The perils of picking technological winners in renewable energy policy


Policymakers, for the most part, have accepted the scientific consensus on the man-made causes of global warming, including the likely effects and potential costs of global warming, and they have accepted as calamitous the prospect of failing to combat it. Policy-makers have then shifted their focus from the severity of the problem to deciding what to do about it. Because the production and consumption of energy accounts for a substantial portion of greenhouse (GHG) emissions, energy policy will play a central role in this discussion.

In particular, most policy makers believe that the planet's growing energy needs cannot be met at a sustainable rate of GHG emissions using existing technologies. As a consequence of this, policy-makers face three basic imperatives: (1) curbing greenhouse GHG emissions by reducing demand for energy, while increasing the supply of "clean" energy from currently available sources, and (2) hastening the transformation of how we produce and consume energy, by fostering innovation; while (3) ensuring that domestic economic interests are protected in the transition to a "green"
economy - a political as well as a practical matter. In order to increase the supply of clean energy as well as the demand for it (and to reduce demand for energy overall) policy-makers are adopting three basic policy measures: 1) conservation initiatives; 2) price signals, delivered through cap-and-trade regimes and/or carbon taxes; and 3) technology policies - that is, public investments (subsidies, taking various forms)6 plus financial and regulatory incentives for private investment in the research and development, demonstration, deployment and commercialization of currently available and next-generation clean energy technologies - sometimes targeted at particular technologies, sometimes targeted at all of them.

In theory, these three basic measures (conservation initiatives, price signals and technology policies) can be designed to provide strong positive reinforcement for each other as well as the overarching goals of policymakers (curbing emissions, fostering innovation and protecting domestic interests). In practice, conflicts will arise. In this paper, we discuss some of the conflicts that may arise because of widespread reliance on one form of technology policy - public subsidies for currently-available green energy technologies7 - and we propose a means of avoiding these conflicts by adopting an alternative approach to technology policy that excludes these forms of public subsidies: a "winner neutral" approach that prioritizes public investments that many different market actors can benefit from as they compete to discover and develop "winning" (i.e. environmentally friendly and economically viable) energy technologies.

The plan of the paper is as follows.

In Part 2 we set out the context for discussion, highlighting the ways in which technological uncertainty and political calculations can shape (and ultimately distort) the renewable energy policy choice set. In Part 3, we illustrate the potential folly of the picking winners approach. Using the example of wind power generally, we highlight the difficulty of determining which technologies will prove to be environmentally friendly in a given jurisdiction. Using the example of corn based ethanol in North America, we highlight the costs of public investments in specific applications of commercialized technologies that turn out to be environmentally unfriendly. Using the example of a recent rebate program for a single class of electric cars in Ontario, we highlight the political calculations involved in product-specific subsidies for clean energy technologies. In Part 4 we provide an outline of what a "winner neutral" approach to renewable energy policy might look like, emphasizing public investments in public goods such as R&D, energy storage technologies, and advanced electricity grid infrastructure, along the lines set out in the context for discussion, below. In Part 5, we turn to questions of process. We contrast how two governments that are currently in the process of establishing comprehensive green energy policies and legislative schemes - the United Kingdom and Ontario - have (and have not) demonstrated transparency in these processes, and the potential consequences of this for the administrative bodies that are responsible for implementing elements of these green energy policies. Part 6 concludes.

The Perils Of Picking Technological Winners In Renewable Energy Policy1

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MAR 5 2010
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