from Energy, Security, and Climate and Energy Security and Climate Change Program

Overselling Energy Innovation

October 13, 2010

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David Leonhardt has a column in today’s New York Times which looks at at the potential for government-sponsored innovation to drive U.S. climate policy. I’m sympathetic to the argument that carbon pricing (and other demand-side policy) isn’t enough alone to transform how we produce and consume energy. But Leonhardt indulges in some bad logic that’s common enough to deserve rebutting:

“History shows that government-directed research can work. The Defense Department created the Internet, as part of a project to build a communications system safe from nuclear attack. The military helped make possible radar, microchips and modern aviation, too. The National Institutes of Health spawned the biotechnology industry. All those investments have turned into engines of job creation, even without any new tax on the technologies they replaced.”

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.

Here’s a challenge to readers: None of the examples that Leonhardt cites (or that others have offered) are cases where a technology that offers no benefits to the individuals that adopt it has been pushed into the mainstream through government-supported innovation (and without any mandates or other incentives). I can’t think of any myself. But maybe there are cases that I and others are missing. Can anyone suggest one?

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