The emerging climate technology delusion

What do you do when feasible policies aren’t popular, and popular policies aren’t feasible?

Let’s start with a joke:

Lenin, Stalin, Khrushchev and Brezhnev are travelling together on a train. Unexpectedly the train stops. Lenin suggests: “Perhaps, we should call a subbotnik, so that workers and peasants fix the problem.” Kruschev suggests rehabilitating the engineers, and leaves for a while, but nothing happens. Stalin, fed up, steps out to intervene. Rifle shots are heard, but when he returns there is still no motion. Brezhnev reaches over, pulls the curtain, and says, “Comrades, let’s pretend we’re moving.” (Apologies to regulars for the repeat.)

The Soviet approach would be funny, if it weren’t the hottest new trend in climate policy. The latest installment is a Breakthrough article, The emerging climate technology consensus. An excerpt:

The twenty-year effort to create a single global pollution framework to reduce carbon emissions is in a state of collapse. …

Meanwhile, a new climate policy consensus is emerging, one which prioritizes direct investment in technology innovation. This consensus begins with the recognition that the root cause of the failure of the pollution paradigm was the technology and price gap between fossil fuels and their alternatives. No nation — not even the wealthiest in Europe — is willing to price carbon enough to cover the difference. Until the technology gap is closed, little will be done to accelerate the transition to a low-carbon economy.

…

In fact, the goal of a climate energy technology framework must be to make clean energy cheaper in unsubsidized terms — a radically different strategy than today’s energy-subsidy or carbon-pricing frameworks. …

I’ll grant the first point – that emissions agreements are in bad shape and have a long way to go before they’re effective. It’s also evident that no nation is currently willing to price carbon high enough to make a difference, at least unilaterally. I’ve been a critic of long-term targets as the core mechanism for emissions control myself, and I’m no great fan of cap & trade.

But does it follow that an R&D-led policy is the way to go? Enhanced R&D investment is likely a good idea, but does it stand on its own? Is it a viable substitute for significant emissions pricing, or just an illusion of movement, while delay in fact worsens our predicament?

I’ve already outlined some reasons to think that climatetech alone is not a robust strategy:

• The dynamics of R&D and learning suggest that it may be hard to reach cost parity for low carbon energy, and even if we do, there are long delays and strong positive feedbacks in capital and infrastructure to overcome
• While a low emissions price can fund public R&D, it does little for private R&D or deployment.
• Technology is just one leg of four complementary areas (prices, technology, rules, preferences) in which change is needed. Innovation is about more than devices; it’s a rich interaction between society, economy, and technology that takes decades to play out. R&D subsidies focus narrowly on technology and ignore the huge potential for reinvention of the economy and lifestyles.
• Low carbon energy sources aren’t just more expensive, they’re different. They have different geographic and temporal availability, power density, storage issues, and other attributes. Making them work is not just about making them cheap.
• It’s hard to design a low-emissions economy in a low-price, high-emissions environment, and governments (and indeed all organizations) are bad at picking winners.  R&D would be more productively pursued in a decentralized fashion with the guidance of prices.
• Absent emissions prices, rebound effects eat up technical gains in many areas.
• Some technologies, like CCS, are inherently thermodynamically inferior to their carbon-emitting equivalents, and therefore will never be deployed without emissions pricing.

Maybe we’ll get lucky, and the Breakthrough strategy will work. The problem is, if it doesn’t, by the time we find out it will be too late to do much about it. We’ll have committed to another 2 or 3 decades of emissions growth, with little to show for it. From an option value perspective, that’s a stupid way to proceed. I didn’t make “failure to account for delays” one of my top seven deadly sins of managing complex systems, but I probably should have. R&D is better than nothing, but I think its main attraction is that it ingratiates its proponents to current leaders who’d rather not change.

Breakthrough’s text and Q&A illuminates some strange thinking that led them to this point.

Even so, many continue to misunderstand the reasons for a technology-centered climate policy framework, and how it would work. Some, such as New York Times columnist Thomas Friedman, continue to imagine that carbon pricing will result in radical technological innovation, badly garbling the history of the digital revolution, which depended on direct government investment in things like R&D and military procurement — not an analogue tax, or a cap on typewriters.

Talk about a badly garbled history! Did the government set out to create a dotcom world? No. The digital revolution is emerging from the confluence of many distributed public and private opportunities, driven by a variety of signals (profit, fun, deliberate R&D investment). Achieving price parity in low-carbon energy sources is a narrower, and therefore more predictable task, but it may not work as advertised. What we need is the emissions equivalent of the digital revolution: a set of loosely-coordinated changes across many areas of society, which we can’t predict at the moment. That kind of change has to be decentralized. It’s a social revolution, not a Manhattan Project.

Once we set a price for carbon, won’t private firms have an incentive to invest in technology innovation to make clean energy technologies cheap?

There is little evidence that pricing carbon will drive the kind of energy technology revolution that will be necessary to achieve substantial reductions of global carbon emissions. Carbon pricing proponents often note that economies, such as Denmark and Japan, that have high energy prices and high gas or carbon taxes have lower carbon intensity than the United States. But those economies, in virtually every case, had lower carbon intensity prior to the imposition of high carbon and gas taxes. There is no evidence that the imposition of carbon taxes or gas taxes resulted in substantial shifts in economic behavior or technology innovation.

This strikes me as a simple denial of much of economics. If price and profit are not motives, why is there any private R&D at all? I’ve looked at lots of cross sectional studies of energy and pollution intensity, and don’t recall seeing any that supported this view.

Are you denying that Europeans drive smaller cars because of higher fuel prices?

There is some evidence that higher energy prices drive modest conservation through both behavior changes and more efficient use of energy. But the situations in which this has been the case have typically involved dramatic spikes in energy prices — such as those that occurred after the Arab oil embargo — that dwarf the magnitude of proposed carbon pricing…. 

But isn’t that just because the higher prices were not long-term?

No. Denmark has had a carbon tax in place since the early 1990’s. Danes drive small, fuel efficient cars today — just as they did prior to the imposition of the carbon tax. They are not, however, driving electric cars. At the same time, Denmark has significantly shifted its power sector to renewables, primarily wind. But the primary driver of that shift has been direct government subsidies for wind powered energy that dwarf the carbon tax in the magnitude of the incentive to deploy wind energy.

But don’t the economic models show carbon pricing resulting in technology innovation?

Combined climate and economic models don’t actually demonstrate that carbon pricing will lead to dramatic energy innovation. Rather they simply assume both robust technological innovation and the existence of a generic “backstop technology” – which will become available at a predetermined carbon price in unlimited quantities – and then purport to demonstrate that emissions are reduced dramatically in response to the carbon price signal. In fact, virtually all economic modeling of the costs associated with reduced carbon emissions conclude that the pace of technological innovation will be the most important factor determining the cost of reducing carbon emissions.

How do we know that investments in better energy technologies will result in reduced emissions?

We don’t.

No policy — regulation, tax or investment-focused — can guarantee emissions reductions. What we can safely predict is that as long as clean energy technologies cost substantially more than conventional energy technologies, efforts to cap, price, or otherwise regulate carbon emissions will fail. Public investments in clean energy technology are a necessary precondition, not a guarantee, of reduced global carbon emissions.

Our choice is not, as proponents of staying the current course would suggest, between acting to cap (or price) carbon emissions, and delay. It is between continuing to demand impossible actions or investing intelligently to overcome the primary obstacle to progress — the inadequacy of today’s low carbon energy technologies. It is our hope that the world will soon make the rational choice.