Subsidies Are Not the Solution

Many environmentalists, which I consider myself to be, are calling for subsidies for wind, solar and other alternative energies to get those markets off the ground. Unfortunately, a government directed subsidy to any industry,  even solar, is not going to solve the energy and financial mess that we’re in. Rather than directly subsidizing these industries, a better approach is a comprehensive cap and trade system in which polluters pay and under polluters earn, simply put.

Moreover, contrary to the author’s position in his "Fighting Big Solar" article, Renewable Portfolio Standards are not bad policy although it is technically a manipulation of the market. This minor government interference, in this case, can be justified by offsetting gains in security, both financial and military. Fewer imports from adversaries offset by domestic power production from renewable/unlimited sources such as wind and solar, will lessen the outflow of American wealth to other countries and increase the financial solvency of the American people and dollar. That being said, a direct government subsidy, as the author states, implies that the government knows better than the market, which is rarely, if ever, the case.

A cap and trade system in which all businesses and citizens/consumers are on the carbon grid will provide a private market subsidy from polluters to non-polluters as individuals and businesses manage their carbon and finances according to their own needs and capabilities. The resulting financial incentive to reduce your carbon footprint will flow to the greatest innovators and create thousands, perhaps hundreds of thousands of new jobs across the country. But for the system to work, the carbon target needs to be market-based as well, which is where these attempted-market-based-solutions often fail.

The target should be at year one status quo and increased annually by the average of those participants who improved their performance. Those who performed worse will not be included in the target calibration as doing so would create a disincentive to improve. Conversely, allowing the best performers to set the standard creates a Prisoner’s Dilemma incentive to perform. Not competing only worsens your situation. Competing and succeeding improves your lot. However, by putting everyone, business and citizenry alike, into the position of having to manage their resources as best as possible, will result in better performance than any government directed program. As a result, we’ll likely see a new wave of entrepreneurial creativity, mergers, acquisitions and technological leaps financed by the opportunities of a vast new market.