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Obama’s clever move, revisited

The US economy is challenged by the financial-real estate bubble induced Great Recession, and it is struggling to escape the carbon lock-in induced by physical and mental dependencies on cars and coal. This carbon lock-in is distinctively characterized by temporal dynamics: A change in infrastructure, technologies and behavior is costly and pays off only in the mid-to-long term. If nothing happens, however, US commuters will pay the bill in becoming passive reactants of volatile and augmenting oil prices.

Obama, in his State of the Union Address, related both challenges by suggesting to move subsidies from oil companies to clean energies – not without jokingly pointing out that they are doing fine on their own (see minutes 20–22 in this video). The redistribution addresses a concern of fiscal hawks in not spending new money. This move will also count twice for the big energy transition. First, obviously clean energies are supported. Second, dirty technologies loose support. In fact, the latter move may be more important, and appropriate then the first one. For this consider that for reasons of economic efficiency you want to provide a level playing field across environmentally technologies. Or more bluntly, you don’t want to waste all your money into a semi-plausible highly expensive technology. The problem is: you don’t know in advance, at least you cannot be sure. Is hydrogen part of the solution or a dead-end? Will biofuels at one point contribute to decarbonization in a sustainable manner, or will they rather continue to exacerbate our environmental troubles?

Subsidies always need to choose technologies based on limited knowledge on future development. However, if you know that some technologies are harmful, you can make them more expensive, e.g. by cutting wasteful subsidies. With such a move, you can be sure to do something right – and to support the treasury.

Update: Andrew Revkin rightly points out that only targeting oil is a quite narrow focus. Indeed, the US corn industry (including biofuels) also lives on generous subsidies while producing corn ethanol with high GHG life cycle emissions. Here is what Andrew says:

“Obama clearly picked up on bipartisan interest in eliminating distorting energy subsidies, but sadly targeted only oil subsidies in seeking the billions he wants for research and innovation.

A bias toward punishing the oil industry, leaving out the huge bonbons handed out to big coal and biofuels, is bound to stir up a fight rather than resolve one. That’s one reason that some “green” subsidies would need to go, as well.”

Posted by Felix Creutzig on January 26, 2011 3:06 PM | Permalink