Long-term planning

Thomas Friedman has an epic story on the prospects for a green revolution in the United States and vital developing countries like China and India and Brazil in the Sunday New York Times.

It’s overwritten and self-congratulatory — nobody Friedman interviews merely says something, they always tell it to Tom Friedman — but pretty good all the same, and maybe it’ll get some important people’s attention. When he’s at his best, Friedman is stark and forthright, as he is here about why China is building 500 new coal plants and why that matters:

So now we come to the nub of the issue: Green will not go down Main Street America unless it also goes down Main Street China, India and Brazil. And for green to go Main Street in these big developing countries, the prices of clean power alternatives — wind, biofuels, nuclear, solar or coal sequestration — have to fall to the “China price.” The China price is basically the price China pays for coal-fired electricity today because China is not prepared to pay a premium now, and sacrifice growth and stability, just to get rid of the CO2 that comes from burning coal.

“The ‘China price’ is the fundamental benchmark that everyone is looking to satisfy,” said Curtis Carlson, C.E.O. of SRI International, which is developing alternative energy technologies. “Because if the Chinese have to pay 10 percent more for energy, when they have tens of millions of people living under $1,000 a year, it is not going to happen.” Carlson went on to say: “We have an enormous amount of new innovation we must put in place before we can get to a price that China and India will be able to pay. But this is also an opportunity.”

It’s only an opportunity, he writes, if governments choose to make it one. After outlining the sales of things like wind turbines that U.S. companies have made in places like Europe, Friedman talks about the importance of clear, predictable, long-term rules everyone has to live by.

“We have about 100 scientists working on cellulosic ethanol,” Chad Holliday, the C.E.O. of DuPont, told me. “My guess is that we could double the number and add another 50 to start working on how to commercialize it. It would probably cost us less than $100 million to scale up. But I am not ready to do that. I can guess what it will cost me to make it and what the price will be, but is the market going to be there? What are the regulations going to be? Is the ethanol subsidy going to be reduced? Will we put a tax on oil to keep ethanol competitive? If I know that, it gives me a price target to go after. Without that, I don’t know what the market is and my shareholders don’t know how to value what I am doing. … You need some certainty on the incentives side and on the market side, because we are talking about multiyear investments, billions of dollars, that will take a long time to take off, and we won’t hit on everything.”

Summing up the problem, Immelt of G.E. said the big energy players are being asked “to take a 15-minute market signal and make a 40-year decision and that just doesn’t work. … The U.S. government should decide: What do we want to have happen? How much clean coal, how much nuclear and what is the most efficient way to incentivize people to get there?”

(Friedman favours a carbon tax for this, but acknowledges the many other ways of achieving the same effect.) This is the kind of regulation ConocoPhillips is asking for: it almost doesn’t matter what the rules are, as long as they’re made in a good-faith attempt to slash our greenhouse-gas production — and as long as everybody can count on them for the long term.

Update: Re-skimming this morning, I noticed this paragraph near the end of Friedman’s piece:

Am I optimistic? I want to be. But I am also old-fashioned. I don’t believe the world will effectively address the climate-energy challenge without America, its president, its government, its industry, its markets and its people all leading the parade.

Much of the rest of the article is about how the parade is already on its way. Even China has figured out that although it doesn’t apply these standards to itself, regulations aimed at increasing energy-efficiency and reducing pollution in other markets are a potential jackpot for its industries. We can argue all we like about whether the U.S. or Canada ought to adopt such rules, but plenty of big markets already have and they’re losing interest in what we have to sell.


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