Innovating Our Way Into Benefits From Energy Policy

We hear a lot about how legislation to mitigate the worst effects of climate change will cost a bundle. And to be sure, it does SOUND like transferring to a new energy economy would require a period of adjustment, and the costs would get passed onto the customer. But the CBO study of the Waxman-Markey bill specifically showed those costs to be miniscule, the price of a postage stamp per day. And David Roberts says that, when you factor in all the savings of the bill, Americans will come out ahead:

Cost-effective low-carbon alternatives are plentiful. Many remain unexploited not because they can’t compete in a free market, but because there isn’t one. A variety of market barriers, market failures, and behavioral failures plague the energy sector: monopolies, oligarchs, myopic accounting, misaligned incentives, perverse regulation, information bottlenecks, immature business models, cultural inertia, plain old bad habits. Underutilization of cost-effective clean alternatives is especially true in efficiency. (See: McKinsey & ACEEE.) Hell, recycled waste heat alone could generate 742 terawatt hours of power a year in the U.S., according to Lawrence Berkeley National Lab (PDF).

Market failures can be overcome through smart legislation, regulation, and investment designed to encourage not just alternative technologies but alternative systems. When we get our accounting right, we see they’re all over. The era of cheap energy in the U.S. has produced, among other things, a relatively sclerotic and unimaginative energy sector, particularly in electricity, which is dominated by monopolies. (The average power plant is no more efficient today than it was 50 years ago.)

But that languid pace of innovation is changing, and quickly. The past or even present pace of energy innovation is no adequate predictor of the explosion on its way.

In addition to the avoidance of costs that would be due to climate change, observers underestimate the value of innovation and efficiency, particularly the latter, a key obsession of Energy Secretary Steven Chu. Yesterday the White House announced a series of energy efficiency efforts which, if successful, will save millions of tons of carbon dioxide and gigawatts of power over the future. These things tend to snowball, as efficient lighting can beget even more efficient lighting, and efficient windows can beget even more efficient windows, etc. If we start building with efficiency in mind today, the savings in the future are really exponential. And the market has already been created for green building.

So I would rather talk about the benefits of climate change legislation than the costs, because over the long run, the benefits will more clearly show themselves.