Letting the market transform the fossil fuel economy

by Nicholas Parker on December 17, 2009 · 3 comments

Is a global agreement to combat global warming even necessary?  What about simply leveling the playing field for alternative energies, and then letting the market “choose” new, cheaper technologies?  This is an argument made by Hermann Scheer in this month’s issue of Ode magazine (widely distributed at COP)—and when considered objectively (it is vulnerable to being distorted by ideological conservatives who make no effort to understand even a limited role of government), the argument is an optimistic one to any who might be disillusioned if Copenhagen produces little, if anything, in the form of a decisive collective commitment to respond to climate change.  It acquired some renewed momentum, too, after the commitments made at the G-20 meeting in September to start phasing out the enormous subsidies to the fossil fuel industry.  It’s not a new argument, and there are some potential problems that would need to be worked out: in the short-term, unless subsidies are rerouted to the renewables sector, we would be facing higher energy costs, which would hurt economic growth; and the argument doesn’t account for helping developing nations to adopt cleaner technologies, themselves, or adapt to the changes that will occur due to the CO2 already in the atmosphere.

Check out this graphic from the Environmental Law Institute and the Woodrow Wilson International Center for Scholars:

fossil subsidies

(Hey, to all those out there blanketing “environmentalists” as hypocrites because we drive cars and heat our homes: Isn’t it possible that we are pushing for change so that we can make more sustainable technologies affordable?)

{ 3 comments }

1 George McKee December 21, 2009 at 10:54 am

This is an excellent idea, but it needs far more substantiation than those articles provide. True conservatives should applaud an approach that uses government to make free markets function more effectively and transparently. Republicans, unfortunately, are dedicated to using government to distort the market in order to favor their special interest supporters.

I’m not an economist, but it appears to me that academic researchers spend far too much time arguing about the value of “the multiplier” and not enough time with supercomputers and the kind of sectoral models that would tell you whether rebalancing the subsidies chart would have a positive or negative effect on the GDP, or would have a greater or lesser effect on global carbon emissions than subsidizing developing countries to stop deforestation.

2 Mike Mitchell January 17, 2010 at 5:53 pm

I agree with you in theory but the reality of it all would never hold. In a true “free market” all of the different renewable energy technologies would be developed and the best one would stick it out while the others fail. But there are a couple of problems with this. Number 1, there isn’t enough money to fully development these new technologies because all of the money is still being funneled to fossil fuels. Number 2, with the government involvement today, the market is far from free. Number 3, today, technology doesn’t sell itself. The winner would be chosen by who has the best marketing strategy, not the best technology. This is unfortunate but people trust what they see on TV more than their own judgment.

3 Daniel Smith March 16, 2010 at 7:30 pm

Thanks for this insight about the fuel economy and I agrees with Mike that some yes people trust what they see on TV. think now the time has come that we have to emphasize on the other way of energy and develop the new technology for their enhancement.

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