Carbon pricing is the fastest path to clean energy development

As the global warming debate shifts from the basic science to the more pressing question of what to actually do about the problem, a rising chorus of voices are suggesting that a government-funded R&D program should be the main or the only thing.

The voices represent a disparate set of viewpoints. Nordhaus and Shellenberger feel that today’s technology simply isn’t up to the task of displacing fossil fuel use. Short of a breakthrough, they say, the situation is hopeless. Jim Manzi feels that technology R&D is a proportionate response to the threat of global warming. Climate change may be more or less bad than we think it will be, so the important thing, in Manzi’s view, is to guard against the downside risks. Bjorn Lomborg feels that a cost-benefit analysis simply doesn’t support drastic action on climate change, and instead proposes a modest tax and modest R&D spending.

This picture is worth a few billion dollars, at least:

The graph is from a research paper (pdf) investigating the relationship between environmental regulation and technology innovation. It charts the number of patents related to sulfur dioxide pollution control over time. Despite decades of government-sponsored research, it wasn’t until the passage of the Clean Air Act in 1963 and the Clean Air Act Amendment in 1970 that significant innovation occurred. Once incentives are in place, the private sector happily takes over.

Carbon taxes or cap-and-trade systems are sometimes portrayed as a means of punishing industries that pollute. This is looking at things the wrong way round. Putting a price on carbon is the most effective way to reward innovation in clean energy and energy efficiency. As the history of sulfur pollution controls shows, if you want a technological breakthrough, the best way to get there is by making it pay.

This isn’t an argument against government R&D spending. In fact, the paper suggests some ways that government can be particularly helpful in stimulating innovation. But there’s little doubt that putting a price on carbon is the most important thing we can do.

Some other interesting research conclusions:

  • The stringency of environmental regulations matters a lot. If regulations are weak, polluters will do the minimum necessary to clear the requirements. In other words, if you want a breakthrough, price for a breakthrough.
  • Although regulatory predictability is generally regarded as a good thing, the authors note that too much certainty might yield only “minimum compliance technology.” Perhaps the potential price variability of a cap-and-trade system has unintended benefits?

(Via the excellent Environmental Defense Climate 411 blog.)

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