As most everyone in business today knows, you must innovate or die. If you don’t stay “up with the times” new competitors or new products will put you out of business.
Unfortunately, policy makers don’t always think this way.
Rather than look to innovation or new technology as the answer to a pressing social issue, many times the response is simply new mandates or regulations that raise the cost of doing business. This, of course, makes it costlier to innovate and grow the economy.
Climate change is one such pressing issue.
The recent spat over “cap and trade” in Oregon and the “Green New Deal” resolution in Congress are two cases in point. These proposals primarily use restrictions and controls to achieve the goal of lower carbon dioxide emissions, rather than redirecting current government spending toward learning how to better produce and deliver energy.
Economic theory and historical evidence suggest that solutions to climate change problems are most likely to come from innovation. Karen Harbert, CEO of the U.S. Chamber of Commerce’s Global Energy Institute, has said that “technology and innovation, rather than sweeping federal mandates, offer the best approach for reducing greenhouse gas emissions and mitigating the impacts of climate change.”
Economists and other analysts agree.
Bjørn Lomborg of the Copenhagen Consensus Center conducted a simple cost-benefit analysis, arguing that mandated reductions on carbon emissions are too expensive and what is needed is a “a vast increase in spending on green energy research and development.” A 2010 report published by the National Bureau of Economic Research reviewed many studies on energy innovation and concluded that “technological advances in the way that energy is generated and delivered will play an important role in efforts to stabilize greenhouse gas emissions.”
There’s nothing really new here. Economics has from its start been a study of how innovation makes us better off.
Adam Smith, in his famous book “An Inquiry into the Nature and Causes of the Wealth of Nations,” showed that new technologies and innovation in production processes lead to higher wealth in any country. Smith argued that government policies restricting trade and production lead to a less efficient use of resources. Smith even favored a role for government in developing public infrastructure.
So don’t look for new regulation or restrictions. Look to researchers and entrepreneurs. They are our best hope for a better climate.
Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. email@example.com