In general, Republicans prefer policy solutions that empower market forces instead of government-centered subsidies, mandates, and regulations. Addressing climate change through the creation of new, innovative technologies should rely on the same formula.
Developing and deploying clean-energy innovation is critical to our country’s response to climate change at home and abroad.
So, what is the best way to induce greater levels of innovation?
Economists, free-market advocates, and a growing number of policymakers support pricing carbon combined with reductions to other distortionary taxes and regulations. Compared to government-dictated proposals that seek to ban the use of certain energy sources and industries, a predictable price signal not only incentivizes innovation but does so at a lower cost.
Research conducted by the Information Technology & Innovation Foundation (ITIF) found that a carbon tax at reasonable levels, with the revenues dedicated to reducing the after-tax cost of research and capital investment, is likely to not only reduce carbon emissions but do it in a way that grows the overall economy.
By increasing the costs of carbon-intensive activity throughout the supply chain, companies will be motivated to develop better and more cost-effective clean energy technologies, and producers and consumers will be motivated to reduce emissions.
ITIF’s research suggests there is strong evidence that a carbon tax would also induce an increase in clean technology innovation beyond what would otherwise occur, which would then lower the cost of achieving a given level of emission reductions. Furthermore, if the revenue generated by the carbon tax was used to increase the tax incentives for conducting research and development and investing in machinery and equipment, economic growth would accelerate because it would address a market failure: the social benefit from research and capital goods investment is much greater than the private benefit companies receive.
As I stated in an op-ed last month, America’s ability to out-innovate the world is well established, and the same ‘can do’ spirit that succeeded at space travel and built the internet can certainly be applied to low- and zero-carbon energy solutions. And we have the courage to advance innovative policies to promote market-based innovation.