Friday, October 31, 2008

Legislating Innovation

There are two environmental propositions on the California ballot this year, both of which promote the use of alternative energy. Unfortunately, both of them are expensive and neither of them will necessarily get the job done. As we say, here in So Cal: “What a bummer.”

California already has a Renewable Portfolio Standard (RPS) in place that will require utilities to get 20% of their energy from renewable sources by 2010. Prop 7 will go even further in requiring utilities to get 50% of their energy from renewable sources by the year 2025.

However, one of the problems in changing from conventional to renewable energy is that the steady transmission of that renewable energy from its source to the end user is not always possible. Or, if it is possible, it will cost more than any of us can afford to pay. Either the energy source itself is intermittent or the ability to transmit it from point A to point B is not there. Looking at it that way, mandating an RPS of 50% is like trying to get blood out of a turnip. Without a reliable energy source or an adequate transmission infrastructure in place, it’s just not going to happen.

A similar argument could be made against Prop 10, which wants the state of California to pick up the tab for alternative fuel vehicles by offering rebates to those who purchase those vehicles. That may sound okay at first glance, but what it really translates to is a lot of natural gas vehicles on the road…and not a natural gas station in sight.

Politicians just don’t seem to realize that their job is not to mandate change or to make a market for a particular product but to facilitate change and allow the market to do what it does best – address people’s needs during times of change.

People will change if the change makes sense. If my electric bills jump from, say, $100 to $200 per month, I’ll start looking for ways to conserve energy and also start looking at alternative energy sources…if they are available at a price I can afford.

By the same token, if I’m driving a gas guzzler and gas goes up to $4 or $5 per gallon, chances are I’ll consider making a change to a more fuel efficient vehicle. If gas goes up to $10 per gallon, I’ll definitely make that change. Why? Because it makes sense.

Mandating utilities to purchase a fixed percentage of energy from renewable sources or paying companies to purchase a fleet of alternative fuel vehicles, however desirable those actions might be, is like building a dam. It solves one problem but doesn’t take into consideration the downstream effects on the natural ecosystem…or, in this case, the free market ecosystem.

If we really want to switch to renewable energy, then our focus should be on ways to incentivize the production and use of renewables and to implement a “full cost” accounting of fossil fuel production. That way, consumers can make the best choices given the technologies at hand.