12 Mar 2012: Opinion

Innovation is Not Enough:
Why Polluters Must Pay

Innovative energy technologies are certainly essential if the world is to curb carbon emissions. But in response to a recent e360 article by the co-founders of the Breakthrough Institute, an economist argues we must also cap emissions or put a price on carbon in order to avoid the worst impacts of climate change.

by gernot wagner

Steven Chu, the 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.

COUNTERPOINT:
Beyond Cap-and-Trade

In a recent Yale e360 article, Ted Nordhaus and Michael Shellenberger wrote that putting a price and cap on carbon is not the panacea that many thought it to be. The real road to cutting U.S. emissions, they say, is for the government to help fund the development of cleaner energy alternatives.
READ MORE
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 better to invest in new pollution control technologies instead (though they don't say where those investments would come from —the deficit-obsessed U.S. 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 Niccolò 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 $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 O.K., 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 their case, Nordhaus and Shellenberger are forced to cherry pick data.
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 percent from 2007 to 2010, the last year for which comprehensive data is available. The decline is expected to continue in the years ahead. (View a graphic).

Nordhaus and Shellenberger try to argue that Europe’s cap has been counterproductive. To support their claim, they focus on emissions intensity — 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 percent 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 generation in large EU states fell 3 percent 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.

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 U.S. shifted entirely to gas from coal, we would still not meet the long-term
Only with the right market incentives can we create conditions for developing and deploying new technologies.
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.

POSTED ON 12 Mar 2012 IN Climate Climate Energy Forests Policy & Politics Central & South America North America 

COMMENTS


Calling the "Breakthrough Institute" line peddled by Nordhaus and Shellenberger "bunk" seems to be a fair characterization. There is a big market for providing the credentialed excuses that purport to justify more delay in putting a price on carbon — and they are tapping that market. It's sad but not surprising.

Posted by thomas rodd on 13 Apr 2012


Tough talk from Wagner, but I come down on his side. Innovation and technology change are driven by investment, but private investment always will dwarf public investment, and private investment in cleantech is at a constant disadvantage in a world where carbon-dumping to the atmosphere is penalty-free.

I don't bash the Breakthrough crowd, because a strong voice for innovation and investment is a plus, but their increasing fundamentalism against carbon pricing wears thin. On the other hand, the "mainstream" groups that crafted the 2009 carbon pricing policy and political strategy got almost everything wrong, and set back the initiative by 5 years, maybe more.

Posted by Michael Noble, @NobleIdeas on 16 Apr 2012


This article is completely on target.

A carbon tax that rises in a predictable fashion and that automatically increases to cover dips in the price of a carbon based resource, in order to provide a predictable investment environment for alternatives is decades over due. It duplicates what would happen with a shortage of carbon, and so stimulates what private business is best at: finding alternatives to rising prices.

To the inevitable wails of "higher taxes" a happy response would be to lower SSI taxes on employers the same amount as is brought in by such a tax, thereby making labor cheaper to business without lowering worker's incomes and preserving Social Security.

Posted by Gus diZerega on 15 Aug 2012


Comments have been closed on this feature.
gernot wagnerABOUT THE AUTHOR
Gernot Wagner is an economist at the Environmental Defense Fund, where he works on market-based solutions to a wide range of environmental problems. He is author of the book But Will the Planet Notice? How Smart Economics Can Save the World. He also teaches energy economics at Columbia University’s School of International and Public Affairs. In an earlier article for Yale Environment 360, he wrote about the value of environmental regulations.
MORE BY THIS AUTHOR

 
 

RELATED ARTICLES


Oil Companies Quietly Prepare
For a Future of Carbon Pricing

The major oil companies in the U.S. have not had to pay a price for the contribution their products make to climate change. But internal accounting by the companies, along with a host of other signs, suggest that may soon change — though the implications of a price on carbon are far from clear.
READ MORE

Can Carbon Capture Technology
Be Part of the Climate Solution?

Some scientists and analysts are touting carbon capture and storage as a necessary tool for avoiding catastrophic climate change. But critics of the technology regard it as simply another way of perpetuating a reliance on fossil fuels.
READ MORE

The Case for a Moratorium
On Tar Sands Development

Ecologist Wendy Palen was one of a group of scientists who recently called for a moratorium on new development of Alberta’s tar sands. In a Yale Environment 360 interview, she talks about why Canada and the U.S. need to reconsider the tar sands as part of a long-term energy policy.
READ MORE

A New Frontier for Fracking:
Drilling Near the Arctic Circle

Hydraulic fracturing is about to move into the Canadian Arctic, with companies exploring the region's rich shale oil deposits. But many indigenous people and conservationists have serious concerns about the impact of fracking in more fragile northern environments.
READ MORE

As Small Hydropower Expands,
So Does Caution on Its Impacts

Small hydropower projects have the potential to bring electricity to millions of people now living off the grid. But experts warn that planners must carefully consider the cumulative effects of constructing too many small dams in a single watershed.
READ MORE

 

MORE IN Opinion


A Blueprint to End Paralysis
Over Global Action on Climate

by timothy e. wirth and thomas a. daschle
The international community should stop chasing the chimera of a binding treaty to limit CO2 emissions. Instead, it should pursue an approach that encourages countries to engage in a “race to the top” in low-carbon energy solutions.
READ MORE

Animal ‘Personhood’: Muddled
Alternative to Real Protection

by verlyn klinkenborg
A new strategy of granting animals “personhood” under the law is being advanced by some in academia and the animal rights movement. But this approach fails to address the fundamental truth that all species have an equal right to their own existence.
READ MORE

A Year After Sandy, The Wrong
Policy on Rebuilding the Coast

by rob young
One year after Hurricane Sandy devastated parts of the U.S. East Coast, the government is spending billions to replenish beaches that will only be swallowed again by rising seas and future storms. It’s time to develop coastal policies that take into account new climate realities.
READ MORE

Why Pushing Alternate Fuels
Makes for Bad Public Policy

by john decicco
Every U.S. president since Ronald Reagan has backed programs to develop alternative transportation fuels. But there are better ways to foster energy independence and reduce greenhouse gas emissions than using subsidies and mandates to promote politically favored fuels.
READ MORE

Should Wolves Stay Protected
Under Endangered Species Act?

by ted williams
The U.S. Fish and Wildlife Service has stirred controversy with its proposal to remove endangered species protection for wolves, noting the animals’ strong comeback in the northern Rockies and the Midwest. It’s the latest in the long, contentious saga of wolf recovery in the U.S.
READ MORE

No Refuge: Tons of Trash Covers
The Remote Shores of Alaska

by carl safina
A marine biologist traveled to southwestern Alaska in search of ocean trash that had washed up along a magnificent coast rich in fish, birds, and other wildlife. He and his colleagues found plenty of trash – as much as a ton of garbage per mile on some beaches.
READ MORE

Our Overcrowded Planet:
A Failure of Family Planning

by robert engelman
New UN projections forecast that world population will hit nearly 11 billion people by 2100, an unsettling prospect that reflects a collective failure to provide women around the world with safe, effective ways to avoid pregnancies they don't intend or want.
READ MORE

As Extreme Weather Increases,
Bangladesh Braces for the Worst

by brian fagan
Scientists are predicting that warming conditions will bring more frequent and more intense extreme weather events. Their warnings hit home in densely populated Bangladesh, which historically has been hit by devastating sea surges and cyclones.
READ MORE

As Final U.S. Decision Nears,
A Lively Debate on GM Salmon

In an online debate for Yale Environment 360, Elliot Entis, whose company has created a genetically modified salmon that may soon be for sale in the U.S., discusses the environmental and health impacts of this controversial technology with author Paul Greenberg, a critic of GM fish.
READ MORE

Should Polluting Nations Be
Liable for Climate Damages?

by fred pearce
An international agreement to study how to redress developing nations for damages from climate change illustrates how ineffective climate diplomacy has been over the last two decades. But this move may pave the way for future court suits against polluting countries and companies.
READ MORE


e360 digest
Yale
Yale Environment 360 is
a publication of the
Yale School of Forestry
& Environmental Studies
.

SEARCH e360



Donate to Yale Environment 360
Yale Environment 360 Newsletter

CONNECT

Twitter: YaleE360
e360 on Facebook
Donate to e360
View mobile site
Bookmark
Share e360
Subscribe to our newsletter
Subscribe to our feed:
rss


ABOUT

About e360
Contact
Submission Guidelines
Reprints

E360 en Español

Universia partnership
Yale Environment 360 articles are now available in Spanish and Portuguese on Universia, the online educational network.
Visit the site.


DEPARTMENTS

Opinion
Reports
Analysis
Interviews
Forums
e360 Digest
Podcasts
Video Reports

TOPICS

Biodiversity
Business & Innovation
Climate
Energy
Forests
Oceans
Policy & Politics
Pollution & Health
Science & Technology
Sustainability
Urbanization
Water

REGIONS

Antarctica and the Arctic
Africa
Asia
Australia
Central & South America
Europe
Middle East
North America

e360 PHOTO GALLERY

“Peter
Photographer Peter Essick documents the swift changes wrought by global warming in Antarctica, Greenland, and other far-flung places.
View the gallery.

e360 MOBILE

Mobile
The latest
from Yale
Environment 360
is now available for mobile devices at e360.yale.edu/mobile.

e360 VIDEO

Warriors of Qiugang
The Warriors of Qiugang, a Yale Environment 360 video that chronicles the story of a Chinese village’s fight against a polluting chemical plant, was nominated for a 2011 Academy Award for Best Documentary (Short Subject). Watch the video.


header image
Top Image: aerial view of Iceland. © Google & TerraMetrics.

e360 VIDEO

Colorado River Video
In a Yale Environment 360 video, photographer Pete McBride documents how increasing water demands have transformed the Colorado River, the lifeblood of the arid Southwest. Watch the video.

OF INTEREST



Yale