Numerous advocacy groups, scholars, think tanks and others have proposed a variety of steps to address global warming based on a set of assumptions about the green economy. Yet, while we need to take bold action to address climate change, much of what passes for conventional wisdom in this space is in fact either wrong or significantly exaggerated.
In our recent report, “Ten Myths of Addressing Global Warming and the Green Economy,” ITIF explains how the debate on policy responses to climate change is fueled by an array of myths, ranging from assumptions that high carbon taxes will generate needed clean innovations to the belief the U.S. is the natural leader in the clean energy sector. If we are to effectively address climate change and at the same time become globally competitive in the clean energy industry, policies need to be guided by careful and reasoned analysis.
ITIF dismantles the top ten myths in the debate, which are:
1. Higher prices on greenhouse gases are enough to drive the transition to a clean economy.
2. The U.S. can make major contributions to solving climate change on its own.
3. Cap-and-trade is a sustainable global solution.
4. We don’t need innovation; we have all the technology we need.
5. “Insulation is enough” (e.g. energy efficiency will save us).
6. Low growth is the answer…just live simply.
7. Information technology (IT) is a significant contributor to climate change.
8. Going green is green (e.g., it makes economic sense to go green).
9. We are world leaders on the green economy, and it’s ours for the taking.
10. Foreign green mercantilism is good for solving climate change (and good for the U.S.).
Perhaps the most prevalent myth is that carbon taxes or a cap-and-trade regime alone will drive significant GHG reductions and save the planet. The current neoclassical economics-inspired solution focuses on pricing carbon and letting markets work. Proponents have faith that increasing the price of carbon will induce behavior change. But this will only happen when there is a viable and affordable substitute. Adherence to this entrenched myth overlooks the fact that radical innovation in the energy sector is essential to the transformation in how we produce and consume energy in the future. Our strategy must be based on innovation to make the dent we have to make in our greenhouse gas production.
While many people espouse the maxim, act locally, think globally, this doesn’t seem to carry over to the climate change debate. Too many of the policy proposals are based on the idea that whatever the U.S. does to address climate change will be enough. This blindly ignores that the lion’s share of GHG will come from the expected growth in population that will effectively double global energy consumption. Even if we find the political will to impose a price on or limit carbon emissions, and even if those actions were to reduce carbon emissions by 85 percent, this will only account for a 12 percent reduction in global GHG emissions by 2050. Any solution must be one from which every nation will want to implement even in the absence of regulation, carbon taxes, or subsidies from other nations.
And, by the way, cap and trade–the darling of the moment–isn’t a globally sustainable option. It’s a myth that developing nations can afford to pay a premium for low-carbon energy when they are having trouble enough with providing the basics of food and shelter. The conventional policy response is that the United States (and Europe) should either bribe poor nations with massive clean development aid so they can afford more expensive clean energy, or we should penalize them with border adjustable carbon taxes. And neither option comes for free since the United States would need to increase taxpayer-financed aid subsidies to meet developing countries clean energy demand. The end result is that U.S. taxpayers would pay twice in a global cap-and-trade regime—once for their own consumption and once for developing nations’. The only globally sustainable option is the creation of affordable (read “grid parity”) clean energy for all nations.
The reality, however, is that we don’t have the technology we need to make needed reductions in global GHG emissions at a price at or below the price of fossil fuels—no matter what advocates like former vice president Al Gore say. This notion plays into the policy advice that suggests we just need to raise the price of coal and oil a bit, and technology will fly from the shelf and into the market. This ignores a fundamental truth that the needed breakthroughs in clean energy face daunting challenges, including lowering materials and processing costs, improving conversion efficiencies, and gaining better manufacturing yields. Moreover, clean energy innovators recover only a portion of the benefits their technologies produce. Most companies prefer to “free ride” off existing dirtier technologies, making the rational business decision to under invest in fundamentally new green technologies. To spur the technology we need, government must step in, incentivize basic R&D and propel these technologies through the “valley of death” – the phase in the development of technologies between research and commercial introduction in the marketplace.
Incidentally, although energy efficiency technologies and measures are certainly an important part of attaining a lower carbon footprint, in reality these are short-run, stop-gap solutions. If we add all of the potential savings from energy efficiency, they only abate about 25 percent of GHG emissions. To make matters worse, the “low hanging fruit” will grow smaller over time, decreasing returns to our efforts. To reduce our GHG emissions by 85 percent by 2050, we need radical innovation to provide clean energy alternatives, rather than just using carbon-based fuels a bit more efficiently.
In the end, conventional wisdom and neoclassical economics provides us with flawed policy guidance. We contend that we need more than a price on carbon or subsidies on deploying current green technologies to drive green innovation and industry. Only a clean energy innovation strategy can drive the development of affordable, zero-carbon alternatives to address the challenge of global climate change.