Who’s Afraid of a Clean-Energy Future?

By Keith Johnson

Two years ago, when we launched Environmental Capital, we set out to chart the tectonic shift in the global energy landscape, affecting everything from what keeps the lights on to what’s under the hood of your car.

A big part of that shift was—and still is—environmental concern. The world’s (half-hearted) efforts to rein in greenhouse-gas emissions were meant to spur (and might yet) the development and deployment of a whole new world of cleaner energy.

But we also noted another rationale for a shift in the way the world produces and uses energy: the bottom line. Whether it’s a big-box retailer changing the way it packs and ships goods or the growing conviction that energy efficiency and “negawatts” are the cheapest, cleanest source of energy available today, the cleaner way of doing things is very often the smarter way of doing things.

That it isn’t always the case is less of an indictment of clean energy than of the current energy system itself.

To take a single example: The price that American drivers pay at the pump, frightening as it is these days, does not reflect the cost of oil and gasoline. There are additional costs to the reliance on oil that simply don’t show up in the twirling numbers at the gas pump, whether they are the environmental costs of oil extraction, transport and combustion, or the cost of U.S. military engagement to protect oil supplies and keep vital sea lanes open.

For economists, all these hidden costs are called “externalities.” They’re as real as they are hard to spot, from the Fifth Fleet’s operating expenses to the pernicious health costs of a coal-fired electricity sector.

For policymakers, these externalities represent an opportunity as much as a headache. For all the worries that a bigger role for government in the energy business—from cap-and-trade schemes to solar-power subsidies—represents a retreat from free markets, that’s hardly the case. Energy markets aren’t “free” today, and the playing field is anything but level.

New energy policies that seek to redress those problems, and unleash rather than further stifle a genuine market for energy, will point the way toward a new energy future that makes sense, both environmentally and economically. That’s because, if new policies set out to tackle those externalities once and for all, the environmental answer will quite often become the economic answer. Everything has its price—and its cost.