Who says this is a race?
This is becoming a common refrain: When it comes to helping our energy sector invest in critical technologies, the government should promote robust competition on a level playing field, reduce disincentives to investment and trade, and support basic research and development. Any government assistance beyond these basics increases uncertainty, distorts the market, and generates boom-bust cycles for some favored technologies (see: Solyndra).
Let’s back up. Anyone who speaks of “winning” a “race” in clean energy is assuming a rather abrupt and methodical shift away from fossil fuels. This is unrealistic. Fossil fuels are – and will continue to be – the backbone of our energy infrastructure. A rapid transition away from these fuels will be unduly expensive and economically damaging. Instead, I expect a slow shift toward new sources of energy fueled in large part by improving the ways we extract and burn fossil fuels. This is happening now, and America is undoubtedly winning this race.
When alternative energy sources become sufficiently abundant, cheap, and reliable, the market will start choosing them over fossil fuels. These alternatives might be the renewable, biotech, and battery technologies we’re working on today, or they could be something entirely different. A competitive and profit-driven private sector won’t forgo an opportunity to identify and bring to market the technologies that will win the future. So China can continue to manufacture and sell artificially cheap solar panels; that’s no evidence of an upper hand in the long march toward dominance in the energy market.
The government should do what it can to give the private sector all the right tools. Returning to the refrain, the best role of government is to encourage robust competition, remove barriers to investment and trade, and support basic research and development. Realistically, that means a host of policy changes. We can start by removing the patchwork of incentives for favored technologies and industries, making the R&D tax credit permanent, and lowering corporate tax rates.
But a more interesting question – and I’m glad this discussion touches on it – is how things have changed since 2010. The answer here is encouraging: we’re no longer talking about the energy market in the context of climate change and immediate carbon limits. For too long, the energy policy discussion was framed around an assumed increase in the price of fossil fuels. This prospect alienated important constituencies and discouraged investment in existing energy infrastructure. We’re now free to have a more mature, open discourse on the energy sector and the right policies to move the ball forward. That’s not to say we won’t see a carbon-constrained future, but we’re setting ourselves up to implement the right policies to make any limits a lot less painful.
This article originally appeared in National Journal on October 26, 2011.