26 July 2017

Let the market drive innovation, Mr Gove


I thought that Michael Gove was supposed to be one of the clever ones – I was wrong. For Gove has decided that the sale of all new diesel and petrol cars is to be banned in the UK from 2040. Exactly and precisely what every economist concerned about climate change has been howling must not be done.

Let’s not rehash those very tired arguments about whether climate change is happening or not, and concentrate on what we should be doing if it is. Our end aim is that people, however they decide they want to live their lives, do so while lashing rather less CO2 into the atmosphere. And that’s it. There’s the solution to climate change. At which point we get rather into the nitty-gritty of trying to work out how to do this.

Economists are near united – as ever, the more economists are united on a point, the less attention anyone else pays them. Since we don’t actually know how to have an industrial civilisation with far fewer CO2 emissions, we’ve got to use markets to work it out for us.

Stick a crowbar into the price system so that people have to face the costs they impose upon others and see what happens. We could do this with a carbon tax, with a cap and trade. The trouble is that all the economists are also insistent that we should not do this by letting government pick winners – by influencing, through regulation, the technologies people can or may use.

And I’m afraid I do mean all economists. Even if we go back to the Ur report from Nick Stern, the one which is used as proof that we must do something, the point is very clearly made that doing something doesn’t include politicians telling everyone what to do.

So, what is it that has just been done? Specific technologies have been ruled out and the dash for the electric car promoted. Which is the wrong thing to have done. Sure, we want to reduce emissions. So any method of transport which meets our emissions standards can be used, those which don’t can’t.

To give an example, solid oxide fuel cells and the hydrogen cycle. I have a soft spot for this, as adapting it to run cars would involve the use of my beloved scandium*. Simply, it’s a potential alternative to batteries as a method of powering a car – the hydrogen is effectively the battery storage used to generate electricity and the byproduct is water.

Now, this technology isn’t ready for prime time – and it may well never be. But we don’t know, which is the point the economists are making. We thus don’t want to plan and pick, we want to leave alone, with our crowbar jammed into the system, to see what is emergent. It might be that using methanol from bio-sources, ethanol from same, algae to produce petrol or derv might well do the trick. But we don’t know what’s going to work therefore we can’t decide and plan as yet.

So we shouldn’t.

Nick Stern stated that climate change was the biggest market failure ever. He was wrong, it’s about the absence of emissions from the market, absence not being the same as failure. But even so, even with that analysis of failure, he was still insistent that market mechanisms, as properly jimmied, must be used to solve it. As has every other economist who has taken even a passing interest in the subject.

Given that we humans are a pretty innovative lot and markets are the things which encourage us to innovate, it’s a no brainer, isn’t it?

Batteries create emissions as they are made, the things which produce electricity such as solar cells and windmills also produce emissions when they are constructed. But imagine this: we GMO algae into producing a decent diesel substitute, something we can already do but at prohibitive cost. Making our derv thus sucks out of the atmosphere more than using it pumps in. Overall, an algae diesel system would therefore produce fewer emissions than batteries. No, obviously, I don’t know and nor does anyone else but it is possible and we should probably find out.

If we were, just as yet even more unbelievable fantasy, to ban by 2040 those diesel engines which would solve our emissions problems then we’d be left looking really very stupid indeed, wouldn’t we?

It’s great to be doing something about climate change, it’s just fine to be pondering how to reduce emissions from transport but please, won’t people take the advice of the experts here? Change the incentives in the market, allow innovation to let rip and see what solutions emerge.

*For those who don’t know I spent a decade running the shadowy international scandium oligopoly.

Tim Worstall is senior fellow at the Adam Smith Institute