02 February 2012

A Conversation With an Economist on Magical Solutions

Economist: I think you are way too optimistic that investments in technological innovation funded by a low carbon tax can lead to accelerated decarbonization of the economy. That is why I favor a high carbon price.

Me: But isn't the point of the high carbon price to stimulate innovation?  The question is thus how to stimulate or motivate that innovation. I think a high carbon price is politically impossible, which is why I argue for starting low with investments in innovation as part of the package.

Economist: A high carbon price will create incentives to change people's behavior. If prices are set appropriately the market will take care of the rest.

Me: But if you do not think that technological innovation can lead to an accelerated deacrbonization of the economy, what difference would it make if that innovation is stimulated by pricing or direct investment?

Economist: Pricing has reduced pollution in many areas. We just need to get the carbon price right.

Me: But I am curious about the causality implicit in your argument -- let me ask, of the four levers in the Kaya Identity [Population, Per capita wealth, Energy intensity, Carbon intensity] which ones do you see will be influenced by carbon pricing in a way that reduces emissions?

Economist: Well ... I guess carbon intensity and energy intensity.

Me: So then you do think that technological innovation can lead to accelerated decarbonization since carbon intensity and energy intensity are modulated by innovation?

Economist: Well, no, not at all. I don't think that the solution can be technological. I do think that pricing makes a lot more sense than focusing on technology.

Me: Can you believe all the rain?