The Folly of “Energy Strategy”
Tyler Cowen links to a study showing that only are ethanol subsidies inefficient, but that reliance on biofuels like corn could increase CO2 emissions due to the deforestation encouraged by high corn prices. While everyone has known that corn-ethanol is one of the largest boondoggles in recent memory, it’s a good example of why energy investment strategies, absent some sort of increased pricing for carbon, are bound to fail. When you just invest in “clean” technologies, absent making CO2 emitting energy sources more expensive, you have the government picking winners. And you don’t have to be a hard-core public choicer to know that the decisions for who gets massive amounts of government money are often guided by less than enlightened motives.
This is why I’m confused by people like Jim Manzi, Bjorn Lomberg or Nordhaus and Schellenberger who emphasize investment so heavily while criticizing reducing emissions through pricing mechanisms. Especially because the two strategies are so complementary — we could fund our new energy investments with the revenue raised from a carbon tax or cap-and-trade! But absent some sort of external way to drive up the price of carbon, there’s no way to discipline these investments to make sure they’re something else than hand-outs to politically well connected industries.
