Monday, June 16, 2014

Carbon Pricing Won't Solve Climate Change.  Innovation Will.

Steam emits from the Jeffrey Energy Center coal-fired power plant near St. Marys, Kan. Raising the cost of carbon emissions to make fossil fuels uneconomic is not feasible politically. (Credit: Charlie Riedel/AP/File) Click to enlarge.
Putting a price on carbon doesn't work because no one wants to pay the real cost of using fossil fuels. But funding R&D and demonstration projects that lower clean-energy costs will create real economic incentives to fight climate change.

Carbon pricing appeals to many because of its strong roots in neoclassical economics, which suggests that higher prices will reduce consumption and lead to a big shift to renewable energy.  But as long as nations use carbon pricing as their primary solution, climate change will never be addressed – for two reasons:

First, it takes a high carbon price to realistically change consumer habits. (Experts suggest around $30 per ton of CO2 to start.)  And no one wants to pay it.

Politically feasible carbon prices are too low to shift consumer behavior away from fossil fuels.  Adequately high carbon prices are tried and reversed, or are never tried.

Second, carbon prices, whether large or small, only raise the cost of fossil energy – they do not lower the cost of alternatives.  They are unable to stimulate the multitude of technology breakthroughs in energy generation and storage needed to lower the cost and improve the performance of clean energy.  With the Intergovernmental Panel on Climate Change’s (IPCC) recent – and effectively desperate – declaration that Earth’s warming trend is both “unprecedented” and “unequivocal,” it is a good idea to start thinking about a broader climate rescue plan.

The primary goal of both national and international climate policy should be to make the unsubsidized cost of clean energy cheaper than fossil fuels so that all countries deploy clean energy because it makes economic sense.  This means a fundamental focus on innovation, including substantially more public investment in clean energy research, development, and demonstration (RD&D), and reforms of clean energy deployment policies so that subsidies incentivize the development of better technologies.  International climate negotiations should also address innovation by offering high-income and emerging economies the option to gradually increase clean energy RD&D investment as a complement to an emissions reduction target.

Carbon Pricing Won't Solve Climate Change. Innovation Will.

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