The green transition and public policy

I’ve been trying to learn about climate change, mainly by listening to David Roberts’ Volts podcast. This has made me a lot less pessimistic (hopeful even!) about the prospects for big reductions in carbon emissions over the next few decades.

Like many others, I had viewed climate change through the lens of pollution and global collective action, where cutting carbon emissions required big sacrifices and thus would not occur without some combination of global cultural awakening and global enforcement, neither of which seemed likely. We would therefore likely keep polluting our way into climate misery and chaos.

What I’ve learned in listening to just a few episodes is that, due to changes in the cost of green energy production, my earlier perspective was incorrect and there is a lot of reason to be hopeful. The cost of generating electricity with wind and especially solar energy has been dropping very fast and is likely to continue dropping. Ongoing work is improving storage, which (along with the introduction of greener forms of energy that can be turned on and off) will allow us to make efficient use of this green energy. And as we roll out more of these technologies, their cost will continue dropping in a way that has never been the case with fossil fuels. The upshot is that, although government support is needed, a massive green transition can happen without much cultural change or international coordination at all. I find this to be hugely reassuring.

A key episode that shaped my views on this is the one about cost models produced by Doyne Farmer’s team, in which he argues that we will spend less money on energy the faster we achieve the green transition, so that greening the economy is not a difficult thing that we should swallow hard and do anyway, but is instead an efficient and cost-effective project. This is mainly because of “learning curves”, ie the tendency for costs to go down with expanded production of many technologies including wind and solar but not including most fossil fuel energy generation. Transitioning faster means getting more years of low-cost generation, so a faster transition gives us cheaper energy overall.

Another one is the episode on enhanced geothermal energy, which is speculative at this stage but can play two important roles in a green grid: it offers a green source of energy that can be turned on and off cheaply and on demand (unlike nuclear, wind, or solar), but it may also serve as a form of energy storage.

All of this makes me think about what the relevant issues in climate policy really are. Before paying attention to these technological developments, I thought it was really important that we tax or otherwise discourage carbon use. But given the speed at which alternatives are becoming cheaper, policy interventions that change the relative marginal cost of using one or the other seem less important. (Looking at the costs in the left panel of the figure below, from Farmer et al’s paper in Joule, what difference does it make if we move the fossil fuel lines up a little? The clean alternatives are already cheaper, or nearly so.)

I also thought that some form of binding international agreement limiting emissions would be necessary. But if the fundamentals are tilted so strongly toward green options, I’m not sure it’s that important. Maybe some pledges like we had in Paris help generate domestic political pressure for necessary public investments — that’s fine. But it no longer seems like big economies will need to make collective sacrifices to fight climate change changes.

So what are the policy issues? It seems to me that the key questions are around (1) R&D in remaining parts of the system, such as storage, (2) infrastructure investments that support the new forms of energy, such as transmission lines and electrification of cars, trains, buildings, etc and (3) management of economic/political impacts from the old system being made obsolete.

The good news is that these are more familiar forms of politics and policymaking than the ones I thought we had to engage in. Binding international emissions limits and global cultural change are tough to achieve, but researching, building, and mitigating are familiar and less heroic activities.

Matto Mildenberger‘s book Carbon Captured argues that a distinctive feature of climate politics is that carbon taxes and similar measures are opposed by a coalition of business and labor from polluting industries, which cuts across the usual left-right divide. I guess this is true of any regulation that seems to target an industry, but carbon taxes are perceived to target larger swathes of the economy and thus generate more sweeping coalitions in opposition. When we shift to politics around R&D and infrastructure investment, these measures don’t produce such well-defined losers. Coal companies and coal miners lose from a green transition, but this is not necessarily the case for manufacturing companies/workers whose factories use energy intensively and who would have been hurt by a carbon tax but now just get greener (and eventually much cheaper) energy.

So all of this is very heartening. I will keep learning and try to test these perspectives against some drearier ones.