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Free Technology Transfer is Not the Way to Go

Noah Smith wrote an opinion piece this week at The Atlantic entitled “The End of Global Warming: How to Save the Earth in 2 Easy Steps” that starts by accurately laying out some hard truths for climate policy advocates, but then wildly veers off course.

The piece begins strongly by highlighting the difficulties of implementing an effective global carbon tax. A key condition carbon pricing must meet for it to be an effective global climate policy is that all countries must implement the policy, not just a select few. If not, industries (and their emissions) will simply move to countries that don’t have similar carbon pricing policies. And as industries and their emissions move around, countries with a carbon price lose economic competitiveness, jobs, and economic growth. It’s easy to foresee a situation where a country that implements a carbon tax must either rescind the tax, make it less stringent, or exempt industry from the tax to reduce economic harm. In all cases, the carbon tax fails to drastically reduce emissions as much as needed, if at all.

Smith also recognizes the importance of government support for clean energy innovation. For instance, he recognizes that “technology has given us a fighting chance” against climate change. This includes everything from government-fostered breakthrough fracking technologies making natural gas a cheaper option for power producers instead of coal to the potential for successive waves of solar innovation to continue its march to cost competitiveness in the coming years. The former, in fact, is reducing U.S. carbon emissions more than the current deployment of renewables. Of course, as ITIF has noted, natural gas is by no means a long-term climate solution, but it shows how quickly and deeply carbon emissions can be cut if we simply set the goal to make clean energy cheaper than fossil fuels through robust technological innovation, the same way breakthrough natural gas became cheaper than coal.

Smith concludes, however, with a self-described “really radical policy idea: We need to give our low-carbon technologies away to other countries, starting with gas extraction technologies.”

Unfortunate might be a more fitting adjective than radical. Smith claims that free technology transfer – to China, specifically – “will mean lower profits for some U.S. companies, but in the long run it will be a boost to our economy too, even without considering the ‘world doesn’t get destroyed’ aspect.” It’s not entirely clear how, even absent the negative impacts of climate change, giving away technologies would boost the U.S. economy. In fact, it’s very clear that doing so would hurt the U.S. economy as well as limit our chances at addressing climate change. Why would an entrepreneur want to develop a new technology, even with public support for innovation, if he or she won’t be able to make a buck in the global energy market? Why would a company want to do the same? The answer is they won’t and free technology transfer effectively stifles the very innovation we need to address climate change as well as limit U.S. economic growth.

The free technology transfer proposal is even odder in light of China’s voracious demand for shale gas technological know-how and proven willingness to attempt to buy it. “State-owned China National Offshore Oil Corporation (CNOOC) entered into a joint venture with U.S. shale gas leader Chesapeake Energy two years ago,  in a move experts viewed as a bid to gain access to expertise,” National Geographic notes. “In January, Sinopec, China’s number two oil company purchased a one-third stake in several new ventures of industry pioneer Devon Energy for $900 million and committed to cover $1.6 billion of future drilling costs.” These moves are unsurprising given the fact that China’s 12th Five-Year Plan reportedly sets a goal of increasing shale production at least 1,000 percent between 2015 and 2020. In other words, we don’t need to give next-generation natural gas technologies to China. They’re already developing it on their own, investing in the U.S. to learn how, or buying it from us.

Nevertheless, extending Smith’s logic a bit more: could government investment in innovation make up the gap in innovation caused by giving away clean energy technologies for free? Yes and no. Without a doubt, public investments in clean energy innovation are crucial and the U.S. government must invest more. But government investments in innovation work when in partnership with industry to move technologies to market, scale-up emerging ideas, and collaborate on solving technology issues. The breakthrough technologies emerging today – like batteries and carbon fiber – wouldn’t exist without public-private partnerships and government investments in developing risky ideas. The problem is Smith’s plan would essentially eliminate the private in public-private partnership.

Instead, Smith’s real plan for solving climate change should be for (1) government to aggressively support clean energy innovation and (2) we sell cheap, innovative, new clean energy technologies to the world to address climate change. The logic is simple: Only when clean energy is cheap (like natural gas) will the world switch from fossil fuels en masse and the only way to get cheap clean energy is through innovation. To spur innovation, government must make significant investments in science, research, development, and scale-up while actively partnering with industry to move new technologies to market, build new infrastructure, and remove barriers in energy markets.

That’s a far more sure-fire two-step plan to “end global warming.”

Photo credit: Wikimedia Commons

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