How we do we live in a world we don’t understand? That question has been on my mind lately because I’m again under the sway of Nassim Nicholas Taleb, author of The Black Swan. Taleb did a podcast recently with the free-market (or, if you prefer) the Smith-Hayekian) economist Russell Roberts, available here at EconTalk and highly recommended.
They didn’t discuss climate policy but their conversation got me wondering what Taleb would say about the threat of climate change, particularly since I’ve been thinking about how to respond to a thoughtful commentary on climate and energy by Jesse Jenkins of The Breakthrough Institute, who blogs as Watthead, Jesse and I serve on the blogger board for The Energy Collective, a website that attracts people who are interested in the nitty-gritty of energy and climate policy. It’s a good place to keep up with people like Joe Romm and Robert Stavins.
In his post, Jesse argues in his post that a cap-and-trade policy or carbon tax designed to “put a price on carbon” – that is, to raise the cost of burning fossil fuels – won’t do nearly enough by itself to reduce greenhouse gas emissions and respond meaningfully to the threat of climate change. That’s because any policy that drives prices high enough to discourage people from burning coal and oil will, by definition, be politically unpopular. Jesse writes:
The ultimate effectiveness of a strategy premised centrally on an effort to make dirty energy more expensive will always be limited by this fundamental reality of the political economy of energy — which we at the Breakthrough Institute have dubbed “Global Warming’s Gordian Knot.” If the price of carbon must rise too high to drive emissions reductions, various cost containment mechanisms or public backlash will kick in — either of which effectively abrogates the emissions cap. Yet if we constrain the price of carbon, it will have very little impact on emissions absent a steady supply of low-cost emissions reductions opportunities.
Instead of trying to make dirty energy expensive, Jesse argues, we need to make clean energy cheap. This requires what he calls “a coordinated, well-funded and effective strategy to accelerate clean energy innovation and drive major improvements in the price and performance of clean energy technologies.” Yep, that means lots of government spending, perhaps $50 billion a year.
What does this have to do with Taleb? I’m wary of trying to summarize his worldview but Taleb essentially argues that we know a lot less than we think we know. “My major hobby,” he writes on his website, “is teasing people who take themselves & the quality of their knowledge too seriously & those who don’t have the courage to sometimes say: I don’t know….” In essence, Taleb says we are not very good at understanding the past or present – his first book was called Fooled by Randomness–and that we are downright horrible at predicting the future. (Although he sort of predicted the global financial meltdown.)
I don’t know what Taleb thinks about climate policy or, for that matter, climate science, but I suspect that he would not have much enthusiasm for a federal government effort to spend $50 billion a year to research and commercialize technology to make clean energy cheap. None of us know how to make clean energy cheap, and the government has a pretty poor track record of picking marketplace winners.
Here are several examples. In 1980, President Carter signed legislation to establish the U.S. Synthetic Fuels Corp., to find ways to create alternatives to petroleum and promote energy independence. It flopped, of course, and one reason why is that it got caught up in pork-barrel politics. “Fuel-cell projects under the SFC, for example, were allotted to each of the 50 states, regardless of economic viability,” according to a book called “The Government Role in Civilian Technology,” by the National Academies of Science and Engineering and the Institute of Medicine.
Not long ago, Congress gave us FutureGen, the “public-private partnership to design, build, and operate the world’s first coal-fueled, near-zero emissions power plant, at an estimated net project cost of US $1.5 billion.” Well, good luck with that. An environmentalist pal of mine likes to refer to FutureGen as NeverGen.
More recently, we had the biofuels mandate in the 2007 energy bill, which was a boon to Midwest farmers and the corn ethanol industry, at least until oil prices dropped last year and big ethanol refiners went bankrupt. The politics of biofuels are incredibly complicated – the mandate was opposed by environmental groups like Friends of the Earth and by oil-state Republicans – but figuring out which biofuels make economic and environmental sense and which do not is no job for Washington.
Only markets will do that.
Now let me be clear. I am not arguing that venture capitalists or energy startups or academics or big oil companies are any smarter or more capable than U.S. Senators or DOE researchers. What I am saying is more voices (i.e., the market) are better than a few (politicians and civil servants). The way to make clean energy cheap is to create a market that promotes as much tinkering and experimentation by as many people are possible (crowdsourcing, if you like) and not by giving the government $50 billion a year to spend. Nobody knows today how to make clean energy cheap. Together we may be able to figure it out.
Best as I can tell, the best way to unleash that experimentation is with cap-and-trade or a carbon tax, by making dirty energy expensive. Ideally, by making it very expensive. This is logical and just. So long as we allow the fossil fuel industry to dump global warming pollutants into the air at no cost, that’s what the industry will do, and future generations will pay a terrible price. Better to pay more for electricity and gasoline today, right?
The question remains, how can environmentalists and their political allies persuade people to pay more for fossil fuel energy in the short run? Americans haven’t been very good lately at making sacrifices today for the sake of future generations. But with the right leadership, that can change.
One way to begin is to get our metaphors right, as Steven Chu, the new energy secretary, has argued.
Some people have said the clean energy revolution will require a national effort like the Manhattan Project or the Apollo project to send a man to the moon. Wrong—those were government-funded efforts, involving small numbers of people, aimed at a very specific goals.
Here we have a much broader goal—cheap clean energy—but no clear path to get there. Will it be wind, solar, wave or geothermal power, or clean coal, or nuclear power, or all of the above? What we need—and all credit to Chu for this metaphor—is something more like the mobilization of the U.S. economy during World War II, which involved everything from Victory Gardens (local food!) to energy conservation (“Don’t Travel—Unless Your Trip Helps Win the War”).
Put simple, the best way to untie the Breakthrough Institute’s Gordian Knot is with politics. We need to persuade people that it’s worth paying more for dirty energy today to save the planet for our kids and grandkids.
Taleb’s cautions about the limited utility of the past when it comes to predicting the future are well taken.
That said, it is worthwhile to consider the lessons of the Japanese national computer projects of the ’70s. Their intent was to “make computing cheaper” via massive government directed and funded initiatives to improve the price performance of supercomputers. They failed because the paradigm changed from making COMPUTING cheaper (via faster supercomputers) to making COMPUTERS cheaper (via mass produced PCs). Unfortunately, the government-driven projects couldn’t make the shift because they had too much bureaucratic inertia and too many vested interests.
Substitute the words “make clean energy cheaper” for “make computing cheaper” and you see the principal risk of taking the path advocated by Jesse Jenkins.
Marc, I couldn’t agree more with your main point: put a price on carbon and get out of the way. The market — i.e. entrepreneurs, venture capitalists and the like — will be much better at figuring out how to make clean energy cheap than a handful of politicians, researchers or environmentalists.
Moreover, we don’t have to enact a steep carbon tax today to make this work. If we sign a cap-and-trade system into law today — one that goes into effect in, say, 2013 — we’ll get the same momentum right now: entrepreneurs would start tinkering today in expectation of the higher carbon prices a few years down the line. Policy certainty down the line will prompt businesses to make smarter investment decisions now.
That may well be one way to untie the Gordian Knot. It plays well with the politics of the decision and it’s what businesses increasingly demand themselves.
Best,
Gernot
I couldn’t agree more that to stem the tide of global climate change, we need to raise the price of carbon based fuels across the board. For my money, a revenue-neutral carbon tax approach is superior to a cap and trade scheme; not only does a carbon tax avoid the evasion and market manipulation inherent to cap and trade, but it’s fairer, simpler and more transparent.
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Great article; Since I’m not sure that the Black and white view that ANY energy will be “cheap”, I’d offer my knowledge of/experience with the waste prevention / recycling sector. Maybe “cheap” isn’t a realistic short term goal. Maybe “less expensive than now”-say @25% ?, then “cost parity” with non-renewables (at a certain date-like the baseline year for GHG reduction-as a longer term goal. Since subsidies seem to be integral to ALL energy production, it might be useful to somehow generate easily digested information on how efficiency / renewables continue to be very worthwhile (at the very least economically) and create a metric ($ subsidy/energy unit produced ?) for a useful comparison of energy sources: coal, nuclear, etc…
This could be included as part of an overall bigger picture cost / value analysis.
Probably done already…
Mark… thanks for your commentary on this important topic. This debate is really heating up (pun intended) right now and short-sighted decision-making and solutions could be incredibly detrimental in the long run. I am wondering if you saw the report we published on the potential impact on the cellulosic ethanol industry on our forests? Here is the link: http://www.dogwoodalliance.org/content/view/266/28/
The over-arching argument is that we believe it is pure folly to replace fossil fuels with terrestrial based carbon. Forests are better served as carbon sinks than as energy. The same argument could be made against turning food crops into fuel. We know some future alternatives may be on the horizon that could hold great potential such as algae fuel, we simply caution against short-term bottom-line thinking over long-term sustainability/profitability.
Try this: much has changed since April, & where’s everybody?
Since global warming is on holiday, climate change never has been and GHG’s apparently don’t warm above their real world heat capacity which hasn’t influenced temps much so what’s the concern?
Forget your schemes to make yourselves seem so important and encourage real investigation into the actual climate changes that will continue. In order for humans to continue and explore we must be able to read and adapt to real climate changes as best we can.
This will call for robust entrepreneurship and a very healthy economy which can be fueled by nuclear energy, etc. I like the modulars. These afford great decentralization and independence.
Getting off-planet will require tremendous effort, not rationing of energy but a massive flourish of innovation. Off-planetism is necessary for survival and the pursuit of experience. Humans (and all life on Earth) can be eliminated at any moment let alone longer term sun burnout, earth heat death, etc. so there lies the necessity for the mindset of expansion.
Cultures bordering on anarchy will probably be best suited to providing the greatest impetus, so forget too much order. The adventurers will continue to pave the way for the others.
How much would all the CO2 reduction reduce T in a hundred years? Less than a degree C, if it rises at all. Get out a little – put on a nice jacket.