March 12, 2013
WSJ: Forget the U.N. Climate Convention—Rethink Innovation Instead
By Michael Shellenberger and Ted Nordhaus
The failure of the U.N. climate process is proof that shared economic sacrifice cannot be the basis of global action. Nations will not scale up clean energy as long as it remains so much more expensive than fossil fuels. Thinking past talks in Cancun, nations should focus instead on energy innovation, adaptation, and no regrets policies that do not require agreement about global warming. The first step is recognizing that the global market for clean energy exists only thanks to government subsidies and mandates. Instead of imposing emissions controls and subsidizing existing technologies, nations should use competitive deployment to purchase advanced energy technologies, benchmark the winners, and allow intellectual property to spill-over between firms and nations.
This is the framework we propose for pragmatic global climate action in the cover story for a special energy section in today's Wall Street Journal, pegged to the start of U.N. climate talks in Cancun, Mexico. Today also marks the launch of a new web site, Breakthrough Europe, and its kick-off post, "Cancun Can't: The Twilight of European Climate Leadership," which documents the failure of Europe's cap and trade system to reduce emissions.
Our Wall St. Journal essay, "How to Change the Global Energy Conversation," builds on Breakthrough Institute's thinking about the failure of the UN process ("Scrap Kyoto," Democracy Journal), the clean tech intellectual property illusion ("The Revolution Will Not Be Patented," Slate), the green Keynesianism and neoliberalism behind Obama's green jobs fiasco ("Green Jobs for Janitors," The New Republic), and our proposal to make clean energy cheap through technology innovation ("Fast, Clean & Cheap," Harvard Law and Policy Review, Feb 2008).
How to Change the Global Energy Conversation
NOVEMBER 29, 2010
Forcing countries to agree to emissions caps will never work, argue Ted Nordhaus and Michael Shellenberger. Instead, they say, the focus should be on technology innovations.
By TED NORDHAUS and MICHAEL SHELLENBERGER
It's time for a rethink on climate change.
For two decades, world leaders have been trying--and failing--to hammer out a workable deal on global warming. Now they're meeting once again, this time in Cancún, Mexico, to kick around the same issues one more time--and, inevitably, stumble over all of the same roadblocks.
At the heart of it, these deals all come down to mandating emissions cuts, which means paying a lot more for energy. Some greens deny it, but clean energy still costs vastly more than fossil fuels. Significantly raising energy costs slows economic growth--something no country wants to do.
As a result, every country has an incentive to point the finger at someone else, while trying to game the system: sheltering key industries, understating emissions and overstating reductions.There is a better way. Nations should focus on lowering the cost of clean energy, not raising the cost of fossil energy. The goal? Make clean energy cheap enough to become a viable option for poor as well as rich nations. Until that happens, emissions will continue to rise, and no effort to regulate carbon can succeed.
How do we accomplish that? Stop subsidizing old technology that will never compete with fossil fuels and create incentives for innovation. Along with ramping up support for research, governments should buy cutting-edge clean-energy technologies, prove them--and then give away the intellectual property, so others can improve on it.
At the same time, wealthy nations shouldn't try to hammer out these kinds of agreements in the United Nations, where they get bogged down in politicking with smaller nations. Big countries should work through the G20 and the World Trade Organization--forums that are, however imperfect, focused on economic and trade issues
Finally, until clean energy becomes much less costly, there are relatively cheap fixes we can make to curb emissions, such as closing the most inefficient coal plants. And we should change how we look at climate-related aid to developing nations, focusing on better roads, housing, sewage and electrical systems.
Here's a closer look at these ideas, and how they can get us past the current deadlock.
PUSH FOR INNOVATION
Our highest goal should be to make clean energy radically cheaper and truly competitive with fossil fuels through innovation. That's where governments should focus their efforts.
Emissions cuts have overshadowed technology innovation for so long in part because of a widespread myth--that today's clean-energy sources are either ready or almost ready to replace fossil fuels. They are not. It will take much more innovation to make them cost-competitive.
And the impetus for that needs to come from governments. Virtually all demand for clean-energy technology is a result of states subsidizing companies to make clean tech and consumers to buy it. Governments will continue to be the central driver of clean-energy innovation for the foreseeable future; without public support, the technology isn't close to being cost-competitive with fossil fuels.
Because policy makers have not fully come to terms with this reality, nations simultaneously spend too little and too much on clean tech: too little on research, development and demonstration of new technologies, and too much subsidizing the commercialization of older technologies that will never be cheap enough to stand on their own. If clean-tech companies can profit making uneconomic, but subsidized, technologies, why invent anything better?
Public investments in clean tech should work more like military procurement of new defense technologies and less like federal crop supports. What we need is competitive deployment.
Governments should solicit bids for projects or technologies within a given class--say, a next-generation nuclear reactor or a new solar-panel technology. Once a new technology with the lowest cost is proved, it should be set as the benchmark for another round of bids--all with an eye toward ever-newer, ever-cheaper technologies.
The military has used this method for decades to drive down the costs and improve the performance of critical technologies. A decade of Pentagon procurement drove the price of microchips to $20 a chip by the mid-'60s from over $1,000 in the late '50s.
At the same time, the military heavily invested in government, university and industrial research labs to deliberately create knowledge spillover--the sharing of intellectual property--which is crucial to rapid innovation.
The money for this new regime could come from various sources. The obvious source is redirecting existing energy subsidies. We might also impose a small fee on oil imports, or dedicate revenue from new oil and gas leases, as has been proposed by a number of Republican lawmakers. A low carbon tax might also help--one that might generate roughly $25 billion annually, but not so high as to slow the economy.
National investments in innovation won't happen if they are motivated solely, or even primarily, by the desire to achieve global emissions-reduction goals. They need to serve more immediate national objectives, such as reducing reliance on fossil fuels and getting a piece of a rapidly growing global energy market.
This will mean pulling off a balancing act. Nations will have to protect, at least partially, their domestic clean-tech industries. There is no clean-tech industry without state subsidies, and there is no incentive for states to subsidize those industries without good reason to think that those subsidies will in large part benefit domestic companies.
Yet nations should not entirely block foreign businesses from accessing their clean-tech markets--or else they'd become too dependent on home-grown ideas and technologies. That's a bad bet. Radical innovation requires that ideas spill over--quickly--between nations and companies.
In fact, governments should make the sharing of clean-energy intellectual property an explicit part of the competitive-deployment system. The companies that win bids to deliver the next generation of solar panels and nuclear plants at the lowest cost would have to share their intellectual property with competitors--and quickly move on to compete for the next aggressive benchmark.
Bids in such a system would reflect the value of both intellectual property and technology and so might cost a bit more. But probably not much; the reality is that clean-tech IP is massively overvalued. There is little real value in intellectual property that allows a company to produce clean energy at several times the cost of fossil fuels.
The only value of present-day clean-tech intellectual property is as a public good, not a private one. Governments support clean tech in the hope that subsequent iterations of present-day intellectual property will be substantially cheaper and hence scalable without the need for government subsidies. Paying to procure cutting-edge clean-energy IP along with the technology it creates is more than worth it in order to accelerate the spillover of new knowledge among clean-tech firms, even if it costs marginally more.
In reality, strong financial incentives for commercialization of clean-energy technologies are more than sufficient to spur private-sector innovation, even without strong intellectual-property protections. Witness tech firms the world over rushing to take advantage of China's epic state investments in new clean-energy technologies--despite China's cavalier attitude toward intellectual property.
In short, the competitive advantage for companies would be not today's intellectual property, but rather the ability to rapidly and repeatedly create new intellectual property to win competitive contracts. Such a strategy will strengthen America's innovation system and help U.S. businesses capture intellectual property developed abroad--all while encouraging precisely the kind of knowledge spillover between nations and businesses that is in everyone's interest.
FORGET THE U.N.
The U.N. is the wrong place for hammering out the details of an international agreement on clean-energy innovation. The venue is too big and too rancorous. Small countries use the U.N. as a platform to push historical grievances against big ones, and nothing gets done.
Instead, the focus should shift to the relatively few nations that are responsible for the vast majority of emissions--and that have the resources to do something about it.
Look at the numbers. There are 192 members in the U.N. But two nations, the U.S. and China, produce more than 40% of the world's emissions. If you broaden that to the G-20 countries, you've accounted for 80% of total global carbon emissions--as well as 85% of global GDP, 80% of world trade and two-thirds of world population. The best way to address climate problems is to work through existing forums for these big countries, like the G-20 meetings.
As the recent meeting showed, the G-20 hardly guarantees agreements among nations over vital matters like currency manipulation. But it is still an easier forum than the U.N. General Assembly. And focusing on technology innovation to make clean energy cheap--instead of on polarizing measures like emissions cuts--will make it easier still.
DO THE SMALL STUFF
It will take years and maybe decades before clean energy becomes cheap enough to replace fossil fuels. What can countries do in the meantime?
For starters, wealthy nations can help poorer ones address other factors that are contributing to global warming. Black carbon--the incomplete combustion of cheap, dirty fuels in places like India--accelerates warming and can be reduced by replacing old diesel generators and primitive wood stoves with more-efficient alternatives.
These actions are economical, delivering more energy for less fuel, and bring an immediate public-health benefit--fewer respiratory illnesses and deaths from breathing dirty stove smoke. Methane, too, a potent greenhouse gas, can be cheaply captured in places like dairy farms and landfills and burned for energy.
There are other relatively easy things the U.S. and other rich nations can do. The U.S. could better enforce the non-carbon standards of the Clean Air Act, shutting down the country's oldest and most inefficient coal plants and replacing them with natural gas or clean-energy technologies produced through a competitive-deployment process. Over the next decade, such a strategy could quickly reduce mercury and asthma-causing pollutants, as well as cut carbon emissions from U.S. coal plants by as much as 10%--all while advancing the goal of inventing ever-cheaper low-carbon energy technologies.
HELP EMERGING COUNTRIES ADAPT IN A DIFFERENT WAY
Finally, we should immediately change how we distribute climate-related aid to developing nations.
First, we should stop talking about that aid in terms of climate change. It's impossible to tell if floods, droughts and hurricanes are caused by climate change--and that's unlikely to change for many decades. Trying to draw a distinction between disasters caused by climate change and "natural" disasters serves a political purpose, not a scientific one: justifying climate "reparations" from rich too poor countries.
Rich nations should focus instead on helping small nations deal with problems related to natural disasters in general. Aid should be spent on better roads, water and sewage systems, and housing--an infrastructure that can, in short, stand up to everything from earthquakes to big storms, whether caused by increased warming or not.
The proper institutional home for those efforts should be well-established international development agencies, such as the World Bank, the International Monetary Fund and the U.S. Agency for International Development--not the U.N. They're not perfect, but these institutions have a better track record of underwriting global development, collectively spending upward of $150 billion annually on international development efforts. Loans and aid for infrastructure development have traditionally created new markets, and what's more likely to win the support of Western countries in tough economic times, appeals to environmental guilt or to economic self-interest?
Beyond that, the best route to helping nations absorb natural disasters is to broaden access to energy. Wealthy societies can handle disasters a lot better than poor ones, and access to cheap energy is crucial for building wealth.
Fossil fuels alone won't cut it. They're still too expensive for about a third of the world's population, and will get pricier still as demand rises. If there is to be universal access to energy, there must be a global commitment to developing alternatives.
BUILD ON AMERICAN INGENUITY
So we come back to the beginning. Energy that is cheap, clean and available to all should be understood as a fundamental public good and should be the central objective of climate policy. It's the best way to align national interests with the global one, economic benefits with environmental ones and emissions reductions with adaptation.
It's also the best approach for America. The U.S. has taken a pounding over the past decade as a global laggard on climate. Much of this was unfair--Europe manipulated the Kyoto treaty's accounting to start in 1990 and 1997 so it could count emissions reductions from the collapse of Communism. But it is also the case that the U.S. has not offered a suitable alternative to the U.N. framework.
The new climate framework we're proposing plays to America's strengths. It offers the country the chance to move from being the global scapegoat to the global leader. We are an electric nation born of invention--one that has long used technology to overcome tough challenges. With that as our mandate, we can do a lot to help the world solve this one.
Ted Nordhaus and Michael Shellenberger are co-founders of the Breakthrough Institute, a public-policy think tank in Oakland, Calif. They are co-authors of Break Through: From the Death of Environmentalism to the Politics of Possibility.
Printed in The Wall Street Journal, page R1