« Congo Trouble | Main | Secularism and Establishment » Regulation Breeds Innovation13 Dec 2007 09:05 am
Brad Plumer takes a look at this chart of patents for sulfur dioxide-control technologies for electric power plants. Basically, despite years of R&D funding, what it took to really get the innovation train rolling was congressional regulations. Point being that, yes, it will require technological innovation to reduce carbon emissions enough to keep climate change under control, but you get that innovation by imposing the regulatory mandate. In short, cap and trade it and they will come. Comments (27)
You're missing the point, otto. No one would invest is sulfur control before there were regs and so there was no innovation because there was zero cost to the emitter despite its real societal costs. Similarly, despite the "massive financial incentives" you claim to see for alternative energy, there is zero cost associated with CO2 emissions despite the real financial impact of those emissions. This amounts to a massive subsidy to fossil fuels. This comes in addition to the massive direct subsidies given to oil, coal and gas industries like the oil depletion allowance. 
This is all well and good, but until regulations are placed on consumers as well as business, nothing is actually going to be accomplished. The bulk of emissions come from everyday activities of individuals, not big corporations. That's the beauty of a carbon tax as opposed to cap and trade. A carbon tax affects everyone, and thus everyone's behavior. The auto industry can come up with a clean car, but if consumers aren't interested due to there being no real incentive to buy it as opposed to a gas guzzler, it does no good. Thus a carbon tax, which would heavily penalize driving gas guzzlers.
A most cavalier case of the "Broken Window Fallacy" if I ever saw one. If CO2 emissions have no real costs, there is no reason for the market to be innovating in these technologies. Government creating problems, so that entrepreneurs can innovate past them? No, not all innovations are equally useful (argh, that hated word of efficiency!) - it is imperative before creating the market that one determines if emitting CO2 is clearly a negative externality. Most wickedly, I assure you, I have my doubts.
No, you're missing the point. If we'd been putting sulfur in our cars and spending 5%(?) of family annual income on it, efforts to reduce use of sulfur or to come up with substitutes would have started long before the Clean Air Act came along. The extraordinary incentives for reductions in carbon use have been out there for decades, as have - for less time, to be sure - incentives for reductions in emissions holding use constant. In other words for many purposes incentives to reduce the private costs of carbon energy and controlling the externality pointed in the same direction, but without any technological solution. It's vastly more likely that efforts - cap'n'trade or tax - to increase carbon prices to limit the externality are going to just result in less carbon energy use - like a good old fashioned luxury tax - rather than the sort of "innovations" that Matt is implying. To be sure, using less energy may be just fine. But there's unlikely to be a pony of innovation awaiting us if we start regulating.
Are there really people in the comments here trying to claim that pollution isn't a spectacularly enormous external cost to carbon based energy production? Or trying to claim that the failure of subsidies amounting to a tiny fraction of that external cost to result in significant progress towards efficient alternative energy solutions says anything about the feasibility of such solutions? I wouldn't have guessed that anyone capable of thinking such massively idiotic things was sentient enough to figure out how to type, but I guess members of the truthiness squad are always there to surprise the rest of us who live in reality land and acknowledge empirical reality. Sheesh. Better antiscientific right-wing loony trolls, please.
The argument is more that there have been enormous, stupendous private gains to reducing carbon energy consumption for a very long while, without the innovation that Matt is hoping for. That suggests that such innovation is unlikely to be around the corner. Nothing unscientific or right-wing about that.
"The extraordinary incentives for reductions in carbon use have been out there for decades" What are these incentives? What is a cheaper energy source than carbon based energy? Gas was cheap until fairly recently. What are the incentives to not throw C02 into the atmosphere? Just like all pollution it's cheaper to just emit it than to do anything about it. The innovations may be improvements in efficiency, or a way to scrub C02 emissions out of current fossil fuel burning.
What the post also fails to take into account is that the rust belt is the rust belt due in part to measures like this. If you don't have the cash and/or tech to build your plant to spec in Akron, you're going to build it in Wuhan. Now, don't misunderstand me: I think this dynamic is a net benefit in the long term to all involved, just that there ain't no such thing as a free lunch.
Look at a market through the lens of evoloution. There two ways creatures evolve. One, they find a niche with low competition then evolve to fit that niche. Two, the envoronment changes and there is intense pressure to evolve or die. Some of the above posters seem to be talking about how there is this niche that entrpenuers are eitherr unwilling or unable to take advantage of. Matt is talking about the secont kind of evoloution. Big companies already comfortable in thier niches being forced--in this case by regulation--to evolve, as Matts very nice chart (positive reinfocement here) shows. I don't know what the big argument is here.
"What is a cheaper energy source than carbon based energy?" No one has found one, despite enormous financial incentives to get a slice of the money we spend on the 317 billion gallons of petroleum the US uses per year. That's the point. It's not easy! Yes, the externality has been unpriced, but the obvious way to reduce the externality is to innovate out of use of the good - unlikely, see above. And it has been clear for decades that enormous money could be made from a means of reducing the externality, holding use of the good constant. Lots of well organised private actors have long incentives to crack this problem: if you were a car company or private firm with the ability to produce cheap enough emission-less carbon use, you'd soon be richer than Bill Gates, as the government would require the use of the new product the moment it was available (much as happened with CFCs). But no luck so far, not even in countries were there has long been vastly higher externality driven gas taxes than in the US -- where the general trend has been towards smaller cars and less car use rather than the sort of innovation that Matt hopes for. Sure, cap and trade, tax away. But you will wait for your innovation. Get used to using less energy.
Oh, now I see. Some people are saying that there has been a niche for non-carbon buring energy. That's dumb. Carbon has until recently been very cheap, plus there's this huge infrastructure. THere was no big niche for non-carbon energy. Now there is.
Now I say this as a person who thinks that cap and trade is a perfectly good idea: In this particular instance, the high price of gas is more likely to spur innovation seeking a replacement technology than adding $5-10 on top of it. (Imagine if we cap and traded the same number of dollars on a $10 per barrel base. Pretty much nothing helpful would happen because the total price would still be ridiculously cheap.)
otto assumes that the only innovation worth mentioning would be one that allowed him to fuel his vehicle with a carbon-free energy source. This makes it possible for him to argue that this is never going to happen. However, government regulation of energy usage has already proven Matt's point. Programs like Energy Star have lead manufactures to massively reduce the energy consumed by products like refrigerators, washing machines, computer monitors, and air conditioners. CAFE lead to huge increases in fuel efficiency in vehicles in the 1970s. And, in fact, carbon-free energy sources already exist. Solar and wind. These are not yet as cheap as carbon-based fuels but have been rapidly gaining over the past decade thanks largely to regulation and subsidies in Europe. Is it really so unrealistic to think that a tax or cap and trade scheme that makes carbon-based energy more expensive and makes solar and wind more competitive would lead to further innovations in these two technologies. otto, your argument really doesn't make any sense. I suggest you take up Riemannian's GW denialist line instead. While wrong, it is at least logically sound.
Oh, forgot what I originally meant to post: There were sulfur dioxide-control patents filed in the 1880s and 1890s?
Otto's argument is based on the false premise that reducing carbon emissions = reducing fossil fuel use = reducing oil use. Neither equality holds. CO2 reductions don't have to come from reducing fossil fuel use, and they definitely don't have to come from reducing oil use. Renewables are already close to cost-competitive in many electricity markets; a carbon tax or equivalent cap-and-trade system could well lead to substantial substitution away from coal power. Carbon sequestration has been getting a lot of hype lately; probably it's just hype, but putting a real price tag on emissions will reveal quickly if there's real potential gains there. Natural gas and coal are close substitutes for most purposes; anything chanigng their relative costs will induce a shift between them pretty quickly. And so on.
> Yes, the externality has been unpriced, but the You can always tell the "markets + innovation fix everything" fans: they have clearly never worked in a real profit-making business of any size or scope. The internal incentives NOT to innovate, and to destroy any entity that tries, are enormous and often substantially stronger than any market-based incentive _to_ innovate. Read up on this history of the US Clean Air Act of 1974, the German automakers and their response to the CAA74, the Green Party success in the 1984 parliamentary elections, and the German Clean Air Act of 1986 (or so). Then tell me how, if it takes 5-7 years to bring a new drivetrain to development, the German automakers were all able to have cars on the road meeting the 1984 /California/ emissions regulations within 12 months of those regs being passed into law by the German Parliment? Cranky
I was looking around the internet and it turns out that sulfer dioxide actually has a cooling effect.
Cranky: who's the markets and innovation fix everything fan here? The cap'n'trade&you'll-get-innovation types? Or the cap&trade-nevertheless-substantial-innovation-is-unlikely alternative? Maybe both! And maybe you can be clearer about the meaning of your German example? My wild guess is that the German greens and automakers did a baptist-bootlegger deal which got a bit of protectionism (from foreign autoworkers producing less fuel efficient cars) in return for a bit of greenery. Not sure what that says about whether the previously-existing massive incentives to find a substitute for, or substantial reduce of the use of, carbon-based energy make innovation of the sort Matt is hoping for unlikely. But here's hoping!
"No one has found one, despite enormous financial incentives to get a slice of the money we spend on the 317 billion gallons of petroleum the US uses per year. That's the point. It's not easy!" It's not burning coal and oil that's the problem, it's the C02 that these activities emit (among other pollutants that we have regulated against). There are probably ways to deal with the C02 part, but there is little incentive to do so. Without any regulations on C02 emissions it's going to be cheaper for every company (individually) to do nothing about it. The idea behind a carbon tax or cap and trade is to give incentives to not put C02 into the air. Secondly, cars have made huge strides in fuel efficiency. We are generating a lot more power in cars, for the same fuel cost. The mpg haven't gone up significantly as a whole because horsepower has also been increasing. Still, non-hybrid Honda Civics were advertising at 40mpg at one point this year.
Just on a general rule-of-thumb basis, this sort o' thing isn't at all surprising - just another example in the basic category of industry claiming horrible, horrible consequences, ecomomic destruction and downfall, massively inferior and harmful replacements, etc. - if regulation X is passed, until regulation X is passed, at which point the vast majority of dreaded consequences fail to materialize, replaced instead by speedy and efficient - and usually both environmentally and economically beneficial - innovation. See everything from seatbelts to (in the EU), phthalates.
"previously-existing massive incentives to find a substitute for, or substantial reduce of the use of, carbon-based energy" Maybe you could explain what these massive incetives were.
You don't see the financial incentives for competitive innovation associated with the massive household and corporate spending on carbon-based energy?
"You don't see the financial incentives for competitive innovation associated with the massive household and corporate spending on carbon-based energy?" I do, the incentive is to do nothing about C02 emissions because that would cost money.
Otto, There is still strong disincentive to researching alternatives to oil. If price flexibility still exists, oil can again be made cheap again, financially ruining anyone financing research in to replacements for oil.
"You don't see the financial incentives for competitive innovation associated with the massive household and corporate spending on carbon-based energy?" I see them now. I don't see them in the previous 150 years. Carbon based fuel sources, were and are abundant. Until very recently, they were the only fuel souce humans had ever used. Wood is carbon based. Coal has been mined for centuries. Oil was until recently, pretty easy to extract. Our whole energy system for the past 150 years is based on burning oil and oil by-products, coal, and natural gas and so there is a huge infrastructure build up for extraction, refining and deliever that acts as a massive disincentive to developing other fuel sources. Why spend all the money to develop a hydrogen power car when gas cost $1 a gallon and there are 8 zillion gas stations. You may have some counter-intuitive secret knowledge that I lack, but you haven't revealed it yet.
Re: That's the beauty of a carbon tax as opposed to cap and trade. The problem with this analysis is that consumers don't have the ability to do R&D to develop new energy sources. A very large fraction of them are barely hanging on as it is and can't even afford compact flourescent light bulbs let alone hybird cars. That's why you focus on corporations instead: they have the resources to do something about the problem, competition will limit their ability to pass on costs to the consummers, and to the extent they do raise their prices, the blame will accrue to them and not to progressive politicians. What's not to like? Re: The argument is more that there have been enormous, stupendous private gains to reducing carbon energy consumption for a very long while The argument is incorrect, because those "incentives" are not localized but rather are diffused through the entire world economy. Re: No one has found one, despite enormous financial incentives to get a slice of the money we spend on the 317 billion gallons of petroleum the US uses per year. That's the point. It's not easy! It's not easy precisely because fossil fuels are cheaper. Make them costlier and (by definition!) alternative energy becomes realtively cheaper. The economy of scale effect will kick in, further lowering the price of alternatives in absolute terms, plus we'll invest in an infrastructure needed to support those alternatives making them cheaper still. That's how our current energy economy came into being. It was not always "cheaper". Once upon a time human and animal labor (and wind and water) were the preferred market choices. People started fooling around with steam engines again (long after the ancient Greeks had invented them) when certain niche-needs (e.g., pumping water out of mines) exceeded what wind, water, and muscle could provide easily. Re: Get used to using less energy. We Americans are quite profligate in our energy use. We could easily enjoy our current standard of living with significantly less energy use. Re: Until very recently, they were the only fuel souce humans had ever used. Until the late 18th century carbon-based energy sources (including wood) were used for lighting and heating only (I include cooking, metal-smelting and distilling under "heating"). Nearly all the heavy work was done by muscle power (human or animal), supplemented where possible by wing and water.
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Heads in the Sand
Maybe true for Sulfur etc. But for a good while already - at least 80 years - it's been clear that you could be rich beyond your wildest dreams by inventing or producing a substitute for carbon-based energy, and for at least two decades the same has true for ways to use carbon energy with less potential impact on the climate. The massive financial incentives are already there, "cap and trade" or no - but noone's cracked it yet.
Posted by otto | December 13, 2007 9:21 AM