A new bipartisan bill was proposed on Monday. Is it real or a pretender?

Both shoes dropped over the weekend on hopes of seeing action to rein in greenhouse gas emissions: world leaders admitted that a global agreement on emissions will not come out of Copenhagen next month, and President Obama indicated that Congress would not pass climate legislation this year.

As opponents of climate change legislation duly noted their victory, Senators Lamar Alexander (R-TN) and Jim Webb (D-VA) added a new wrinkle. Both had been “fence-sitters” at one point or another on the cap-and-trade bills rattling around Congress (see here and here). But on Monday, they jumped off, announcing their opposition to cap and trade and introducing an alternative climate bill.

A Dirty Word?

The bill has at least one notable similarity to the cap-and-trade bills. The word “climate” doesn’t appear in the title of any.

The Waxman-Markey bill, passed in the House in June, is officially the American Clean Energy and Security Act of 2009 (ACES); the Kerry-Boxer bill being considered in the Senate is called the Clean Energy Jobs and America Power Act of 2009 (CEJAPA); and the new Webb-Alexander bill is entitled the Clean Energy Act of 2009.

It would appear that “clean” and “energy” are PC but “climate” is not.

Could it be that the folks proposing these bills, designed primarily to address climate change, figure that if the word “climate” doesn’t appear in the title, the climate deniers in their constituency might not notice their congressional representatives want to combat global warming? Or do the congressional wordsmiths charged with titling hope that their climate-denying colleagues won’t realize the bill is about climate and so might vote for it? Or is the naming strategy built around the idea that whoever votes against it can be attacked in the next election cycle for being against “clean energy?” After all, how can anyone be against anything with the word clean in it?

No Cap, No Trade, But Lots of $’s

While the centerpiece of Waxman-Markey and Boxer-Kerry is a declining cap on greenhouse gas emissions and trading mechanisms aimed at limiting costs, the Webb-Alexander bill sets no emission targets. In fact, it reportedly does not set any specific constraints on emissions of any kind.

What it would do is use federal tax dollars to subsidize the development and implementation of a select set of technologies that Webb and Alexander believe are worthy of federal largess. Specifically, the bill would provide:

• $10 billion to back government loans (up to $100 billion) to develop clean energy that is otherwise too capital-intensive (read nuclear) for investors.
• 100 million/year for 10 years toward nuclear education and training.
• $200 million/year for five years for a cost-sharing mechanism between government and industry to enable the Nuclear Regulatory Commission (NRC) to review new nuclear-reactor designs such as small and medium reactors and help bring those technologies from concept into the market place.
• $50 million/year for 10 years for research to extend the lifetime of our current nuclear fleet and maximize the production of low-cost nuclear power.
• $750 million/year for 10 years for research and development of low-cost solar technology, battery technology, advanced bio-fuels, low-carbon coal, and technologies that will reduce nuclear waste funding each at $150 million, annually.

Clearly nuclear power is very high on Webb and Alexander's low-carbon hit parade. But energy efficiency, wind, geothermal ... not so much.

The Shortfalls of Subsidies

In my view this is not a climate mitigation bill. And, if passed, it probably won’t even do much to advance clean energy.

History suggests that federal subsidies, by themselves, cannot effectively transform our energy infrastructure.

We've been trying to develop clean energy in one form or another since the oil shocks of the 1970s without huge success. Each attempt has involved some kind of subsidy or tax credit but has lacked a systematic approach designed to level the playing field through internalizing costs. (See related post.) Remember the Synfuels Corporation? Didn't think so.

When we’ve focused on results, however, we've had more success at lowering energy use. Take the modest fuel-efficiency standards (aka Corporate Average Fuel Economy or CAFE) for cars.

One trouble with using federal subsidies alone to develop low-carbon technologies is the crystal ball-like presumption that the government can know which technologies will work and which will not. In the 1970s President Carter decided that Synfuels were the answer. Despite all the $’s pumped into the technology, it flopped. And in the meantime there was nothing else in the pipeline to take its place.

The New Bill Is a Pretender

Now along come Webb and Alexander. They have their favorites with nuclear at the top of the list. Who knows. Maybe they’re right. (I don't think so, and I am by no means alone — see here.) But the senators could be wrong. And if they’re wrong, not only have they wasted gobs of taxpayer money, they have lost us time, discouraged private investment in other technologies by giving nuclear a competitive edge, and kept at bay a potential unfunded winner.

The other fallacy of a government subsidy program is its ignorance of the real engine of innovation in America. The major source of R&D dollars is not the federal government; it is the private sector.

In 2006, total R&D expenditures in the United States amounted to a little more than $340 billion. Guess where the lion’s share of that money came from. It wasn’t the federal government. The private sector kicked in 65 percent of the total.

Marketplace Power Should Be Key to New Power Sources

The trick to jump-starting innovation and transforming our fossil-fuel intensive economy into a low-carbon one will be to catalyze and unleash the enormous leverage of private investment and the power of the marketplace to hunt down, develop, and implement the most effective technologies.

How best to do it? Many economists argue that market forces on their own will appropriately price the use of “dirty" (carbon-emitting) energy. When investors and entrepreneurs see potential profits in developing low-carbon technologies, they will flock to those investments without government subsidies. Some investors will invest in the wrong technologies and lose money, but others will invest in the winners, and through free-market enterprise our economy will be transformed.

One way to get there is through a cap and trade; another is a carbon tax. Handing out federal dollars is likely not. Which is not to say that government subsidies cannot help get nascent technologies off the ground. They are just not very likely to send the strong market signal needed for fundamental change.

It’s just a wee bit ironic that conservative senators like Webb and Alexander find themselves promoting federal handouts instead of tapping market forces in the case of climate change. I suppose it's just as ironic that traditional liberals like Kerry, Boxer and Pelosi are on the opposite side of the debate. You never know with these guys.