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Sorting out climate tech solutions, moral hazard
To think that technology will save us from climate change is to invite riskier behaviour, or moral hazard. Whether a climate solution creates new problems has little to do with the solution, and everything to do with us
Gernot Wagner 11 Jun 2023

Everything from seat belts and condoms to healthcare and bank bailouts invites riskier behaviour, or what economists call “moral hazard”. Even the most justified and well-meaning policy interventions can have unintended – and undesired – consequences. In the 1960s and 1970s, many environmentalists objected to nuclear power because its promise of cheap, limitless energy ran counter to their own push for energy efficiency and conservation.

The debate continues today. Which climate technologies deserve our support, and which are distractions that could lull us into complacency with the false promise of a silver bullet? The list of climate “solutions” is constantly expanding and now includes everything from futuristic fusion technologies to green hydrogen, from heat pumps to induction stoves to better insulation, and – of course – solar and wind.

The media love to fawn over greentech “unicorns” (start-ups with valuations above US$1 billion) that promise to provide the breakthrough innovation we have all been waiting for. But while innovation is certainly essential, not all technologies are created equal, and lists of what counts as “climate tech” often become political litmus tests. Many, for example, now look beyond solar to newer, sexier technologies. Yet the plummeting cost of solar energy is a result of technological breakthroughs and research and development subsidies, and the fact that it is becoming an established climate technology does not make it any less essential.

Of course, solar is not the whole solution. We cannot talk about solar without also talking about its land-use and grid implications, nor can we talk about green hydrogen without addressing the potential consequences of hydrogen leakage, a problem that has quickly turned natural gas from a promising “bridge” technology into a cause of major environmental problems. It is right to cheer the rapidly growing electric vehicle (EV) market, but it is similarly important to consider the vast potential not only of transportation alternatives like e-bikes (or old-fashioned bicycles) but also of better cities.

Many of these debates are simply moot. It is not EVs or e-bikes; it is both. Climate beggars can’t be choosers. But debates about trade-offs are crucial and reveal quite a bit about our priors, priorities, and worldviews. Why zero in on the folly of Germany’s nuclear phase-out 10 years ahead of its planned exit from coal, but not on German building codes, which should be a model for the rest of the world? Germany’s “well-sealed windows” do not make headlines, but investments in this admittedly boring climate technology could ultimately do more for cutting greenhouse gas (GHG) emissions than some of the most enthusiastically hyped innovations.

What really matters is the interplay between technology, policy and behavioural change. While induction stoves alone will not make a big dent in global or personal GHG emissions, swapping one’s old gas range for a new induction stove is often the last step before shutting off one’s home gas line altogether. Induction stoves and heat pumps are the two main climate technologies that have allowed new buildings to go without gas altogether. And since everyone needs to eat and regulate the temperature in one’s home, neither technology creates much moral hazard.

Now consider carbon-removal technologies. They, too, have a crucial role to play in bringing about a low-carbon future, and yet they also hold the promise – justified or not – of allowing us to keep chugging along without changing our production and consumption patterns.

What to preserve is a political question. While some will welcome EVs as a way to decarbonize their suburban commutes, others will see a new moral hazard. After all, the more efficient cars become, the more guilt-free driving we can do. But rather than preserve long commutes, why not use zoning changes to create more walkable neighbourhoods? Rather than always surveying the cutting edge, we can find some of the most powerful technofixes already at work in the real world. Just look at the traditional European city. As Andrej Karpathy, the former head of artificial intelligence at Tesla, marvels, it is “more compact, denser … [more] pedestrian/bike friendly”.

A final consideration is how some climate technologies may introduce the exact opposite of moral hazard. Solar geoengineering, for example, might be considered to be so radical and controversial that the mere mention of it could motivate us to cut more carbon pollution sooner. But, of course, we must not bank on this effect. That, ironically, would be another case of falling into the moral-hazard trap.

How, then, to assess whether any given climate technology will deliver as promised? While there is no foolproof method, much can be learned from looking at the degree of decarbonization that has already been achieved. By and large, there are dozens of ways to cut emissions by 5%, 10% or even 20% in each industry or economic sector. Most of these involve small process changes aimed at teasing out additional efficiencies. A more efficient gas furnace, for example, will reduce your fuel bill and emissions by 10% or 20% overnight, and much the same can be said for a more efficient turbine at the gas plant.

But making existing fossil fuel-based processes more efficient can go only so far. Moving well beyond the 20% cuts to 80% to 90% or more typically means switching from fossil fuels to zero-carbon energy sources. In most sectors, there are really only one or two ways to cut emissions by that much. In the construction sector, for example, large cuts require installing insulation and heat pumps. In steel, the two options involve green hydrogen or full-on electrification, with a closed-loop carbon-recycling system emerging as a strong contender for a third path.

The key question when considering climate moral hazard, then, is whether a technology moves a company, industry or sector closer to implementing an 80% to 100% solution, as opposed to a 10% or 20% measure that merely kicks the can down the road. Your new EV will not cut your transportation emissions to zero by itself – not until we have also decarbonized the steel used to make it, and the electricity that powers it. But it at least holds the potential to be an 80% to 100% solution.

It is moral hazard to think that technology will save us. However, it is equally hazardous to ignore innovations that could be game changers if they are accompanied by the right kinds of policies, investments and political commitments. Whether a climate solution creates a moral hazard has little to do with the solution itself, and everything to do with us.

Gernot Wagner is a climate economist at Columbia Business School.

Copyright: Project Syndicate

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