13 October 2010

The Old Paradigm is Hard to Shake

At his blog at CFR, Michael Levi raises some conventional arguments against the importance of direct government investments in energy R&D, in favor of making fossil fuels more expensive:
Here’s the thing: the Internet delivers benefits to every person who uses it. Radar is a boon for the military. Microchips help businesses operate more efficiently. Modern aviation is great for travelers everywhere. Biotechnology improves the health of those who exploit its fruits. Government support hasn’t made airplanes cheaper than cars, high-end drugs less expensive than Tylenol, or microchips a better deal than the abacus. (Well, maybe not the last — I haven’t checked abacus prices recently.) What it’s done is help make them affordable. And once government investment in innovation makes initial commercial adoption feasible, market forces (i.e. individual demand) take these technologies the rest of the way.

But clean energy? Not so much. I get zero benefit by choosing to buy energy produced by a wind farm. (It actually costs me more.) My utility doesn’t get any either, unless its regulator lets it pass on the cost, which it won’t absent government policy. There are big social benefits to clean energy, most prominently through reductions in both greenhouse gas and particulate emissions. But neither individuals nor companies have any significant reason to shift to clean energy, even if innovation closes the cost gap considerably. (There may be small exceptions for things like rooftop solar PV in limited areas, but these don’t upend the general point.) For the foreseeable future, government will still need to cover the remaining gap, either through subsidies for clean energy or by making dirty energy more expensive.
Michael seems stuck in the old paradigm.  He seems to think that clean energy offers no benefits to individuals or companies, only social benefits as uncaptured externalities.  It might seem that way to people who live in a world of plentiful, cheap energy.  But from a broader perspective, the idea that individuals and companies have no stake in making fossil fuel alternatives cheaper is just wrong.

The reason that India has put a surcharge on coal and using the proceeds to invest in clean energy, why Germany is taxing nuclear fuel rods to invest in clean energy and China is investing massive amounts in clean energy has nothing to do with unpriced externalities.  Rather, these countries see direct benefits to their citizens to driving down the costs of clean energy.  I can give him more than 2 billion examples of people who would benefit from cheaper, more secure, and more readily available energy.  And the companies that help to provide those lower-priced technologies and infrastructure are going to see some pretty large benefits as well.  China appears to have figured this out. India too.

Here is the comment that I left at his blog:

Here are four counterpoints to your argument.

First, the goal of making clean energy cheaper is not so much for it to displace existing fossil energy, but to become increasingly preferred as new infrastructure in the future.  As Ken Caldeira and colleagues recently argued in Science, it is future infrastructure that matters most.

Second, while it is true that you don't much care about clean energy, there are 1.5 billion people who lack access to electricity world wide, and a big reason for that is that energy presently costs too much.  These folks have a big stake in making clean energy cheaper.

Third, a related point is that by making fossil fuels more expensive you would be making energy access to those 1.5 billion more distant.  There is an iron law of climate policy that says that while people will accept some price for environmental objectives, that willingness only goes so far.  The key to putting a price on carbon is through the availability of cheaper clean alternatives.

Finally, there is evidence that several countries are already investing in clean energy based on pricing fossil fuels, most notably India.  They are doing this not out of environmental concerns but to secure more energy at a low cost for the future.  Energy demand is going to increase dramatically in coming decades, and someone is going to provide the technology and infrastructure.  The US can be part of that economy or not, and investments in clean energy are a good way to make that more likely.