The Economist, a weekly newspaper, wrote an article entitled “Green,easy and wrong” – and I think it is preposterous. I realize I am taking a big stab here, and might well destroy any shred of credibility by coming out against such a well regarded publication. Yet, I’m surprised that the Economist came out so strongly, and frankly, inarticulately against what is a critical investment by the United States’ government.
Please read the article and come back to get my thoughts.
It is precisely because the United States has two huge problems – an economy that is sickly at best (doomed at worst) and an environmental (and energy) predicament that should be disconcerting if not alarming – that this country’s government should do everything in its power to align a pathway to success for both issues.
The article uses illogical and incomplete reasoning. Highlighting subsidy failures without recognizing that lessons have been learned in all cases is ridiculously myopic and self-serving (if the author feels that the United States and other energy importers should increasingly rely on a system that places energy exporters in a position of strength). Subsidies are stimulating, and our energy and capital intensive industries like telecommunications have always required governments’ balance sheets and legislation to justify enormous outlays. While there is always some slack and inefficiency there is no better way to develop technologies and stimulate economies of scale then by offering financial incentive.
It is equally ridiculous to assert that because “Green and Economic Prosperity” sounds very compelling that legitimate investors are going to get caught up in the hype and expose themselves to a get rich quick scheme that might well collapse. Investing the “green energy economy” will be expensive, trying and often times economically painful on the short term. Smart legislation and investment will address critical constraints by developing an infrastructure of grids, human capital (a workforce), and basic technologies that are needed for engineers, inventors and entrepreneurs to tap into. The entrepreneurs and investors that will succeed and avoid being burned by hype are those that recognize that this is an industry of “decades and billions” and that any corrections and investments made now will pay large dividends later.
Regarding government fiscal intervention here is the bottom line: Taxes are going to be necessary to wean polluting technologies off of the fallacy of the commons (Climate Change, Pollution, using unsustainable “solutions”), and subsidies, targets and standards are needed to stimulate the use of sustainable systems and technologies that have not yet matured enough to be cost competitive without transparency.
Libertarians… I understand your frustration, if you live off-grid, then more power to you, but you must remember that the rest of the country does not, and places like NYC and San Francisco will need continue to import energy from elsewhere for the foreseeable future.
I’m sure there are some Economist loving free market captialists (I feel a bit like Judas myself) ready to tear into me… lets hear it.
4 comments
Alan,
I think you are reading the article correctly – my point is that both are necessary.
One needs to tax to remove the moral hazard of not feeling economic pain from exploiting a polluting and finite resource. As you rightly suggest”picking winners” is silly – legislation in general, and subsidies in particular, should be enacted based on the lessons we’ve learned from the follies of Ethanol, Spain and Germany’s solar hyper-expansion, and the EU’s initial mismanagement of their cap-and-trade market (which might lead you and me to suggest a tax is simpler).
What we need government investment for, desperately, is in workforce development, grid upgrades, enabling technologies and infrastructure support. Likewise, we need technologically agnostic and achievable standards, with economically stimulating incentives (think unbundled RECs).
We can’t, I agree with the Economist here, have an unbalanced situation – where coal, nuclear and others have been subsidized (through gov’t encouraged rail transit and gov’t backed insurance, et al.)
Subsidies have gotten a bad name, change it to “invest” and it sounds sexy. We should “invest” in the green economy by creating work-study/apprenticeship pathways; we should “invest” in renewables by sponsoring R&D grants, we should “invest” in energy efficiency by financing low income households to weatherize their homes, we should “invest” in CleanTech by having stable tax incentives.
What a forward thinking economy and government should consider, if one were to subscribe to supporting a very tinkered and manipulated marketplace…. is use its sheer size to create a market and set a global standard for a fuel or technology that it can actually produce (and eventually sell to others). That would be manipulating the situation for a long term advantage – maintaining the status quo is just counter intuitive for the United States.
If I’m reading The Economist correctly, all they seem to be saying is that a carbon tax would be more effective than subsidies. A carbon tax would make more renewable energy sources more economically viable without biasing the playing field toward or against any particular renewable option, of which there are many.
The money from such a tax could easily be directed toward another nationalized system which does not have the same problems of “picking the winners” – for example, every dollar collected from the tax could be ‘spent’ in reducing personal taxes (for the poor, for example). It is widely believed that tax reductions would aid the economy.
These two policies could deal with both global warming and economic recession, without the inefficiencies associated with subsidizing particular renewable energy technologies.
Why are the above two policies (high carbon tax + personal tax reduction) worse than the other set (carbon tax + renewable energy tech subsidy)? If the industry doesn’t tend toward a natural monopoly (I think telecommunications counts as one such industry), then why not let private investors pick the winners?
You write that “targets and standards are needed to stimulate the use of sustainable systems and technologies that have not yet matured enough to be cost competitive without transparency.” And my thought is – why are they needed? Carbon taxes would make the cleanest and cheapest technologies correspondingly competitive, and private investors should be able to recognize, just as well or better than government, which technologies these are, and which are worthy of their investments.
How about everyone, not pointing fingers to this blog but all of us, accept the facts. In hte How about putting these “think tanks” to work figuring out what the true costs of the petroleum economy are. What are the hidden subsidies that we don’t even know are being tacked on to our economy? Once those are figured out the extra cost of the current technologies will not seem so high. Then as the transition begins in earnest ingenuity kicks in and the costs decrease. I am politically conservative, (McCain, Bush, Reagan Etc) but I can accept the fact that there are many expenses related to the price of a gallon that are not paid at the pump.
Second, I keep reading that the recent increase in Ethanol production increased the demand for feedstock and in turn increased the price of food. I have also read that the last few years have produced bumper crops of corn, admittedly not the best source of Ethanol, and that there was a surplus last year. The two don’t add up, unless you add the variable of the speculators in the commodities markets. Did demand really exceed supply or was the price pushed up artificially?
Again, the full facts must be uncovered and understood.
I am an ardent fan of The Economist but felt let down by their position on this issue. The publication typically understands and advocates for smart government intervention when necessary, but they failed here. Surely a sort of carbon tax is necessary and most reasonable free-market enthusiasts would agree. But I do agree subsidies and other government support are critical to get the ball rolling. Thanks for the post.
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