November 15, 2010

As Kyoto plan collapses, Plan B emerges

FROM-Washington Times
Even after Copenhagen, carbon alarmists aren't giving up
By Dalibor Rohac

Although preparations are in place for a sum- mit on climate change in Cancun, Mexico, at the end of November, it is clear that the goal of cutting carbon emissions through coordinated action by the world's governments is dead. Nevertheless, it would be too early to celebrate, as the threat of fear-driven and economically costly climate policies is not gone yet. It is merely being transformed into a more subtle - and potentially more dangerous - agenda.

The Copenhagen summit last year was the last nail in the coffin of the Kyoto process. Under Kyoto, countries would agree to specific emission targets and then use "cap-and-trade" to allocate the limited amount of carbon emissions to various industrial uses. However, in 2009, the world's leaders failed to agree on any measurable commitment to cutting carbon emissions by this method.

In fact, they did so for a very good reason. Meeting the initially envisaged objectives of reducing CO2 emissions by 50 percent by 2050 and 80 percent by 2100 is, under current technology, not feasible without drastic reductions in economic activity and, therefore, standards of living. This may not seem like much to Western politicians and celebrities. However, for the political leaders of large emerging economies such as China and India, forestalling their current economic expansion in order to obtain very uncertain benefits some hundred years from now would be the height of folly.

The dominant view that animated Kyoto and Copenhagen - and is now disintegrating in view of the latter's failure - was focused on reducing emissions through massive deployment of currently existing sources of "clean" energy. Notwithstanding the cheerleading about wind farms and solar panels, these methods proved to be overly expensive and were introduced and sustained in the first place only by government subsidies. In times of financial crisis, they have become burdensome political liabilities, and their widespread use in emerging countries, which need cheap and readily available sources of energy, is unthinkable. If we are fortunate, they will be abandoned over time.

However, while the climate-change alarmists are slowly becoming aware of the impasse the traditional approach has created, their agenda has not gone away. A number of thinkers from across the political spectrum are progressively gaining influence and are likely to be the ones who will set the tone for climate and energy policies in the years to come.

This rising group is a heterogeneous bunch. It includes Gwyn Prins of the London School of Economics in England, Roger Pielke Jr., author of "The Climate Fix," and the "skeptical environmentalist" Bjorn Lomborg, who is releasing his new movie focused on climate-change policies, "Cool It." Finally, it includes experts from both the American Enterprise Institute and the liberal Brookings Institution in the United States, who recently published a joint proposal for fostering energy innovation.

This last fact is probably the most disturbing. Whenever the most influential left-wing and right-wing experts agree, the odds are that the matter will involve expanding government and taking resources away from the private sphere.

The central argument made by this group is as follows: Because emission cuts using current technologies are not practicable, the main thrust of new policies should lie in subsidizing research and development so that a new "breakthrough" technology can arise, which will allow easy and costless "decarbonization" of the world economy in the future.

This argument relies on a rather naive understanding of the economics of innovation. It is simply assumed that pouring money into research will bring the desired technology - and also that this technology could not have been obtained through privately funded research technology alone.

Furthermore, where is the compelling argument that governments are especially qualified to identify those technologies that have a high social but low private return - technologies that are worth developing but that no private organization has the incentive to bring about? More commonly, governments fund research-and-development projects that would have been very profitable anyway. As a result, companies just save their own resources that they would have used for the research and development and use the public money instead.

If a new breakthrough energy technology is to replace fossil fuels, it will need to be cheaper and, therefore, profitable to adopt. Hence, there already are strong private incentives for developing such technology. Government subsidies in this case will only crowd out private research-and-development spending that would have taken place otherwise, in addition to subsidizing the profits of new technology owners at the expense of taxpayers in general.

More disturbingly, government research-and-development support always involves picking winners in advance. It is just as likely to spend money on projects that will not be translated into commercially viable energy technologies as it is on those that would have stood the test of profit and loss. Given the substantive upfront costs of developing any technology solution, the government will have the incentive to try to "make" the technology in question - however spurious or imperfect it may be - viable by pouring more and more money into it - in the same way governments from California to Germany have been trying to convince themselves that subsidizing solar panels will somehow make them an efficient source of energy. If one of the goals of the environmentalist movement is to avoid wasting resources, surely this is no way to go about it.

In short, as this new research-and-development-centered approach gains prominence, we are likely to be in for more government spending and waste. Instead of celebrating the moral and intellectual bankruptcy of the old-style climate alarmism, we should be wary of its new form - perhaps subtler but no less damaging to the economy and to the future of free societies.

Dalibor Rohac is a research fellow at London's Legatum Institute

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