“Just wait for new technologies” remains one of the most frequent catch cries of those opposed to carbon pricing. It was among the justifications for why Australian didn’t embark on carbon pricing in the early part of last decade, after being recommended by CoAG’s Independent Energy Review Panel back in 2002.
However, the idea that we can just wait for new technologies relies on two fallacies.
The first is that it assumes that alternative forms of energy are, or can be, cheaper. The fact remains, at least in the Australian context, that all other forms of energy generation tend to be more expensive than fossil fuels. That’s why we use fossil fuels; they’re the cheapest form of energy we know. Energy from coal-fired power is around 4-5c/kWh, while all nuclear, wind, coal+CCS (carbon capture and storage) and geothermal around 8-10c/kWh. If there was no constraint on the earth’s ability to absorb our greenhouse emissions, then you’d keep on doing what we’ve been doing for the last century. With the current pricing of alternative energy technologies, none would be deployed while there are cheaper alternatives.
The second problem is that the costs of technology do not come down automatically as a function of time. It is broad deployment that pulls down the cost of new technologies. If you look at gas-fired power plant, solar photovoltaics or wind, the costs of these have come down dramatically in the last few decades (gas a little earlier) and what has caused this is widespread diffusion of the technologies and achieving economies of scale. For example, early wind turbines installed in California in the 1980’s had capacities around 20kW each, whereas the latest on-shore turbines are 3,000kW, and offshore turbines at 5,000kW. Meanwhile, solar photovoltaics show a logarithmic relationship between cost reductions and deployed capacity.
While we demand least cost energy, these new technologies will simply not be deployed at broad scale unless there is a policy intervention. The most efficient policy intervention is to internalise the externality, that is, price the byproduct of fossil fuel generation and reflect the constraint in the atmosphere’s ability to absorb the emissions. By pricing in emissions, fossil fuel generation becomes more expensive and this makes alternative energy more viable.
New technologies are of vital importance. If we implemented carbon pricing without new technologies, our choices would be limited to existing technologies, so the carbon price and the corresponding strength of the structural shift in the economy would be significantly greater. In the microeconomic sense, new technologies pull down (and shift to the right) the supply curve of abatement, making it easier to meet any given reduction target.
New technologies and carbon pricing are not policy alternates. We need both.