A Dated Carbon Approach

By Sebastian Mallaby
Monday, July 10, 2006

These days almost nobody asserts that global warming isn't happening. Instead, we are confronted with a new lie: that we can respond to climate change without taxing and regulating carbon.

The Bush administration -- and many Democrats, too -- promise technological salvation: hydrogen fuel cells, ethanol distilled from grass, solar power, windmills, whatever. It's more fun to call for whiz-bang technologies than regulations and taxes. But it's also dishonest.

We already have technologies to cut carbon. Hybrid cars have been around for years, but almost nobody drives them. Small cars have been on the market even more years, but they aren't consumer hits either. There are dozens of technologies to insulate buildings and design heating and cooling systems in efficient ways. The problem is we don't use them.

You can even cut carbon using no technology whatever. Mexico City has reduced its output of carbon dioxide by almost 55,000 tons a year by opening one efficient bus route; the key innovation here was the creation of two bus lanes. The new buses run on diesel -- not exactly a technological breakthrough. But because they are rapid and frequent, the buses have brought car use down and reduced emissions.

So what matters is not just the technologies we have but the incentives to deploy them. The average Western European uses half as much energy as the average American, and that's not because there's more technology in Europe. Rather, Europeans have embraced anti-carbon policies ranging from gas taxes to emissions caps, from an absence of extravagant mortgage subsidies that encourage super-size homes to congestion charges for drivers in London and Stockholm.

Because of Norway's carbon taxes, companies drilling for natural gas in the North Sea are starting to capture the carbon dioxide they release and inject it back under the sea floor. Because the United States lacks a carbon tax, natural gas drillers in this country have less incentive to do that. Meanwhile the Energy Department reports that there are plans to build 150 new coal-fired power plants in the United States, enough to generate power for 93 million homes. But because government hasn't created intelligent incentives, most of these new generators won't be fitted with technology to capture and store the carbon.

So incentives count. Technology frequently turns out to matter less than policy. But the technology salvationists are a determined bunch. Faced with clear evidence that we aren't deploying the technology we have, they insist that the solution is yet more technology. We need need need that next technological breakthrough, they scream. And until we get it, there's no point trying to do anything.

How do these fantasists suppose that we'll get the next breakthrough? Government spending on basic research is supposed to do the trick: "The Administration has dedicated $1.2 billion over five years to the research and development needed to get hydrogen cars into the showroom," declares a White House fact sheet. But that $240 million per year, or the $150 million a year that the administration wants to spend on advanced ethanol, is a laughably small sum. Private energy firms spend about $18 billion a year on researching new technology for extracting hydrocarbons.

If you want to get hydrogen cars into the showrooms, you can't put your faith in government alone; you need Exxon and Shell and Toyota and Ford to make hydrogen a priority. And what's going to drive these companies' choices? Obviously, taxes and regulatory incentives. If carbon is subject to taxes or caps, the energy companies and car companies will devote more of their vast research budgets to alternative fuels. But if carbon is not taxed, they will research new ways of using and extracting oil -- including getting it from sources that are awful for climate, such as tar sands .

Don't get me wrong. I'm not against government support for basic research into alternative fuels, just as I'm not against government funding of basic research into health sciences. But to convert the discoveries from the National Institutes of Health into usable medicines, you need a patent system that gives pharmaceutical companies incentives. And to convert government research on hydrogen into drivable cars, you need a carbon tax or carbon cap that creates the right incentives for the private sector.

It feels good to be for new technology rather than for nasty new taxes or regulations. But this is a false choice. If you want the new technology, you have to support the new tax or the new cap. Those who argue otherwise should ask themselves: Would we have rapid medical innovation if we didn't bother to protect intellectual property?


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