Great work Hauke! Love to see this sort of project supported with this sort of analysis! Some questions:
(1) Better understanding the relative rankings I would be interested to know: For “Research on climate change”, you say in your spreadsheet that neglectedness is only 2 because “Much research funding already in this area and returns are probably diminishing” Do we know how much? (or any other reason for thinking that returns are diminishing here but not in the clean energy arena?) For Regulation, why is importance smaller than it is for research on clean energy? (or research on climate change, for that matter?) For Regulation, why is tractability scored lower than governments funding research when regulation costs (roughly) no money? For Regulation, when I read section 8 of your document, I wasn’t sure how to interpret some of your comments. You pointed out ways that current approaches to regulation are sub-optimal. Does that mean you think there’s an opportunity to campaign for regulations to be done differently? It seemed to me like a write-up that was very positive about regulation.
(2) Can clean energy R&D actually benefit from more funding?
You said in your piece:
“According to recent analyses, public energy R&D can productively absorb large amounts of additional funding and should increase 5-fold to be socially optimal.”
The source for that says that the fivefold increase is based on “simple calculations”. I’ve copied and pasted that below (see PS), but it seems that this is based on raw economics. In other words, it assumes (if I understand correctly) equal tractability in each of the research areas. If so, it begs the question, to my mind.
I think resolving this for me could be done quite simply. It would be sufficient to have someone who is an expert researcher say something like: “Yes, if there were billions more dollars thrown into this field that would be great because we have loads of leads to follow and I could list out a load of them off the top of my head if you wanted me to” and not “To be honest, if we had loads more resource thrown at this, we would be scraping the barrel for useful things to research”
Alternatively, in your section on research on climate change, you say
“Funding more research on such topics might be even be more cost-effective than clean energy R&D funding. However, the overall funding gap is likely much lower (perhaps in the hundreds of millions) than for clean energy R&D (which is in the tens of billions) and so diminishing returns will set in earlier”—Perhaps expanding on the rationale for this claim might (perhaps) be sufficient to satisfy my question mark on this.
That paper raised a couple of concerns which I don’t think were covered in your piece (sorry if they were there and I didn’t spot it) - the discussion section suggests that the constraints for funding are likely to come from there being an adequate pool of scientist and engineering personnel available. - it also raises the possibility of government funding crowding out private sector funding
“Our own calculations based on 2016 net generation and average electricity price data from the U.S. Energy Information Administration indicate that these findings imply that U.S. government clean energy R&D spending should be about $5.2 billion, comprising $3.8 billion on wind/other R&D subsidies and $1.4 billion on solar R&D subsidies. By comparison, others have estimated that actual U.S. 5 government spending on renewable energy R&D in 2016 was only $1.0 billion (FSUNEP, 2017). If these numbers are correct, government support should increase by roughly five times current levels. This increase perhaps should occur gradually in order to avoid high adjustment costs, however recent evidence suggests that adjustment costs may not be a pressing concern considering current levels of public energy R&D support (Popp, 2016).”
Better understanding the relative rankings I would be interested to know: For “Research on climate change”, you say in your spreadsheet that neglectedness is only 2 because “Much research funding already in this area and returns are probably diminishing” Do we know how much? (or any other reason for thinking that returns are diminishing here but not in the clean energy arena?)
This is an excellent question. I think there are some research projects on climate change which are plausibly more cost-effective than clean energy R&D.
Examples of high-impact climate research include:
Research on the transient climate response, global scale flood forecasting systems,
Research on the ethics and feasibility of global geoengineering, Research on the feasibility of using ocean alkalinity as a scalable and cheap way to absorb large amounts of carbon (for as little as $10 per tonne of CO₂ averted), Research on reducing emissions from unconventional sources, and Research on super-pollutants.
Funding more research on such topics might be even be more cost-effective than clean energy R&D funding. However, the overall funding gap is likely much lower (perhaps in the hundreds of millions) than for clean energy R&D (which is in the tens of billions) and so diminishing returns will set in earlier. Consider that, in the US alone, climate change research funding is 1.7% of total research grants and about $1.5 billion annually. Thus, while investing in climate change research is quite cost-effective, there is an upper bound on the benefits. Put simply, the engineering challenges of creating cheaper clean energy technology are vast and need many more billions, whereas the value of information from climate change research might be very high, but there diminishing returns set in earlier, and we already have a lot of funding in place.
I hope this makes sense?
For Regulation, why is importance smaller than it is for research on clean energy? (or research on climate change, for that matter?)
Great question.
Regulations such as these car or coal power plant bans are theoretically equivalent to a punitive carbon tax and might have positive spillovers for the world, yet they have drawbacks similar to the carbon pricing described in the report (e.g. carbon leakage). Put simply, if you ban carbon intensive energy in the UK (e.g. coal) industry might move abroad. This might also not stimulate energy innovation in the best areas (e.g. the UK might just rely more on old nuclear technology that won’t be used in emerging economies). In contrast, if you invest in basic clean energy R&D this might create the low carbon technology cheaper around the world.
For Regulation, why is tractability scored lower than governments funding research when regulation costs (roughly) no money?
For Regulation, when I read section 8 of your document, I wasn’t sure how to interpret some of your comments. You pointed out ways that current approaches to regulation are sub-optimal. Does that mean you think there’s an opportunity to campaign for regulations to be done differently? It seemed to me like a write-up that was very positive about regulation.
Great question. For me tractability in this comparison is not about cost but political tractability that is a function of monetary costs. The great thing about clean energy R&D increases is that few people will object to it whereas with regulation often creates a lot of industry push-back. Put simply, my sense is that a politician would have a harder time shutting down 5 coal power plants than increasing the clean energy R&D budget by 50%.
In contrast to outright bans, future expected regulation and phase-ins have the benefit of guarding against abruptly high switching costs. Commitments to ban environmentally harmful technology in the future might be politically easier to push for than regulating the present and might seem like quick policy wins. Put simply, it is often easier for a politician to announce “By 2030 no diesel cars will be allowed any more in this country.”.
But the effectiveness of future regulation is traded off with how credible commitments are against industry pressure on policy-makers when the time comes around to actually phase out environmentally harmful technology. I think in the past politicians have sometimes announced that this or that environmentally harmful technology should not exist anymore but then when the time came around there was renewed industry push-back and times were extended.
“if there were billions more dollars thrown into this field that would be great because we have loads of leads to follow and I could list out a load of them off the top of my head if you wanted me to”
A 2018 meta-analysis summarized the results of several studies[25] that all asked several experts by how much clean energy prices if clean energy R&D were to increase by several billions. The meta-analysis concludes:
“[...] experts largely believe that increased public RD&D investments will result in reductions in future technology costs by 2030, although possibly with diminishing marginal returns. [....] for all technologies, experts see the possibility of breakthroughs that would make the technology cost competitive, envisioning sustained annual rates of cost reduction on the order of 10 percent per year. Moreover, such breakthroughs appear more likely under higher RD&D.”[26]
The results from these experts surveys: moving from low to medium or high R&D investment scenarios might decrease clean energy costs by several percent.
This view is shared by a number of academics, international organizations, and members of the private sector, including:
Daron Acemoglu, the most cited economic scholar in the recent decade, who argues that optimal climate change policy requires both carbon pricing and subsidies for clean energy research. Clean energy research should be heavily front-loaded to carbon taxation, which can be phased in gradually to minimize switching costs for industry.[19] This argument is not about how high carbon taxes should be in absolute terms or when exactly they should come. It merely suggests that we need to prioritize clean energy R&D, because it would not make much sense to create better clean energy technology later this century. In short, there is good reason to prioritize clean energy R&D.
The International Energy Agency notes that public R&D on energy technologies grew at an average rate of only 2% per year in the last 5 years.[20] For that reason, they argue that more spending on public and private clean energy R&D would be productive and is needed.[21]
The Breakthrough Energy Coalition,[22] a private sector coalition of billionaires led by Bill Gates, has started a venture to invest in breakthrough energy projects. According to recent analyses, public energy R&D can productively absorb large amounts of additional funding[23] and should increase 5-fold to be socially optimal. The US R&D budgets should even increase 10-fold.[24]
the discussion section suggests that the constraints for funding are likely to come from there being an adequate pool of scientist and engineering personnel available.
I guess this is a question about Talent constraints. My sense is that there are more talented scientists and engineers who currently work in the private sector that could be mobilized.
Generally my sense is that ‘Idle talent’ can be mobilized quickly for science if research funding is available. For many years most researchers have trained more researchers (e.g., graduate students, postdoctoral researchers) than are needed to replace themselves, and so there is a pipeline of highly qualified young researchers who could be rapidly mobilized to take on extra work if there was more money in the system. Increasing salaries and working conditions might be another effect to get people from the private sector to do basic research —
it also raises the possibility of government funding crowding out private sector funding
As a rule, the less applied the science the less private sector funding there is, so I feel this should not be a concern here, because I’m arguing for basic clean energy R&D such as that done by government. There’s also a factor pushing in the other direction: the more basic R&D, the more private sector funding is crowded in later down the R&D pipeline.
Re research on climate change. Let’s assume that we’re at a stage where we’ll shortly be seeing diminishing marginal returns on this sort of research (as you claim) and that a small amount of extra research might be more valuable than a small amount of extra research of clean energy. Might that not (maybe) be a better thing to campaign for? E.g. if $1bn of climate change research outperforms $10bn of clean energy research (obviously these are made-up numbers) then campaigning for $1bn of extra government spend might be easier than campaigning for $1obn of extra spend.
Re regulation. I worry that your arguments are defeating a strawman of “campaigning for better regulation”. Regulation which pushes industry to move to another country is just poor execution—it’s an outcome which neither government nor industry nor climate activists want. If done well, regulation should stimulate *the private sector* to perform research (e.g. clean energy research) in order to attain the regulatory targets. E.g. the regulation might look like: “industry must attain certain standards of climate footprint/cleanliness by (say) 2035″, where the timelines/standards have been negotiated with industry and are at the ambitious end of what is attainable.
Re research on climate change. Let’s assume that we’re at a stage where we’ll shortly be seeing diminishing marginal returns on this sort of research (as you claim) and that a small amount of extra research might be more valuable than a small amount of extra research of clean energy. Might that not (maybe) be a better thing to campaign for? E.g. if $1bn of climate change research outperforms $10bn of clean energy research (obviously these are made-up numbers) then campaigning for $1bn of extra government spend might be easier than campaigning for $1obn of extra spend.
Yes, campaigning for more climate change research funding has the potential to have a higher benefit-cost ratio, but the benefit minus the cost might not be as high. I have some ideas on how to go about increasing that funding as well but I don’t think it’s very suitable for crowdfunding campaign. If anyone knows an ultra high net worth donor who would be interested in it please get in touch (hauke@lets-fund.org).
Re regulation
I don’t think there is a strawman here. I think you’re right that regulation can be done poorly and done very well. For instance, as I write in my report in contrast to outright bans, future expected regulation and phase-ins have the benefit of guarding against abruptly high switching costs. I also didn’t come down very hard on regulation and talk about it’s technology spillovers.
However, the basic economic fact remains that if you have two countries, one with regulation, one with less tight regulation, then, all else being equal, there is the potential for carbon leakage and that’s why many people worry about economic competitiveness.
Also, regulation has similar drawbacks to carbon taxes in that it doesn’t induce innovation which is the crucial consideration of this report.
They will first find a way to do X cheaper, and that can be innovation or producing elsewhere.
I write about the subtleties in a section on regulation in the appendix:
“Many countries use regulation to set environmental standards (e.g. for cars) or ban certain technologies completely (e.g. coal power).
Take non-electric car bans: France, the UK,[242] and even China and India[243] have all announced plans to ban sales of non-electric cars by 2040. More than ten countries have targets for electric vehicles in place.[244],[245]. Unfortunately, these initiatives are often not technology-neutral and exclude synthetic fuels, hydro-fuels, and biofuels, which can decarbonize transport. However, there are also legitimate arguments against technology-neutral policies.[246] For instance, they might incentivize only slightly greener technology that is more cost-effective in the short term (think: biofuels), but lock out emerging energy technologies that would be better in the long term (think: electric cars). Frontloading technology-specific policies may actually be more optimal.[247]
The benefits of regulation and setting emission standards can diffuse throughout the world. Due to pressure from advanced importing economies that have adopted stringent emission standards, emerging economies have more rapidly adopted these standards.[248] And this is not only so that they meet the requirements for export, as evidenced by the fact that some countries, such as China, now have emission standards even though local car manufacturers cannot compete in international markets.[249] Rather, emerging economies have adopted these emission standards because the technology is now cheap enough that, in the case of China, for instance, adoption makes sense to reduce heavy air pollution.[250] Thus, environmental regulation can be a successful strategy for international technology transfer, and more ambitious future non-electric car bans should be implemented. Moreover, many countries already have generous tax breaks for electric vehicles,[251] which could be expanded in tandem with bans.
It makes sense to regulate emissions standards for cars, for which the demand is probably relatively inelastic. To an extent, this might also be the case for residential electricity usage, which, unlike industrial electricity usage, does not suffer from carbon leakage. The global passenger car fleet causes around 9% of total global energy-related emissions;[252] innovating to make electric cars cheaper might therefore be a great global public good.
Another way for governments to stimulate clean energy innovation through regulation is banning certain technologies. Consider bans on coal power. More than 20 states have joined “Powering Past Coal Alliance”[253] to phase out coal power and signed a moratorium on any new traditional coal power stations without operational carbon capture and storage (incidentally, the International Energy Agency estimates that carbon capture and storage has been dramatically underinvested in, receiving only $1.2 billion in investment in 2016 (total low-carbon energy investments amounted to $850 billion). Admittedly, the signatories did not use much coal power in the first place.
Finally, the EU’s “Biofuel FlightPath Initiative” aims to replace 4% of current EU jet fuel consumption with biojet fuel derived from renewable sources by 2020.[254] Aviation causes about 5% (2%–14%, 90% likelihood range) of climate change.[255]
Regulations such as these bans are theoretically equivalent to a punitive carbon tax and might have positive spillovers for the world, yet they have drawbacks similar to the carbon pricing described above (e.g. carbon leakage). In contrast to outright bans, future expected regulation and phase-ins have the benefit of guarding against abruptly high switching costs. Commitments to ban environmentally harmful technology in the future might be politically easier to push for than regulating the present and might seem like quick policy wins. But the effectiveness of future regulation is traded off with how credible commitments are against industry pressure on policy-makers when the time comes around to actually phase out environmentally harmful technology.
Finally, in theory, elegant carbon pricing based on estimated externalities (here the social cost of carbon) is more welfare maximizing than crude bans or arbitrary environmental standard setting.”
If regulators don’t think about the unintended consequences, then yes, I agree we risk unintended consequences. But surely the solution is to do regulation well?
With proper consultation with industry, regulation could induce innovation as Khorton suggested. With proper thought, it could set the right incentives and not encourage outcomes that are only marginally help. Indeed part of the point of lobbying should be to help governments see where they might go wrong and help them to get it right.
Re your comment:
“However, the basic economic fact remains that if you have two countries, one with regulation, one with less tight regulation, then, all else being equal, there is the potential for carbon leakage and that’s why many people worry about economic competitiveness. ”
A large company cannot move to a different jurisdiction at the drop of a hat. If the regulation is done well, with proper consultation, firms would rather work towards a regulation with a proper lead time than move countries.
I’m very much pro regulation and we rank it very highly in my comparison of climate policies :)
>> If regulators don’t think about the unintended consequences, then yes, I agree we risk unintended consequences. But surely the solution is to do regulation well?
>>With proper consultation with industry, regulation could induce innovation as Khorton suggested. With proper thought, it could set the right incentives and not encourage outcomes that are only marginally help. Indeed part of the point of lobbying should be to help governments see where they might go wrong and help them to get it right.
Yes, absolutely, this is an excellent point. However, I feel sometimes governments do not do regulation very well. Regulation is sometimes not set into in the future (and then sometimes when the time comes around there is industry push-back and the regulation is diluted), phasing in regulation to minimize switching costs is not done, making regulation ‘revenue neutral’ by reducing other non-Pigovian taxes does not often happen, making regulation technology neutral (see comment above).
>>A large company cannot move to a different jurisdiction at the drop of a hat. If the regulation is done well, with proper consultation, firms would rather work towards a regulation with a proper lead time than move countries.
Yes, you’re absolutely right—companies can’t move very easily and this point is frequently overstated. However, supply chains often can sometimes be switched more effortlessly and carbon leakage has been demonstrated empirically (I cite some studies on this). More crucially though, if you look at the carbon intensity of different economies:
you see that advanced economies have already moved energy intensive industries abroad. Thus, regulation in our advanced economies will not create the right incentives that are optimal from a global perspective.
Your point about advanced economies having already moved energy intensive industries abroad was really interesting. I hadn’t thought about that. I wonder whether regulation that covers imports in advanced economies could be way to tackle that?
Carbon tariffs (or border carbon adjustments) might prevent some, but not all,[156] carbon leakage and reduce emissions. But they are quite difficult to calculate (calculating the carbon intensity of every imported good) and might lower trade flows and welfare, especially in emerging economies.[157]
Generally, I thought there was surprisingly little research on carbon tariffs, even though, as your intuition shows, they should go hand in hand with carbon taxes.
Crucially, even if we were to have perfect carbon taxes and tariffs, UK emissions only make up 3% and shrinking of the global total.
Great work Hauke! Love to see this sort of project supported with this sort of analysis! Some questions:
(1) Better understanding the relative rankings I would be interested to know: For “Research on climate change”, you say in your spreadsheet that neglectedness is only 2 because “Much research funding already in this area and returns are probably diminishing” Do we know how much? (or any other reason for thinking that returns are diminishing here but not in the clean energy arena?) For Regulation, why is importance smaller than it is for research on clean energy? (or research on climate change, for that matter?) For Regulation, why is tractability scored lower than governments funding research when regulation costs (roughly) no money? For Regulation, when I read section 8 of your document, I wasn’t sure how to interpret some of your comments. You pointed out ways that current approaches to regulation are sub-optimal. Does that mean you think there’s an opportunity to campaign for regulations to be done differently? It seemed to me like a write-up that was very positive about regulation.
(2) Can clean energy R&D actually benefit from more funding?
You said in your piece:
“According to recent analyses, public energy R&D can productively absorb large amounts of additional funding and should increase 5-fold to be socially optimal.”
The source for that says that the fivefold increase is based on “simple calculations”. I’ve copied and pasted that below (see PS), but it seems that this is based on raw economics. In other words, it assumes (if I understand correctly) equal tractability in each of the research areas. If so, it begs the question, to my mind.
I think resolving this for me could be done quite simply. It would be sufficient to have someone who is an expert researcher say something like: “Yes, if there were billions more dollars thrown into this field that would be great because we have loads of leads to follow and I could list out a load of them off the top of my head if you wanted me to” and not “To be honest, if we had loads more resource thrown at this, we would be scraping the barrel for useful things to research”
Alternatively, in your section on research on climate change, you say
“Funding more research on such topics might be even be more cost-effective than clean energy R&D funding. However, the overall funding gap is likely much lower (perhaps in the hundreds of millions) than for clean energy R&D (which is in the tens of billions) and so diminishing returns will set in earlier”—Perhaps expanding on the rationale for this claim might (perhaps) be sufficient to satisfy my question mark on this.
(3) A couple of other questions
I also had a look at this 2016 paper from Nature energy which you linked to: https://www.nature.com/articles/nenergy201620
That paper raised a couple of concerns which I don’t think were covered in your piece (sorry if they were there and I didn’t spot it)
- the discussion section suggests that the constraints for funding are likely to come from there being an adequate pool of scientist and engineering personnel available.
- it also raises the possibility of government funding crowding out private sector funding
PS Source of the 5-fold increase estimate:
http://jacquelynpless.com/wp-content/uploads/2016/08/Pless-et-al.-Inducing-and-Accelerating-Clean-Energy-Innovation-with-%E2%80%98Mission-Innovation%E2%80%99-and-Evidence-Based-Policy-Design.pdf
“Our own calculations based on 2016 net generation and average electricity price data from the U.S. Energy Information Administration indicate that these findings imply that U.S. government clean energy R&D spending should be about $5.2 billion, comprising $3.8 billion on wind/other R&D subsidies and $1.4 billion on solar R&D subsidies. By comparison, others have estimated that actual U.S. 5 government spending on renewable energy R&D in 2016 was only $1.0 billion (FSUNEP, 2017). If these numbers are correct, government support should increase by roughly five times current levels. This increase perhaps should occur gradually in order to avoid high adjustment costs, however recent evidence suggests that adjustment costs may not be a pressing concern considering current levels of public energy R&D support (Popp, 2016).”
This is an excellent question. I think there are some research projects on climate change which are plausibly more cost-effective than clean energy R&D.
Examples of high-impact climate research include: Research on the transient climate response, global scale flood forecasting systems, Research on the ethics and feasibility of global geoengineering, Research on the feasibility of using ocean alkalinity as a scalable and cheap way to absorb large amounts of carbon (for as little as $10 per tonne of CO₂ averted), Research on reducing emissions from unconventional sources, and Research on super-pollutants.
Funding more research on such topics might be even be more cost-effective than clean energy R&D funding. However, the overall funding gap is likely much lower (perhaps in the hundreds of millions) than for clean energy R&D (which is in the tens of billions) and so diminishing returns will set in earlier. Consider that, in the US alone, climate change research funding is 1.7% of total research grants and about $1.5 billion annually. Thus, while investing in climate change research is quite cost-effective, there is an upper bound on the benefits. Put simply, the engineering challenges of creating cheaper clean energy technology are vast and need many more billions, whereas the value of information from climate change research might be very high, but there diminishing returns set in earlier, and we already have a lot of funding in place. I hope this makes sense?
Great question.
Regulations such as these car or coal power plant bans are theoretically equivalent to a punitive carbon tax and might have positive spillovers for the world, yet they have drawbacks similar to the carbon pricing described in the report (e.g. carbon leakage). Put simply, if you ban carbon intensive energy in the UK (e.g. coal) industry might move abroad. This might also not stimulate energy innovation in the best areas (e.g. the UK might just rely more on old nuclear technology that won’t be used in emerging economies). In contrast, if you invest in basic clean energy R&D this might create the low carbon technology cheaper around the world.
Great question. For me tractability in this comparison is not about cost but political tractability that is a function of monetary costs. The great thing about clean energy R&D increases is that few people will object to it whereas with regulation often creates a lot of industry push-back. Put simply, my sense is that a politician would have a harder time shutting down 5 coal power plants than increasing the clean energy R&D budget by 50%.
In contrast to outright bans, future expected regulation and phase-ins have the benefit of guarding against abruptly high switching costs. Commitments to ban environmentally harmful technology in the future might be politically easier to push for than regulating the present and might seem like quick policy wins. Put simply, it is often easier for a politician to announce “By 2030 no diesel cars will be allowed any more in this country.”. But the effectiveness of future regulation is traded off with how credible commitments are against industry pressure on policy-makers when the time comes around to actually phase out environmentally harmful technology. I think in the past politicians have sometimes announced that this or that environmentally harmful technology should not exist anymore but then when the time came around there was renewed industry push-back and times were extended.
A 2018 meta-analysis summarized the results of several studies[25] that all asked several experts by how much clean energy prices if clean energy R&D were to increase by several billions. The meta-analysis concludes:
“[...] experts largely believe that increased public RD&D investments will result in reductions in future technology costs by 2030, although possibly with diminishing marginal returns. [....] for all technologies, experts see the possibility of breakthroughs that would make the technology cost competitive, envisioning sustained annual rates of cost reduction on the order of 10 percent per year. Moreover, such breakthroughs appear more likely under higher RD&D.”[26]
The results from these experts surveys: moving from low to medium or high R&D investment scenarios might decrease clean energy costs by several percent.
This view is shared by a number of academics, international organizations, and members of the private sector, including:
Daron Acemoglu, the most cited economic scholar in the recent decade, who argues that optimal climate change policy requires both carbon pricing and subsidies for clean energy research. Clean energy research should be heavily front-loaded to carbon taxation, which can be phased in gradually to minimize switching costs for industry.[19] This argument is not about how high carbon taxes should be in absolute terms or when exactly they should come. It merely suggests that we need to prioritize clean energy R&D, because it would not make much sense to create better clean energy technology later this century. In short, there is good reason to prioritize clean energy R&D.
The International Energy Agency notes that public R&D on energy technologies grew at an average rate of only 2% per year in the last 5 years.[20] For that reason, they argue that more spending on public and private clean energy R&D would be productive and is needed.[21]
The Breakthrough Energy Coalition,[22] a private sector coalition of billionaires led by Bill Gates, has started a venture to invest in breakthrough energy projects. According to recent analyses, public energy R&D can productively absorb large amounts of additional funding[23] and should increase 5-fold to be socially optimal. The US R&D budgets should even increase 10-fold.[24]
You can find all citations and the full report here: https://lets-fund.org/clean-energy
I guess this is a question about Talent constraints. My sense is that there are more talented scientists and engineers who currently work in the private sector that could be mobilized. Generally my sense is that ‘Idle talent’ can be mobilized quickly for science if research funding is available. For many years most researchers have trained more researchers (e.g., graduate students, postdoctoral researchers) than are needed to replace themselves, and so there is a pipeline of highly qualified young researchers who could be rapidly mobilized to take on extra work if there was more money in the system. Increasing salaries and working conditions might be another effect to get people from the private sector to do basic research —
As a rule, the less applied the science the less private sector funding there is, so I feel this should not be a concern here, because I’m arguing for basic clean energy R&D such as that done by government. There’s also a factor pushing in the other direction: the more basic R&D, the more private sector funding is crowded in later down the R&D pipeline.
Thanks very much for your replies.
Re research on climate change. Let’s assume that we’re at a stage where we’ll shortly be seeing diminishing marginal returns on this sort of research (as you claim) and that a small amount of extra research might be more valuable than a small amount of extra research of clean energy. Might that not (maybe) be a better thing to campaign for? E.g. if $1bn of climate change research outperforms $10bn of clean energy research (obviously these are made-up numbers) then campaigning for $1bn of extra government spend might be easier than campaigning for $1obn of extra spend.
Re regulation. I worry that your arguments are defeating a strawman of “campaigning for better regulation”. Regulation which pushes industry to move to another country is just poor execution—it’s an outcome which neither government nor industry nor climate activists want. If done well, regulation should stimulate *the private sector* to perform research (e.g. clean energy research) in order to attain the regulatory targets. E.g. the regulation might look like: “industry must attain certain standards of climate footprint/cleanliness by (say) 2035″, where the timelines/standards have been negotiated with industry and are at the ambitious end of what is attainable.
Yes, campaigning for more climate change research funding has the potential to have a higher benefit-cost ratio, but the benefit minus the cost might not be as high. I have some ideas on how to go about increasing that funding as well but I don’t think it’s very suitable for crowdfunding campaign. If anyone knows an ultra high net worth donor who would be interested in it please get in touch (hauke@lets-fund.org).
I don’t think there is a strawman here. I think you’re right that regulation can be done poorly and done very well. For instance, as I write in my report in contrast to outright bans, future expected regulation and phase-ins have the benefit of guarding against abruptly high switching costs. I also didn’t come down very hard on regulation and talk about it’s technology spillovers.
However, the basic economic fact remains that if you have two countries, one with regulation, one with less tight regulation, then, all else being equal, there is the potential for carbon leakage and that’s why many people worry about economic competitiveness.
Also, regulation has similar drawbacks to carbon taxes in that it doesn’t induce innovation which is the crucial consideration of this report.
I’m confused. If Government says, “You must do X” and X is currently very expensive, then companies will absolutely find innovative ways to do X.
They will first find a way to do X cheaper, and that can be innovation or producing elsewhere.
I write about the subtleties in a section on regulation in the appendix:
“Many countries use regulation to set environmental standards (e.g. for cars) or ban certain technologies completely (e.g. coal power).
Take non-electric car bans: France, the UK,[242] and even China and India[243] have all announced plans to ban sales of non-electric cars by 2040. More than ten countries have targets for electric vehicles in place.[244],[245]. Unfortunately, these initiatives are often not technology-neutral and exclude synthetic fuels, hydro-fuels, and biofuels, which can decarbonize transport. However, there are also legitimate arguments against technology-neutral policies.[246] For instance, they might incentivize only slightly greener technology that is more cost-effective in the short term (think: biofuels), but lock out emerging energy technologies that would be better in the long term (think: electric cars). Frontloading technology-specific policies may actually be more optimal.[247]
The benefits of regulation and setting emission standards can diffuse throughout the world. Due to pressure from advanced importing economies that have adopted stringent emission standards, emerging economies have more rapidly adopted these standards.[248] And this is not only so that they meet the requirements for export, as evidenced by the fact that some countries, such as China, now have emission standards even though local car manufacturers cannot compete in international markets.[249] Rather, emerging economies have adopted these emission standards because the technology is now cheap enough that, in the case of China, for instance, adoption makes sense to reduce heavy air pollution.[250] Thus, environmental regulation can be a successful strategy for international technology transfer, and more ambitious future non-electric car bans should be implemented. Moreover, many countries already have generous tax breaks for electric vehicles,[251] which could be expanded in tandem with bans.
It makes sense to regulate emissions standards for cars, for which the demand is probably relatively inelastic. To an extent, this might also be the case for residential electricity usage, which, unlike industrial electricity usage, does not suffer from carbon leakage. The global passenger car fleet causes around 9% of total global energy-related emissions;[252] innovating to make electric cars cheaper might therefore be a great global public good.
Another way for governments to stimulate clean energy innovation through regulation is banning certain technologies. Consider bans on coal power. More than 20 states have joined “Powering Past Coal Alliance”[253] to phase out coal power and signed a moratorium on any new traditional coal power stations without operational carbon capture and storage (incidentally, the International Energy Agency estimates that carbon capture and storage has been dramatically underinvested in, receiving only $1.2 billion in investment in 2016 (total low-carbon energy investments amounted to $850 billion). Admittedly, the signatories did not use much coal power in the first place.
Finally, the EU’s “Biofuel FlightPath Initiative” aims to replace 4% of current EU jet fuel consumption with biojet fuel derived from renewable sources by 2020.[254] Aviation causes about 5% (2%–14%, 90% likelihood range) of climate change.[255]
Regulations such as these bans are theoretically equivalent to a punitive carbon tax and might have positive spillovers for the world, yet they have drawbacks similar to the carbon pricing described above (e.g. carbon leakage). In contrast to outright bans, future expected regulation and phase-ins have the benefit of guarding against abruptly high switching costs. Commitments to ban environmentally harmful technology in the future might be politically easier to push for than regulating the present and might seem like quick policy wins. But the effectiveness of future regulation is traded off with how credible commitments are against industry pressure on policy-makers when the time comes around to actually phase out environmentally harmful technology.
Finally, in theory, elegant carbon pricing based on estimated externalities (here the social cost of carbon) is more welfare maximizing than crude bans or arbitrary environmental standard setting.”
all citations at: Lets-Fund.org/Clean-Energy
If regulators don’t think about the unintended consequences, then yes, I agree we risk unintended consequences. But surely the solution is to do regulation well?
With proper consultation with industry, regulation could induce innovation as Khorton suggested. With proper thought, it could set the right incentives and not encourage outcomes that are only marginally help. Indeed part of the point of lobbying should be to help governments see where they might go wrong and help them to get it right.
Re your comment:
“However, the basic economic fact remains that if you have two countries, one with regulation, one with less tight regulation, then, all else being equal, there is the potential for carbon leakage and that’s why many people worry about economic competitiveness. ”
A large company cannot move to a different jurisdiction at the drop of a hat. If the regulation is done well, with proper consultation, firms would rather work towards a regulation with a proper lead time than move countries.
I’m very much pro regulation and we rank it very highly in my comparison of climate policies :)
>> If regulators don’t think about the unintended consequences, then yes, I agree we risk unintended consequences. But surely the solution is to do regulation well?
>>With proper consultation with industry, regulation could induce innovation as Khorton suggested. With proper thought, it could set the right incentives and not encourage outcomes that are only marginally help. Indeed part of the point of lobbying should be to help governments see where they might go wrong and help them to get it right.
Yes, absolutely, this is an excellent point. However, I feel sometimes governments do not do regulation very well. Regulation is sometimes not set into in the future (and then sometimes when the time comes around there is industry push-back and the regulation is diluted), phasing in regulation to minimize switching costs is not done, making regulation ‘revenue neutral’ by reducing other non-Pigovian taxes does not often happen, making regulation technology neutral (see comment above).
>>A large company cannot move to a different jurisdiction at the drop of a hat. If the regulation is done well, with proper consultation, firms would rather work towards a regulation with a proper lead time than move countries.
Yes, you’re absolutely right—companies can’t move very easily and this point is frequently overstated. However, supply chains often can sometimes be switched more effortlessly and carbon leakage has been demonstrated empirically (I cite some studies on this). More crucially though, if you look at the carbon intensity of different economies:
https://en.wikipedia.org/wiki/List_of_countries_by_carbon_intensity
you see that advanced economies have already moved energy intensive industries abroad. Thus, regulation in our advanced economies will not create the right incentives that are optimal from a global perspective.
Your point about advanced economies having already moved energy intensive industries abroad was really interesting. I hadn’t thought about that. I wonder whether regulation that covers imports in advanced economies could be way to tackle that?
Yes, this is an intuition I had as well.
Carbon tariffs (or border carbon adjustments) might prevent some, but not all,[156] carbon leakage and reduce emissions. But they are quite difficult to calculate (calculating the carbon intensity of every imported good) and might lower trade flows and welfare, especially in emerging economies.[157]
Generally, I thought there was surprisingly little research on carbon tariffs, even though, as your intuition shows, they should go hand in hand with carbon taxes.
Crucially, even if we were to have perfect carbon taxes and tariffs, UK emissions only make up 3% and shrinking of the global total.