Technology, not regulation, is the best way to tackle climate change

By Reihan Salam
June 6, 2014

 warming111

By all accounts, President Obama is deeply interested in his legacy. And though relatively few American voters see dealing with climate change as a top priority for the federal government, the president famously sees it as the most important issue he can address in his second term. Having failed to shepherd climate change legislation through Congress in 2009, when Democrats had large majorities in the Senate and the House, the Obama administration has shifted to using new regulations to achieve its environmental policy goals. This week, the Environmental Protection Agency introduced its Clean Power Plant Proposed Rule, a sweeping initiative that aims to reduce carbon emissions from coal-fired power plants.

The heart of the 2009 legislation — the Waxman-Markey bill — was a new cap-and-trade system, which would allow businesses to trade the right to emit a certain level of carbon. The new EPA regulations are actually much less flexible than the cap-and-trade system envisioned in Waxman-Markey, and they will reduce carbon emissions at a much higher cost to the economy.

So you might be tempted to think that we ought to embrace cap-and-trade. Conservatives often get lectured for failing to embrace cap-and-trade or stringent carbon regulation. Ezra Klein, writing for the liberal news site Vox, observes that Arizona Sen. John McCain favored a cap-and-trade system during his 2008 presidential campaign, and he takes today’s GOP to task for being less enlightened.

But if anything, it is McCain who was wrong in 2008, not Republicans who balk at policies that will raise energy prices. Indeed, rather than avoid talking about climate change and the environment, the right should go on the offense. While the president and his allies back price-hiking regulation, conservatives should call for accelerating price-lowering technological innovation.

smokestack777Like a carbon tax, the goal of cap-and-trade is to raise the cost of emitting carbon, and in doing so it encourages firms and households to find low-cost ways to emit less of it. If we all agree that carbon emissions are bad for the environment — and no, not everyone agrees, but let’s stipulate that we do — then why not impose a government-mandated price signal and let the market figure out how best to reduce them? What could possibly be simpler? There are a few problems with this approach.

First, government-mandated price signals aren’t set in stone. The carbon price that serves as the basis of a carbon tax or a cap-and-trade system is determined in part by (well-meaning, highly-qualified) government officials. But it is inevitable that democratically-elected lawmakers will get involved. And these lawmakers might want to ensure that a carbon price doesn’t negatively impact, say, low- and middle-income households, so we’ll need to create subsidies to protect them. They will also want to protect important industries in their districts, so we’ll need subsidies to protect them too.

If the carbon price proves particularly onerous for one sector or another, it’s a safe bet that the system will be “reformed.” All industries will seek carve-outs and breaks, and those with the most political muscle will get them. Suddenly a proposal that looks appealing on paper meets the realities of real-world politics, and the results are not pretty.

Consider the European Union’s Emissions Trading System (ETS), an ambitious cap-and-trade system first launched in 2005. As Roger Pielke Jr. has observed, the European Union and the United States have experienced the same 6.4 percent reduction in aggregate emissions since 2000, and their paths don’t appear to have diverged since the introduction of the ETS. Moreover, the U.S. has actually seen a slightly steeper decrease in its carbon intensity (21 percent) than Europe (19.5 percent). That is, Americans have reduced the amount of carbon they emit per dollar of GDP faster than Europeans in recent years. Pielke maintains that the reason the ETS appears to have failed is that it set the carbon price at a very low level.

Of course, the reason that the EU set the carbon price at such a low level is that European voters would have revolted otherwise. Even Germany, which has gone the furthest among the large European economies in pushing for renewable energy despite the resulting increase in electricity prices, seems to be saying that enough is enough. Germany’s coalition government has just backed new legislation that will slow the growth of green energy. Suffice it to say, Americans are even less enthusiastic about higher utility bills than their European counterparts.

Second, even if government-mandated price signals were immune to political pressure, it’s not at all obvious how we should go about setting a carbon price. In 2010, the Obama administration estimated that the “social cost of carbon” was roughly $23. The natural implication of this estimate is that measures that cost less than $23 per ton make good economic sense.

As Oren Cass, Mitt Romney’s domestic policy director during the 2012 presidential campaign, has argued, however, this line of thinking neglects the fact that climate dynamics are “extraordinarily non-linear.” What matters most is not the flow of carbon, but rather the atmospheric concentration of carbon. If the U.S. pursues policies that reduce carbon emissions at the margin, it won’t matter much if the atmospheric concentration continues to climb because of rising Chinese and Indian carbon emissions. All we’ll succeed in doing is to make ourselves poorer. I don’t know about you, but I don’t find that prospect terribly appealing.

Cass thus recommends a technology-first approach. Price signals are, to be sure, designed to encourage firms to develop new technologies. Yet what artificial pricing really does is encourage investment in expensive technologies that couldn’t survive without an artificial leg up, and which will have a hard time spreading in the low- and middle-income countries that are quickly joining the ranks of the world’s biggest polluters.

What would a technology-first approach actually look like? We know exactly what it would look like because, as Jim Manzi explains in National Review, a technology-first approach has given us a revolutionary new technology that has done much to decarbonize the American economy, and that has the potential to do the same around the world. Over the past decade, the chief driver of declining carbon emissions in the U.S. has been the rise of hydraulic fracturing, or fracking, which has led to a sharp decline in domestic natural gas prices. Though natural gas is a fossil fuel, gas-fired power plants emit less carbon than either oil or coal.

The fracking boom is not, as Manzi makes clear, a product of pure laissez-faire. The government played a large role in funding the basic research that made the fracking revolution possible. Yet private entrepreneurs played an equally crucial role in perfecting and spreading the technology at the ground-level, knowing that the tools they were building would be valuable and exportable with or without a boost from artificial pricing.

But can the technology-first approach go further still when it comes to decarbonization, or do we need command-and-control regulation to get the job done? Samuel Thernstrom of the Energy Innovation Reform Project, a new think tank, has identified a number of areas where government, working with the private sector, can make energy cleaner and cheaper, including enhanced oil recovery and advanced nuclear technologies. Robert Zubrin, an engineer, author, and entrepreneur, often touts the environmental and economic benefits of methanol as a substitute for conventional gasoline, and William Ahlgren has called for a “dual-fuel strategy” that would radically reduce American dependence on oil. The possibilities of technology-first are limitless.

PHOTOS: A farmer walks on a dried-up pond on the outskirts of Baokang, central China’s Hubei province, June 10, 2007. REUTERS/Stringer (CHINA) 

A general view shows a coal-burning power station at night in Xiangfan, Hubei province September 15, 2009. Picture taken September 15, 2009. REUTERS/Stringer 

13 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Agreed, because by your logic, Solyndra was a very good idea! It does not, however, seem ambitious enough to change the carbon mix by solely putting money toward technological advances in carbon fuels.

Posted by theinfamoush6 | Report as abusive

The only technology that corporate America and hence the government will support directly are ones that are paid for with taxes and target reducing emissions of fossil fuels. Any other technologies will be challenged, bought up and scrapped.
The global warming push is the only way to get funding for new technologies. As we know you can’t get a grant unless the word “green” appears in the title of your request. It’s the only way the government has to get grants out there. So though I don’t believe in the gloom and doom and believe the politicians have misused science, I support global warming/climate change or what ever you call it as it gets grant money to technology companies that needed it.

Posted by tmc | Report as abusive

It’s interesting how “Global Warming” has morphed into “Climate Change”–and without a clear explanation.

I suppose the reason is that for the last decade plus–all the predictions of the so-called ‘scientist’s’ climate models have been dead wrong.

Environmentalism has become the new secular religion–with it’s own pantheon of demons and few saints.

The problem with devout Environmentalists is they are, like all religionists–absolute in their judgments.

So even though natural gas can reduce carbon output by over half–it is still not good enough for the purists–who cannot understand incremental progress, but rather, must have their progress all at once in the epiphanies’ flash.

Consequently, the True Believers have done their level best to battle fracking using distortion, exaggeration, and outright lies to make their negative case.

But the natural gas boom in North America has been a blessing.

The US is less likely to go to war to protect oil when they have it in such abundance. The geopolitical importance of oil is not what it used to be–because of fracking.

Modern democratic nations will not feel the need to prop up repressive and backward middle-eastern states merely because they are oil-rich.

To use that popular buzz phrase: Fracking is a game-changer.

Natural gas will be a temporary, and less-harmful alternative until renewables find the last piece to the puzzle: energy storage.

That’s the problem with renewables–they have an unpredictable output of energy. Once energy can be cheaply stored in mass quantities–renewables will supplant fossil fuels.

Posted by MaskOfZero | Report as abusive

Ah, but, the same destructive fascists that control our government and media also control the commodity markets of guns, drugs and oil and use the government and media to kill technology that threatens the profit centers. So maybe technology can work but you really need a truly free market capitalism to accomplish the result. We have corporate oligarch with no intent on making life good for any underling, minion or slave. So technology will be killed like they are killing renewables. Those are your conservatives, or as I call them the fascist minions.

Posted by brotherkenny4 | Report as abusive

What we need are more people in the media who do not filter their understanding of the environment through the NRDC and similar extremist groups, who more often than not are way wrong on the science. Global warming is probably not a problem. There are many experts out there that do not believe in the catastrophist theory. Liberals just want to use the notion to achieve various ideological goals. What’s needed now, more than ever, are more energy options, not fewer. We need more coal, we need more gas, we need more oil, we shouldn’t turn the clock back on ethanol; and we need more nuclear. Russia wants to use energy to bully Europe and anyone else it can, and because European governments are controlled by environmental extremists, Europe’s leaders have a serious problems on their hands with energy. We can’t afford to become like them.

Posted by Calfri | Report as abusive

Wow, I thought we were going to get an actual analysis of the very exciting technologies that are much cleaner for our environment. I’m of course talking about the dramatic drop in solar power combined with energy storage technologies. Or the improvements in electric vehicle technology which have the potential to eliminate oil use for most Americans in daily travel. Or LED lighting, which could dramatically reduce our energy usage in homes and businesses.

Instead we get…fracking? really? Mr. Salam, have you really looked into fracking? Do you know the incredible amounts of water needed to make fracking possible?

Water is absolutely critical for life sustainment and you want to lock it all up in the gas sector of the economy? California is in a persistent drought, what would happen if they accept fracking and gas producers are able to outbid farmers for water supplies? What happens to food prices when the crops run dry? And let’s please not get duped by the oil/gas industry. This fracking phenomenon will be a boom and then a bust, just like all the other oil and gas booms and busts that have come before.

Technology advancements are here and should be encouraged, just not from the people who wrecked our environment to begin with.

Posted by CliffJA | Report as abusive

The best way to tackle climate change, is to create a lot more psychiatrists, and have mandatory therapy for everybody who’s so scared of the world, that they have to constantly try and control every aspect of it.

Posted by dd606 | Report as abusive

Nuclear power got off on the wrong foot in the world, because US nuclear weapons material was first and foremost in the minds of our leaders. They actually fired Alvin Weinberg, head of Oak Ridge National Laboratory, for overly pushing another type of reactor (Molten Salt Reactor) for civilian usage rather than the present high pressure Light Water Reactors. The LWR spread throughout the world. The MSR is much more appropriate for civilian use, being passively safe, but needs specific development.

See THORIUM: energy cheaper than coal by Robert Hargrave (2012), or,
https://www.gen-4.org/gif/jcms/c_9260/pu blic

A problem, apart from the negative public perception of all nuclear power which resulted from past poor decision making by the US, is that present out-of-control capitalism ensures that the fossil-fuel industry can kill off effective US advancement of Generation IV, passively safe nuclear power. Fortunately for the world, China/Russia may still bring such reactors to production.

A crash Generation IV nuclear reactor program in the US, with funding at a very small fraction of present “Defense” budget, could clean up the world, wipe out the need for fossil fuel, and kill of the fossil-fuel-autocracy which presently plagues the world’s people and the rest of nature.

Posted by xcanada2 | Report as abusive

https://www.gen-4.org/gif/jcms/c_9260/pu blic

Posted by xcanada2 | Report as abusive

For some reason, the above URL is (repeatedly) rendered with an extra space. Please remove the space in “pu blic”, and it will work.

Posted by xcanada2 | Report as abusive

@xcanada2 is absolutely right. In fact the Chinese are publically working on thorium reactors with support from Oak Ridge. They say they will power the world largest container shipping fleet with them first. Reuters even reported on this: http://in.reuters.com/article/2013/12/20  /breakout-thorium-idINL4N0FE21U20131220

I truly believe that the Chinese government is “by the people, for the people” and that the United States of Corporate America (The USCA) is by the Corporation and for the board of directors.

Posted by tmc | Report as abusive

xCanada2: Nuclear power got off on the wrong foot in the world, because US nuclear weapons material was first and foremost in the minds of our leaders”

=============

Nuclear power didn’t get off on any foot, because the hysterical people that are running around freaking out about the world ending over global warming, were the same kind of hysterical people running around trying to stop nuclear power at all costs. The same people also tried to stop indigenous forest clear cutting at all costs, and are now the same people totally fine with clear cutting, so bio fuels can be grown.

The eco people seem to have severe memory loss issues.

Posted by dd606 | Report as abusive

I’d be shocked if natural gas has replaced base line electrical generation or oil for vehicles in any significant quantities. Where are the decom coal elec plants, the gas powered cars? What carbon sources then has nat gas replaced?
Here’s what’s happened. MONEY. To save money we are using energy more wisely, conserving, etc.
Carbon reduction, pollution reduction, fossil fuel use, all are proxies for each other, and money is proxy for all of them. Cut costs, cut oil use, cut pollution, cut carbon use. Simple.
On to sour grapes:
I too was looking for some gee whiz technologies for reducing carbon. Not an ad for fracking, which, by the way, I have no problem with, IF the industry would practice a modicum of honesty and fiscal responsibility. In and around NYS frackers had a choice to drill rock within hundreds of feet of the surface, or thousands of feet down. They choose hundreds, where it’s possible to damage aquifers, to save a few bucks – they routinely drill down miles after all. In NYS frackers don’t pay enough in fees to even cap closed wells (NYS filled with open wells) much rather the cost to gov’t to license and monitor, or to counties to rebuild roads destroyed by thousands of big rigs. To be responsible it would cost a pitance of the tens of billions in net profit any of the half dozen energy cos in the US every quarter.

Posted by DellStator | Report as abusive