The clean energy wager

In his 2013 book, The Bet, Yale historian Paul Sabin uses Paul Ehrlich and Julian Simon as foils to explain today’s dysfunctional and polarized politics surrounding energy development and environmental protection. In 1980, Ehrlich and Simon bet each other on the price of five minerals (chromium, copper, nickel, tin, and tungsten.) Ehrlich, a neo-Malthusian, and father of Zero Population Growth, believed that thoughtless and unconstrained consumption of natural resources by an ever-expanding human population would literally doom the planet.  Ehrlich posited that by 1990, world population growth would exacerbate the scarcity of natural resources and, therefore, resource prices would rise.   

Simon, by contrast, took the position that population growth was an overall benefit to society and that innovation and market pricing would cause resource prices to fall.  Simon argued further that the human creativity that population growth entailed would spur economic growth and increase human well-being.  To Simon, a no-growth policy was unwise, inefficient, and would itself doom the planet.  As it turned out, ten years later, all of the resource prices fell and Ehrlich lost the bet.  However, his defeat was more a matter of market timing than anything else. As Professor Sabin points out, if different ten-year periods were used between 1900 and 2008, Ehrlich would have won the bet 63 percent of the time.

Sabin, of course, uses “the bet” as a focal point for a larger story. Similarly, he uses Ehrlich and Simon as markers for a debate about energy development and environmental protection that has been ongoing for more than 40 years. Sabin’s thesis is that not only has the debate continued; it has become shriller and more polarizing. It is the polarization that occupies Sabin’s analysis.  Sabin also notes each personality failed to acknowledge the contributions made by the other. From his perspective, there is a widening rift between pro-environmentalism and pro-growth advocates that continues to this day as these opposing positions continue to harden.  Such hardening, however, need not be the case. Quite simply, the divide between energy and the environment can be neatly bridged by a transition to a clean energy future.

Using Ehrlich as a marker, the liberal, environmental side of the debate tends to focus on resource conservation, environmental protection, species preservation, and, in some quarters, a slowdown in population.  Critics argue that environmental and ecological pessimism is unwarranted and point out that spaceship Earth has not yet imploded.  Critics also argue that the liberal environmental side is simply foolish to ignore economic growth and lifestyle issues that are part and parcel of American heritage. The critics also claim that the liberal call for widespread government regulation will kill jobs and ruin the economy. They are, at best, slow to acknowledge climate change and the reality of harmful pollution when they are not denying these consequences altogether.

On the other side is Julian Simon’s pro-growth, free-market conservatism. Simon argues that an increased population will generate more innovation as long as markets are left alone unimpeded by pesky government regulations. The technological optimism of Simon’s position is offered up as the antidote to environmental pessimism.  Simon’s critics, however, note that he ignored negative externalities.  More problematically, as Sid Shapiro and I point out in our recently published book, Achieving Democracy: The Future of Progressive Regulation, the conservative, neoliberal position is entangled in a fatal category mistake. Quite simply, neoliberalism holds itself out as economic analysis but, to its fatal detriment, it has morphed into a “No Tax, No Spend” anti-government rant.  Neoliberalism’s category mistake is a simple one. Markets do not exist without legal structures in place to allow them to operate and to fix them when they are broken.  Government and markets exist in a dynamic, not static, relationship.  The issue is never about a choice between government or markets; it is, rather, always a choice about how much of each can be used to improve society.

At their extremes, both Ehrlich’s and Simon’s positions tend to stagnate.  Ehrlich wants world population growth and resource consumption to stop so that we can catch up with nature.  However, he ignores the fact that world population is growing, that countries are developing economically, and that the quality of life for billions of people is improving.  Simon wants government to stop fussing with markets so that innovation can conquer whatever ills infect the planet.  However, he ignores the reality that today tourists can see the Grand Canyon more clearly than they could 40 years ago; that Clevelanders do not have to read by the glow of a burning Cuyahoga River; and, that species are preserved rather than thoughtlessly and automatically exterminated.  All of these benefits have occurred because of government regulation; not because government has stopped intervening in markets.

Simon’s penchant for technological innovation is a worthy one that Ehrlich’s followers tend to downplay.  Ehrlich’s penchant for environmental sensitivity is also a worthy one that Simon’s adherents, in turn, denigrate.  Both positions in their sound-bite, simplified versions are, of course, wrong.

Regulation does get things wrong. Regulation can be costly. And, regulation can protect incumbents at the expense of new entrants and competition. Think, for example, about farm subsidies for agribusiness, oil and gas subsidies, and traditionally structured electric utilities.  And yet regulation has made the air and water cleaner, has stimulated markets, and has protected consumers from adulterated drugs and foodstuffs.

So, then, we must sift the wheat from the chaff. Ehrlich is right to worry about the thoughtless use of our natural resources, the consequences of which may impair the health of our children, shorten our lives, and degrade the natural environment around us. Simon is right to extol human creativity and the economic value of competitive markets.  However, neither markets nor human creativity are the exclusive province of the private sector. 

Neither technological innovation nor market competition occurs in a vacuum; a position that Simon and neoliberals more generally ignore.  This is particularly true for energy markets. To be sure, private sector technological innovation is an essential part of a vibrant economy and of economic growth. Yet, there are sectors of the economy that cannot be supported by private investment alone. Public goods such as a clean environment, the energy infrastructure, basic science, as well as complex and long-term technological demonstrations and innovations, are historically underfunded by the private sector. These public goods are also historically supported by government investment and other financial incentives and supports.

I am willing to wager that the world will transition to a clean energy future.  A smarter grid, increased energy efficiencies, expanded use of renewable resources, greater consumer choice, and a broad array of clean energy technologies and markets will emerge.  I am also willing to wager that a cleaner energy future will occur sooner and more effectively through thoughtful government regulation. Remember, the nation’s traditional fossil fuel energy economy did not come about on its own; it developed with the helping hand of government.

The neoliberal skeptic may point to the technological and information revolution that has transformed our use of computers as well as transformed the way we communicate and receive news, information, and entertainment. The dot.com craze was largely a matter of private innovation by guys named Jobs, Wozniak, Gates, and Allen just as people like Musk and Bezos have transformed the delivery of retail products and services and people like Zuckerberg have created social networks.

Energy, however, is different. One cannot build a next generation small nuclear plant at one’s computer desk as easily as one might develop a software app.  Nor will carbon capture and sequestration technologies become a reality without large-scale demonstration projects.  Large-scale solar and wind arrays must connect to the electric grid and universal energy service at reasonable and fair prices cannot occur by waving a free-market wand.  All of these achievements will be the result of government intervention.

The clean energy promise, then, is a solid and important response to the polar positions of Simon and Ehrlich.  Clean energy addresses the negative externalities identified by the liberal, environmental side of the conversation.  So too does clean energy serve as a solid and important response to the dynamic, technological innovation model of economic growth.  A clean energy wager is one that both Ehrlich and Simon could embrace; it is also one that we must embrace for a healthier environment, a strong economy, and an improved way of living.