Globalizing the Energy Revolution

How to Really Win the Clean-Energy Race

The world faces a daunting array of energy challenges. Oil remains indispensable to the global economy, but it is increasingly produced in places that present big commercial, environmental, and geopolitical risks; greenhouse gases continue to accumulate in the atmosphere; and the odds that the world will face catastrophic climate change are increasing. These problems will only worsen as global demand for energy rises.

Environmental advocates and security hawks have been demanding for decades that governments solve these problems by mandating or incentivizing much greater use of the many alternative energy sources that already exist. The political reality, however, is that none of this will happen at the necessary scale and pace unless deploying clean energy becomes less financially risky and less expensive than it currently is. This is particularly true in the developing world.

A massive drive to develop cheaper clean-energy solutions is necessary. Indeed, many claim that it has already begun -- just not in the United States. They warn that the United States is losing a generation-defining clean-energy race to China and the other big emerging economies.

They are right that the United States is dangerously neglecting clean-energy innovation. But an energy agenda built on fears of a clean-energy race could quickly backfire. Technology advances most rapidly when researchers, firms, and governments build on one another's successes. When clean-energy investment is seen as a zero-sum game aimed primarily at boosting national competitiveness, however, states often erect barriers. They pursue trade and industrial policies that deter foreigners from participating in the clean-energy sectors of their economies, rather than adopting approaches that accelerate cross-border cooperation. This slows down the very innovation that they are trying to promote at home and simultaneously stifles innovation abroad.

To be sure, clean-energy innovation alone will not deliver the energy transformation the world needs. It can drive down the cost of clean energy and narrow the price gap between clean and dirty sources, but it is unlikely to make clean energy consistently cheaper than fossil fuels anytime soon. Government policies will still need to tip the balance, through regulations and incentives that promote the adoption of alternatives to fossil fuels.

CLEAN BUT COSTLY

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