Government Policy Alone Won't Address Climate Change: We Need Renewable Capitalism

“First — and foremost — combating global warming is mainly a governmental problem and can’t conceivably be accomplished without acknowledging that. Private firms, whether electric utilities or vehicle manufacturers, may be the instruments to attack climate change, but they will respond to the policies and incentives created by the political -process.

The trouble, of course, is that the policies that would mobilize the private sector against climate change are highly unpopular for obvious reasons. One approach involves very high taxes on fossil fuels, the source of most greenhouse gases. This would presumably push consumers toward electric cars, and solar and wind power.”

Rober J. Samuelson, “Can Wall Street save us from climate change? (Fat chance),” The Washington Post (Jan. 19, 2020), https://www.washingtonpost.com/opinions/can-wall-street-save-us-from-climate-change-fat-chance/2020/01/19/af75bfc0-3958-11ea-bb7b-265f4554af6d_story.html?utm_campaign=todays_headlines&utm_medium=Email&utm_source=Newsletter&wpisrc=nl_headlines&wpmm=1

In the article above, Samuelson is right in part, but very wrong in part.  The view that “global warming is mainly a governmental problem” is only partially true.  Government policy can only go so far in achieving a low carbon economy.

Where does governmental policy fall short? First, capital must move to low carbon investment and away from high carbon investment.  Without sufficient private capital investing in low carbon technology such as renewable energy, energy efficiency, and electric vehicles and charging, government policy fails.

Second, a major part of the solution for climate change is technological.  The technology solution has two parts: new or improved technology and lower prices for that technology.  

An example to consider is LED lighting. It provides better light and more ways to utilize the light.  It is digital and not analog.  Used with sensors and software it can reduce the amount of electricity used in home and commercial buildings by thirty percent or more.  This means less electricity and less carbon emissions.

The best examples are wind and solar power.  The technology in terms of efficiency and other aspects have improved in dramatic ways over the last 10 years.  The price for the technology has dropped at a mind-boggling rate.  Now wind and solar are as cheap or cheaper than coal and in many places such as Texas cheaper than natural gas.

The main reason coal plants are shutting down has to do with loss of use on the electric gird brought about by cheaper wind, solar, and natural gas.  Coal plants have been outcompeted and do not make economic sense anymore.  They are mainly shutting down with little federal government climate policy.  

Now government policy has aided wind and solar by providing tax benefits and incentives.  This shows that policy and economics are never completely separate.

Another major technology phenomenon is electric vehicles, mainly through the efforts of Tesla.  Internal combustion engine auto manufacturers such as BMW, Mercedes, and Audi are finding their sales are dropping as lower cost luxury car buyers are turning to the Tesla Model 3, a vastly superior technology than what the old school automakers are offering. Now all the incumbent carmakers are trying to catch up by investing billions in electric vehicle manufacturing. Government policy was pushing in this direction, but it took a new company backed by a large amount of capital to start to revolutionize the car industry. 

Now major truck manufacturers are starting to build electric trucks. This will be another evolution toward low carbon transportation.

Now combining renewable energy with electric vehicle charging will greatly reduce carbon emissions from transportation.

All of the above requires huge amounts of capital, trillions of dollars over the next two or three decades.  This capital will come from private sources for the most part or what Samuelson calls “Wall Street.” 

Thus, why the author is not exactly correct in his article.  While government policy is of course important, we should all realize that private ingenuity and capital, good old-fashioned entrepreneurialism, will be critical.

This reality is particularly true when the federal government in the United States in terms of the current administration denies climate change exists and rejects well-known science that has been around for 40 or more years.

While local and state governments can go a long way in filling the void of responsible government climate policy, only the private sector can carry much of the load with a climate realistic government or not.  

We need to shift to renewable capitalism.  Without it, achieving climate goals will be impossible.