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Try Everything? Really?

GHG policy leadership and technology development matters, but such claims deserve scrutiny.

I get it. Economics is not the only thing that drives a state’s energy and climate policy. Nor should it be. Policies in one location influence decisions elsewhere, which sometimes gets called “leadership”. And today’s clean energy policy — even if it is uneconomic in itself — may spur new technologies or trigger market changes that spill over to help other sectors or countries reduce emissions.

I get all that. In fact, I have written on this blog about the need to support clean energy technology development, and have argued that pricing greenhouse gases isn’t sufficient. I also get that there will always be uncertainty about the impacts of energy policy — whether the direct response to prices and regulations, or the harder-to-measure effects like leadership and market or technology transformation. And we cannot wait to take action until we are 100% certain about the effect it will have.

But hard-to-measure shouldn’t be a get-out-of-evidence free card. JustDoEverythingFig1

When we don’t demand evidence, we tell policymakers they can just go with their gut. That’s a bad idea. There are many policymakers in DC today whose gut tells them that climate change has nothing to do with human activity or that “the market” will address pollution on its own. Luckily, the vast majority of Californians have wiser stomachs.

But many in the Golden State have a different sort of gut feeling that is undermining the effectiveness of our climate policy. Their bellies say that we must try everything (as Shakira would say) we can to reduce California’s GHG emissions, virtually regardless of cost. I’m not going to reargue here the case against mandating solar panels on new homes or requiring new homes to consume zero net energy. Jim Bushnell has argued compellingly that these approaches to reducing GHGs are massively more expensive than available alternatives. I share his views, as do the vast majority of economists who have studied these policies. JustDoEverythingFig2

When confronted with this economic argument, policymakers who advocate such costly policies nearly always appeal to the state’s global leadership on climate change, the potential for driving down future costs in these markets, and the need for California to take immediate action in order to avert catastrophic climate change.

Each of these claims has at least a grain of truth. But policymakers who make these statements often suggest they are conclusive arguments. They aren’t.

Yes, California has a global leadership position on fighting climate change, particularly now that there’s an administration in DC that says things like coal is a clean fuel. However, that doesn’t mean that every policy California adopts, no matter how costly, will be followed by other states and countries, or should be. Many poorer societies recognize the threat from climate change, but they are looking for cost-effective ways to respond. They aren’t in a position to ignore the expense.

Yes, mandating a technology increases its usage, and creates knowledge about its production, which helps to drive down its costs. Everyone knows the cost of solar panels has declined as Germany, Spain, California, and most recently China, have made big investments. That’s one datum (for those of you under 40, that’s the singular of data). Other data include what has happened with the cost of second-generation biofuels made from plants like miscanthus, or of carbon capture and sequestration, both areas that have been frustratingly resistant to cost breakthroughs. Policymakers who express certainty that a mandate or subsidy will drastically reduce costs (“just like solar panels”) are speaking from their gut, not from real evidence.

And, yes, California, along with the rest of the world, must take action to address climate change. But as I have said in this blog before, by far the biggest value of California action is to create low-carbon technologies that the developing world will adopt, not to squeeze another metric tonne or two out of California at a cost that would be prohibitive in the developing world.

These go-with-the-gut policy justifications may sound sensible at first, but they could be used just as easily for technologies that are going nowhere as for those that will end up making a real, cost-effective global difference.  The result is a “try everything” climate policy, which makes it appear more expensive to fight climate change than it needs to be.

When California does that, it sets us up to be not a leader, but a sobering example. Spain’s excessive renewables subsidies on which the government later reneged is such one example. Another is Germany’s rising carbon footprint as it closes its nuclear power plants.

Furthermore, it simply is not the case that we understand climate science well enough to identify a clear threshold of GHG emissions that must not be crossed, regardless of the cost. We should be making major investments to reduce emissions now, and we should be developing new technologies to do so even more cost effectively in the future. But we don’t know any specific number below which we will avoid climate damage, and above which the impact will be exponentially greater.

That’s important to remember not just to keep the climate policy debate intellectually honest, but also because climate is not the only policy imperative out there. The world needs resources to combat poverty, disease, oppressive governments, nuclear proliferation, human trafficking, substance abuse, and on and on. With so many challenges, “try everything” can’t be the right answer for any of them.

Leadership and technology development should play central roles in the debate on climate policy, along with economic costs and benefits. But those claims should not be given a free pass any more than the ones that can be quantified more easily. Trying everything to fight climate change isn’t an option, and even if it were, it wouldn’t be the best option.

I’m still tweeting interesting (to me) energy articles/research/blogs (and occasional political views) @BorensteinS

Severin Borenstein View All

Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business. He has published extensively on the oil and gasoline industries, electricity markets and pricing greenhouse gases. His current research projects include the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. In 2012-13, he served on the Emissions Market Assessment Committee that advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. Currently, he chairs the California Energy Commission's Petroleum Market Advisory Committee and is a member of the Bay Area Air Quality Management District's Advisory Council.

11 thoughts on “Try Everything? Really? Leave a comment

  1. Jim,

    Trying out a wide range of ideas is good. Continuing to throw massive subsidies at those that are known to be inferior – not so much.

  2. The idea of effective leadership may need further thought. Simple Nash-Cournot theory tells us that reaction functions wrt a public good are negatively slopped, i.e. your leading by example leads me in the opposite direction. And if there is indeed some California mystique that inspires followers, all the more that California has the responsibility not to be a Pied Piper divesting Hamelin of its children. Just as there is no “Get out of evidence free” card, there should not be a “Get out of theory” card either.

    And speaking of keeping the climate policy debate intellectually honest, google “One Parameter is Always Enough” to find an entertaining paper that may shake one’s confidence.

  3. On the issue of the most desirable CO2 level and when we have to decide, paleoclimatic experience with sea level rise and the deteriorating situations of the Greenland and Antarctic ice sheets make pretty clear that we have already passed the level to ensure the conditionals found in the UN Framework Convention on Climate Change. At the Last Glacial Maximum when it is estimated global average temperature was down perhaps as much 6 C, sea level was down 120 meters (!!)–so roughly 20 meters per degree change in global average temperature, and for the following 120 centuries sea level rose on average a meter per century while the global average temperature was rising a degree every 20 centuries or so. During the Last Interglacial centered about 125,000 years ago when the global average temperature may have been for a while a degree higher than present, sea level was up 4 to 8 meters. Go back several tens of millions of years when the world was perhaps 4-5 C warmer, there were no significant Greenland or Antarctic ice sheets–and they hold of order 70 meters of sea level equivalent, so say 15+ meters per degree. Yes, it may take a few millennia to get to equilibrium, but the idea that a long-term increase of 1.5 to 2 C (likely achievable only after some overshoot that may actually set the level of the impact) would be acceptable for society is only conceivable to economists that count the costs of relocation of the world’s coastal infrastructure (well, all that is below perhaps 30 meters–100 feet–above sea level) as a positive contribution not only to GDP and jobs, but to societal general welfare. As to the UNFCCC conditionals, already virtually all coral ecosystems are lost, and key agricultural zones are suffering greater stresses; and as far as limiting the impact on the economy, the impacts of a rate of sea level rise of over a meter per century are, it seem to me, likely to be well above the costs of converting energy systems. The idea that 1.5 to 2 C is acceptable was convenient for the negotiators, but the ecological and societal disruption already evident and committed to at the present 1 C increase seem like strong indications that we need to be aiming to get back below a 0.5 C rise, and do so as soon as possible–so, we are way past the emissions limit that would fully satisfy the objective of the UNFCCC, and there really is no scientific basis for further delays. There is more on this at our submission to the Talanoa Dialogue at https://unfccc.int/documents/65014.

  4. When facing a potentially large catastrophic outcome for which the probability distribution is completely unknown, we need a different analytic approach than a simple cost-benefit analysis based on an “expected” outcome. Martin Weitzman and others write about this issue: https://scholar.harvard.edu/weitzman/publications/fat-tailed-uncertainty-economics-catastrophic-climate-change-0. Rob Lempert at Rand Corp writes about “robust decisionmaking” under “deep” uncertainty which best fits the situation. https://www.rand.org/pubs/research_briefs/RB9701.html We need to be looking for what decision pathways lead us to the situations create the most vulnerability, not for which one has the “optimal outcome.” Policymakers and stakeholders looking desperately for any solution intuitively get the notion of robust decisionmaking, but are not receiving much guidance about how to best pursue this alternative approach. Economists need to lead the conversation that changes the current misleading perspective.

  5. “I share his views, as do the vast majority of economists who have studied these policies.”
    I haven’t seen evidence for the “vast majority”–there is an honest evenly divided debate between those who want to continue centralized decision making and those who advocate for distributed decision making. Most certainly the value of solar studies are even distributed as well (I’ve been collecting them for several years.) I rebutted the posts by Bushnell and Davis, but saw no responses directly from the authors.

    • I think it is safe to say that the vast majority of competent, unbiased economists agree that small-scale rooftop solar is not cost-effective and is only viable because of the massive subsidies it receives by the federal government and many states (California being the worst example of this, followed by New Jersey and Massachusetts – all deeply blue, liberal states. And the net metering subsidy forces lower income electricity customers to subsidize their higher income neighbors resulting in the worst of all worlds – inefficiency and inequity. What’s not to not like?

      The “do everything regardless of the cost” approach is antithetical to sound economic logic. It’s a formula for accomplishing less at an excessive cost than a disciplined approach based on sound cost-benefit analyses. If we truly want to limit global warming we need to concentrate on those measures that yield the most bang for the buck (or Euro, Yuan or Rupee, etc).

      Providing limited subsidies to jump-start promising technologies is fine but rooftop solar and on-shore wind has already progressed way beyond that stage. While a carbon tax is the ideal way to internalize the cost of greenhouse gas emissions, in its absence subsidies that are surrogates for such a tax (and no larger) are a defensible second-best solution. California and some other state subsidies are way beyond that level.

      • Again, an unsubstantiated blanked statement. As best as I can tell, among economists well informed on this issue, their findings are split, and one can clearly identify the underlying assumptions that lead to the differences in conclusions. Casting aspersions on the motives of others without clear evidence isn’t helpful to the debate. I’ve already responded to many of your points in a previous blog and I won’t repeat those here.

  6. I am an economist, and on this I mostly agree with Sev.

    Doing very expensive things only makes sense on a large scale if commercializing the technology is likely to make them much cheaper in the long run. We call this “infant industry subsidies” and there are some noteworthy examples. We subsidized railroads with land grants (to open the West for development. We subsidized air mail contracts, to stimulate a domestic airline network. We subsidized semiconductors through he space program of the 1960’s, and today the very bits and bytes you are reading are a result.

    California’s early wind farms were economic failures, but today’s wind industry is very vital, delivering (intermittent) power for under two cents a kWh in many parts of the world. California’s early commitment to solar PV development was very expensive — the “million solar roofs” program announced by Governor Schwarzenegger a decade ago seemed foolhardy to some, but today PV electricity is being produced at costs of three cents per kilowatt-hour in many parts of the world.

    The issue of whether distributed PV or central station PV is better is a complex one. Distributed PV reduces generation, transmission, and distribution costs, and can be configured to provide local grid support and reliability services. Clearly the rooftop of a big-box store is a very cost-effective place for PV: no trees shading the panels, economies of scale in construction, and shading that reduces air conditioning loads. It’s usually a better deal that central multi-megawatt utility scale systems.

    Residential rooftop solar, however, is a lot more expensive. We lose the economies of scale. We often encounter trees that shade the panels part of the day (but perform other important functions, including absorbing CO2). And, when it’s time to re-roof the house, we incur the expense of system removal and re-installation. The economics are worse. BUT, with local storage installed, rooftop PV can provide resilience for households that other forms of backup power cannot, because no fuel transportation is needed. In a serious earthquake scenario, this may make the difference between whether the dwelling is habitable or not. Considering questions of this complexity requires many skills an energy economist, like myself, may not possess.

    One thing is clear, however. If you don’t try a lot of different things, you are unlikely to find the GOOD ideas in the haystack of ideas. Research, development, demonstration, market transformation of good ideas, and ultimately codes and standards are the tried and proven method to taking a wide range of ideas, sorting out the good ones, and making them universally available makes for a good result.

    And, electricity users around the world, from Azerbaijan to Zimbabwe, and from Antigua to Yap, are benefiting today from California’s early (and expensive) commitments to wind and solar energy.

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