cherry pick data to make their case.
They
pick 2008-2009 and argue that energy intensity in
the power sector increased despite cap and trade.
It's true, EU energy intensity did increase
slightly by around 0.3% that year. More to the
point, however, Europe's overall energy intensity
- much like the United States and most everywhere
else on the planet - has declined consistently
over time. Even in 2008 - 2009, absolute power
sector emissions decreased, and that wasn't a
fluke. The latest (partial) data show fossil-fuel
generation in large EU states fell 3% in 2011.
Switching from coal to natural gas was
responsible for some of the EU's emissions
reductions. A natural gas boom in the United
States may have a similar effect. This boom,
Nordhaus and Shellenberger argue, was the result
of basic research on shale gas extraction
technologies. They may be right about the role of
government funding here, but that has little to do
with the need for controlling pollution through
caps or prices.
Only with the right market
incentives can we create conditions for developing
and deploying new technologies.
It's true
that natural gas may prove to be a lower-carbon
fuel than coal for generating electricity, but
only if leaks in the natural gas system, from
production to use, are strictly limited. It's also
true that even if the United States shifted
entirely to gas from coal, we would still not meet
the long-term emissions reduction goals science
tells us are necessary.
In short, we need
to ramp up and be able to sustain R&D(&D)
- and that is nearly impossible when all market
forces are pointing in the opposite direction. We
need to guide private research efforts, and we
need to pay for public ones.
The American
Energy Innovation Council lists five ways for
government to come up with the necessary funds,
four of which point to increasing the price of
fossil energy.
The best policy instruments
toward that end are pricing or, ideally, capping
greenhouse gas emissions. Already, Europe's
Emissions Trading System has helped give the EU
the global lead in green technology deployment,
and similar policies are being put in place from
California to Australia and New Zealand.
India has a coal tax. Brazil has placed an
absolute limit on emissions and has significantly
decreased emissions due to deforestation. China is
starting seven regional cap-and-trade pilot
programs.
Policies like these can change
market incentives, which, despite the contentions
of Nordhaus and Shellenberger, are key to fighting
climate change. Only by getting the incentives
right can we create the conditions for development
and - most crucially - deployment of new
technologies.
Ultimately, the world needs
both new technologies and proper market
incentives. Neither can go it alone.
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