Still, even though Shellenberger and Nordhaus recognize the difference between a politics of limits and one of possibility, they do not seem to comprehend the problems common to all centralized, top-down policy initiatives--regulatory and subsidy-driven alike. In their book and essays, Shellenberger and Nordhaus correctly observe that regulatory approaches to climate change are “economically insufficient to accelerate the transition to clean energy.” Yet the “investment-centered” approach they prefer still suffers from substantial limits, not least their preference for a centrally directed system of subsidies. Rather than grapple with the limits of top-down direction of investment and economic activity, they present a false dichotomy between laissez faire absolutism and government direction of investments.
In response to my critique that they “embrace the fatal conceit that markets can somehow be planned or manipulated to achieve a grand and worthy purpose,” they choose to denigrate a “knee-jerk opposition to all government intervention in the economy.” Rather than engage the climate policy proposals I and others have put forward--like substituting prizes for subsidies, reducing regulatory barriers for alternative energies, increasing industry’s carbon efficiency, and promoting efficiency gains in developing nations where such investments are most cost effective--they attack a straw man of “conservative orthodoxy that global warming can be overcome by private companies operating in free markets with little or no help from the government.” In reviewing their book for the Wall Street Journal, I asked, “Why would an ‘Apollo’ plan succeed where the Synthetic Fuels Corp. failed?” They have yet to provide an answer.
What Nordhaus and Shellenberger notably fail to do, either here or in their book, is cite an example of government agencies identifying a technology and financing the development of commercially viable products that provide larger social benefits. An Apollo or Manhattan Project model is well-suited to overcoming a specific engineering challenge--such as splitting an atom, landing a man on the moon, or producing gasoline from coal--when cost is not a concern. Such approaches are an exceptionally poor means to develop and deploy commercially viable technologies to address specific policy concerns.
The federal government subsidized transcontinental railroad construction and built an interstate highway system, but neither is particularly relevant. How does either compare to a portfolio of investments in promising but as yet unproven technologies? The federal government underwrote development of the Internet for defense purposes, not to facilitate electronic commerce or private communication, let alone to unleash the information economy. Such benefits were incidental, in that they were neither intended nor foreseen. It is easy to identify profitable government investments in hindsight. This does not change the fact that government has an exceedingly poor record of picking winners and losers beforehand. The switch from copper wire to fiber optics had immense ecological benefits, but this and similar transformations are driven by market pressures and private innovation more often than government investment or diktat.
If existing private markets do not provide sufficient incentive for the development of low-carbon technologies, the most promising solutions are those that increase the potential rewards for innovations that deliver; promises of ex post rewards spur more innovation than ex ante subsidies. Much as the patent system provides super-competitive rewards for successful innovations, government-sponsored prizes, such as those proposed by Gingrich and Maple and myself, have a much better history of producing socially valuable investment than direct government subsidies. Even a modest prize figure can spur many times the private investment, making prizes a far more economical means of spurring the levels of investment Shellenberger and Nordhaus demand. They are also the closest thing yet tried to the “institutions capable of insulating [government] investments from pork-barrel politics” Shellenberger and Nordhaus say we need. The political establishment’s ecologically destructive love-affair with ethanol provides ample evidence that government dollars are a poor measure of a genuine commitment to environmental protection.
For all their talk about innovation, Nordhaus and Shellenberger ignore the need to lessen the real obstacles that innovators face. It is almost as if they believe the only innovation that counts is that which is paid for with a government check. If their goal is to “unleash human power” to “create a new economy,” as they have written, then they should seek to “unleash” innovation and entrepreneurial spirit rather than have it reined in and steered by government bureaucrats.
Nordhaus and Shellenberger acknowledge the failings of the politics of limits and the regulatory system it spawned, but fail to acknowledge how this system creates obstacles to the products and technologies they wish to see. Just as existing air pollution regulations provide “grandfather” protection to the older, less-efficient, and more polluting industrial plants of yesteryear, other regulatory regimes hamper the deployment of wind power, wave power, and other alternative energy technologies. It’s common sense to free up such technologies before pouring billions of taxpayer dollars into subsidy sinkholes, praying this time they will produce more favorable results.
In addition to prizes for energy innovations and a lessening of anti-entrepreneurial (and anti-ecological) red tape, I would support government efforts to encourage the deployment of commercially viable technologies in developing nations. We could do this through the elimination of trade barriers and, if necessary, direct government subsidies. Such investments will be more cost-effective than attempts to squeeze out small-time advancements through marginal increases in CAFE standards or new mandates on appliances at home. The
A carbon tax is also a suitably conservative approach to the potential risks of climate change, provided it replaces other sources of tax revenue. There is no need to increase the global tax burden and frustrate innovation-enhancing economic growth. Increasing the price of carbon-based fuels will further spur innovation, however, and create additional opportunities for energy entrepreneurs to offer their wares.
There is certainly a need for conservatives and others to “back up words with action,” but not just any action will do. We need innovation-spurring, forward-looking environmental policies, not a repackaging of the centralized mandates and economic controls that have dominated environmental policy for the past three decades. Shellenberger and Nordhaus have helped to initiate this dialogue, but their policy recommendations should not be the last word.
Jonathan H. Adler is professor of law and Director of the Center for Business Law & Regulation at the
By Jonathan H. Adler