Can a cap and trade system for greenhouse gas emissions harness market forces to address climate change and global warming? As I noted on Monday, that’s the thesis of Fred Krupp and Miriam Horn’s new book Earth: The Sequel. To support this claim, Krupp and Horn focus on the innovative ecopreneurial efforts happening around the world in the broad field of clean technology. From thin-film solar to algae biodiesel to an Alaskan ice palace powered (and kept frozen) by geothermal energy, Earth: The Sequel tells the stories of scientists, business people, and outright dreamers experimenting with both current incarnations, and the next generation, of renewable energy technologies. A few of these companies include:
- Australian solar thermal company Ausra
- Solar thin-film company First Solar
- Greenfuel Technologies, a pioneer in algae biofuels
- AquaEnergy Group, the creator of technology for harnessing wave power
Of course, the technologies under development by the companies profiled in Earth: The Sequel aren’t cheap; in almost every case, major investors, such as Vinod Khosla and John Doerr, have backed these start-ups with significant funding. At one level, some might argue that the market is already working: capital is flowing to promising ideas.
Government Does a Lousy Job of Picking Technologies
Krupp and Horn argue in the book’s first chapter that the market for energy technology is anything but “free,” though: “Even the best ideas will fail in a contest as rigged as the $5 trillion energy business is today.” Typically, government assistance for energy technology has come in the form of “subsidies, trade agreements, and regulatory structures” which all require the government to pick technologies (with the “help” of those industries’ lobbyist). Such a system has failed miserably in moving the US towards a clean energy economy: oil, gas, and agribusiness (think funding for corn ethanol) have dominated the political process and received the lion’s share of support, while technologies such as wind and solar receive short-term tax credits that create an unstable environment for investors.
Cap and trade, according to the authors, gets the government out of the business of betting on technologies: it, rather, plays its role of protecting the commons by setting acceptable levels of emissions, and then lets the market truly sort out which companies and technologies can best meet those levels. According to Krupp and Horn, what new technologies need is “A level playing field. That is what these venture capitalists and innovators require — not assurances of profits but enough of a fighting chance to make the huge risks they are taking reasonable.” They argue cap and trade creates such a reasonable space for competition.
One can debate whether cap and trade is the best mechanism for achieving this level playing field, but there’s no doubt that the kind of financial and regulatory favoritism given to entrenched business interests skew the market. The biggest subsidy of all, according to Krupp and Horn, is government’s failure to attach a price to greenhouse gas emissions: this inevitably tilts the market towards established, but polluting, industries.
A free, open, competitive market: that’s all these ecopreneurs want (and need). Is cap and trade the method to create that market? I’ll let you debate that… but Krupp and Horn’s claims in favor of this mechanism are very compelling.