Pushing Decarbonizing Technology Via Industrial Policy

The NLMK mill in Portage, Indiana, which uses a furnace powered by electricity and produces steel from recycled scrap. SCOTT OLSON / GETTY IMAGES

Thanks to Yale e360:

Beyond Biden’s Climate Plan, a New Industrial Revolution Is Needed

The new U.S. climate plan is historic and will pump billions of dollars into advancing the transition away from fossil fuels. But a more far-reaching, innovative approach is needed to push forward the radically new technologies that will be required to decarbonize the economy.

Workers guide a hydrogen-powered truck, part of Anglo American Plc’s NuGen carbon-neutral project, during a moving demonstration at the Anglo American Platinum Ltd. Mogalakwena platinum mine in Mogalakwena, South Africa, on Friday, May 6, 2022. Anglo American unveiled the worlds biggest green-hydrogen powered truck at a platinum mine in northeast South Africa where it aims to replace a fleet of 40 diesel-fueled vehicles that each use about a million liters of the fossil fuel every year. Photographer: Waldo Swiegers/Bloomberg

For all the great news in the Biden administration’s massive new climate spending plan, the hardest work of transforming the economy to stop global warming lies ahead. That’s because nearly all the money in the $369 billion plan will be spent on technologies that American companies already know how to deploy, such as solar farms, making buildings more efficient, and developing networks of electric vehicle charging systems.

Doing a lot more of the same will undoubtedly bring down emissions faster. But deep decarbonization requires a transformation of the American economy that will demand a much more active effort to push the technological frontier and build new industries so emissions can be driven to zero.

The mismatch between what the spending plan is set to achieve and what’s needed reflects two contrasting theories about how to clean up the U.S. economy and assure American leadership on climate. One theory, omnipresent in the new bill and in much of the enthusiasm for it, is about incentives: All firms and households need is the extra cash, such as tax credits, to induce them to switch to cleaner technologies. Even better, according to this theory, are penalties like pollution taxes — but the climate bill has few of those because sticks are a lot more toxic politically than carrots.

The incentives approach works well when the range of workable technological solutions is reasonably well known and the market, left to its optimizing genius, can figure the best choices. Renewable power is a good example. The costs of wind and solar generators have tumbled for decades, and as they get less costly more are deployed. Tax credits, which the new spending plan will extend reliably for many years, make these projects even cheaper and easier to finance, which helps companies put even more wind and solar into service.

But a better theory of change sees global warming as a different kind of problem — one that involves not just deploying known cleaner technologies, but also, and more fundamentally, expanding the range of technological choices and social arrangements where current solutions won’t do. This means not making changes at the margin, say, by switching from dirty to cleaner fuel, but reconceiving industrial production, agriculture, and service provision to avoid or drastically reduce pollution in the first place. Yet investments in new production models and organizations to operate them are usually large and risky; companies, even with much more substantial tax credits and other incentives that are in the bill, won’t make them on their own.

What’s needed is industrial policy that pushes firms and government to test radically new solutions. That approach would combine subsidies, support services, and regulation to set new floors for acceptable behavior as performance improves. For example, one way to make deep cuts in emissions from many industries is switching from natural gas to hydrogen, which will require innovations in the process for producing hydrogen, pipeline design, and fuel storage, as well as new technologies to use hydrogen in new ways, such as long-distance trucking. The whole economy must be transformed…

Read the whole article here.

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