February 28, 2007

Unleashing the market to solve the carbon emission problem

Reed Hunt has a really good post today about what should be done to provide the right incentives and structure to encourage the most effective energy technologies that can reduce or eliminate greenhouse gases. He used his experience in seeing how the combination of regulation and competition resulted in the rapid invention and deployment of internet and wireless technologies that revolutionized our world. What he notes is the competitive environment must have a regulatory structure that aligns the interests of the competitors to solving that problem. And he makes explicit that there should be no picking winners if you really want to get the best results.

In the case of energy, a regulatory condition for new investment by rivals and incumbents both must be restrictions on carbon emission. Taxes can be used as a goad also, but the regulatory requirements must be mandatory. Regulation should guide investment to meet certain outputs -- or in the case of carbon emissions, the absence of certain outputs. It should not choose specific technologies. That would reverse previous policies of trying to pick winners in energy generation.

The world moved from circuits to packets, and from wire to wireless, as the globally dominant forms of communications in not much more than a decade and could move from carbon-emitting to non-carbon-emitting in a similar time period. This won't happen merely by working in concert with the major oil countries and firms; even if they agree to go along to a degree, their incentives are not very well aligned with the global goal of freezing and then reducing carbon emissions. Rivals, on the other hand, enjoy ideal alignment of incentives for gain with the purpose of weaning the world off carbon-emitting energy. We need a pro-entrepreneurship strategy for winning the battle against climate change.

One reason our position in regards to clean energy slipped back in the past 6-plus years is because the Bush administration put the interests of the behemoths in front of the interests of the public. As I wrote after the passage of the energy bill, the major incentives of that bill were designed to pick the most centralized, most massive solutions as winners.

The latest energy bill signed by Bush provided some astonishing incentives for the nuclear industry including 80 percent loan guarantees, $2 billion of public insurance against legal or regulatory delays, an additional 1.8 cent/kWh in operating subsidies, payment for late acceptance for hazardous waste, capping liability for mishaps, free offsite security and another $1.3 billion tax break for decommissioning funds. Under that bill all risk is absorbed by tax payers and the promoters don't even have to invest much of their own money.

Meanwhile, wind power was fortunate to get a subsidy of 1.9 cents per kWh for the first 10 years of production.

One can conclude that this administration is frankly anti-capitalistic in their fealty to the plutocrats. When we finally get someone in the White House serious about solving the problem, then they should consider Hunt's advice when coming up with policies that can help.

Posted by Mary at February 28, 2007 10:36 PM | Energy | Technorati links |