Fundamentally, Esty notes, price signals can “get the largest number of actors and innovators into the process—to really have the private sector play the role of the engine of innovation and to minimize a government role in trying to pick winners.” His approach provides a level playing field for solutions.
Khosla: Fund Innovators
Khosla admits that governments around the world can set useful price signals that spur innovation. But he worries that the risk of heading down misleading paths is too high, distracting innovators from the most cost-competitive solutions. Khosla argues fervently that innovations must meet the “Mississippi test”: Will average American citizens be able to afford them? So, too, he suggests the “Chindia test”—that fast-growing economies such as those in China and India will adopt cleaner energy only when it is cost-competitive with fossil fuels.
“I depart from the environmentalists,” Khosla says. “Their approach is to promote renewables regardless of cost. I don’t want to do uneconomical things. Even if we can do it in San Francisco, if the cost is not less than the fossil fuel it’s supposed to replace, it won’t be adopted in India and China. Then it’s just a toy and not a scalable solution. This can hurt more than help real environmental solutions. I’m a fan of hybrid vehicles, but they won’t replace current cars. We don’t need a fashionable technology. We need 80 percent of the next billion cars we ship to be highly fuel-efficient. If they’re not economical, we won’t ship them.”
An example of a government-directed pitfall is the money now directed at ethanol derived from corn. Cellulosic ethanol based on noncorn products would be much more efficient. “You get an 80 percent reduction in carbon emissions,” Khosla says. “That’s what the planet needs. I don’t want to make a commitment to technology [like corn ethanol] that is a dead end.” The natural gas–powered autos championed by billionaire T. Boone Pickens also don’t come close to meeting Khosla’s requirements, because they reduce greenhouse gas emissions by 30 percent or less. “It won’t get us to a 60 to 80 percent reduction over time. We would make all that effort to switch infrastructure, but we wouldn’t get past that reduction.”
Private capital, along with governments, should therefore fund innovators who can create those ultimate solutions. Worldwide, institutions such as the World Bank, the Asian Development Bank and the International Monetary Fund “could offer low-cost loans for low-carbon projects, thus reducing the cost of capital,” especially in the developing world, Khosla says. “I’ve also discussed the idea, as others have, of the Clean Development Mechanism, through which rich countries can outsource some of their carbon-mitigation responsibilities to the developing world, where relatively easier, cheaper marginal gains can be found.” He also favors the idea of using economic incentives to combat issues such as deforestation, for example, by banning biofuels from countries that destroy large tracts of forest land to produce them.
Esty’s counterargument is that the world cannot wait around until an innovator happens to stumble on a cheap solution. He also thinks too many venture capitalists and innovators may be more interested in creating the next cool video game because that may have a more immediate market. But Khosla says investors understand that the clean-tech market is huge, and they will pursue it aggressively.
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3 Comments
Add CommentIf they do this, you will see riots like never before. Simple fact, these things will force poverty on too many people.
Reply | Report Abuse | Link to thisThere two positions are not actually mutually exclusive. Khosla is afraid that that governments will incentivize less efficient solutions, to the detriment of better solutions. His corn example is apt. Here the government made incentives to use corn for the purpose of making green energy--which has more to do with the Ag lobby than environmentalism. But what they could have done, and what Esty is suggesting, is that they prevent polluters from continuing to externalize their costs onto others. By externalizing costs, they make the price of their product look cheaper than it really is. Gas is not really $2/gallon, but really $2/gallon plus the effects of environmental degradation (loss of coastline, destruction of habitats, increased cases of skin cancer, etc.). Right now these companies do not have to factor these costs into there price, primarily because our tort law is not very good at dealing with highly complex causation. In any event, by taxing the harm, as suggested by Esty, we can incentivize innovation without incentivizing (probably incorrectly) specific solutions.
Reply | Report Abuse | Link to thisAll present approaches are short-sighted. Global economies are in the beginning of a major collapse. Soon one's social contributions will return to being worth more than money. It's a crude way to get there, but apparently the only way.
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