Finding climate solutions within the free market paradigm
Tom Rehm, October 5, 2021
Biases: Carbon fee and dividend policy (H.R. 2307), regenerative agriculture, nuclear energy
The free market constrains us from arriving at climate solutions that will resolve our global warming dilemma. The only way to mitigate these constraints is through the Wicked Problem Approach.
In truth, the U.S. free market is not free, as it is overlayed with capitalism and stock markets which demand myopic quarterly corporate shareholder dividends, the antithesis of the timeline needed to get out of our planetary mess.
I recently came across a 2016 article entitled simply Free Market. According to the author, Yaron Brook (PhD Finance), a free market “… is a market free of government control, regulations, coercion and force.” Yaron goes on to say that in a free market, “… the only job of government is to catch crooks, to protect people from fraud, to help arbitrate disputes using a justice system.”
Although a fantasy, let’s pretend that we live in a free market, just to make our discussion a little easier. It is free in that nobody dictates which climate solutions we should employ. After all, this is not autocratic China. We are free to make decisions when it comes to business investments.
In our free market paradigm, beyond the 90-day myopia of quarterly corporate dividends, what constrains a longer view? One example: Capital investment in an electric generating plant or chemical manufacturing plant must have a good ROI (return on investment) over a few decades, nominally three. If we fear stranding physical plant assets of hundreds of millions USD, who will make such an investment? 90-day corporate myopia, plus the fear of stranding assets causes considerable hesitancy.
Opposing this hesitancy is public fervor of certain solutions, such as the view held by many that 100% renewables (primarily solar and wind) will save the day. Hesitancy shrinks in the face of such certainty! Let us charge full speed ahead with renewables! Capital costs have been dropping precipitously! The ROI will be magnificent! Shush now … please don’t mention subsidies, tax credits, renewable portfolio standards, etc. at renewables rallies. Only sing the praises of limitless free energy.
Okay, so we want ongoing quarterly corporate dividends, and we fear stranding assets. That causes hesitation. But many are exuberant about certain solutions. That replaces hesitancy with a mad rush to do something … NOW!
What path should we take to resolve global warming? Does one size fit all? Or do we need multiple solutions in our basket? If multiple, what mix of solutions? Is anyone concerned that we are not making smart decisions about climate solution decisions, other than me?
What should we do to improve our decision-making process in the transition to carbon-neutral energy? There are so many uncertainties.
In addition to quarterly corporate dividends and the fear of stranding assets, there are other uncertainties. Is anyone besides me concerned about increasing risks of electric grid rolling blackouts, and worse than that – the complete failure of an electric grid with weeks required to black start the grid to achieve a return of power? If you live in Texas, are you aware that we remain on the ragged edge of uncertainty about the ERCOT grid reliability? Is anyone besides me concerned about the loss of our food supply, both on land and at sea, over the next few decades? These are jaw-dropping concerns, and tied to global warming. The paths we take to resolve global warming demand answers to these questions.
How should we transition to carbon-neutral energy?
In early 2019, I was invited to attend a climate change gathering in Houston, Texas. The speaker was John Hofmeister, former President of Shell Oil Company. I had never heard of him but I was certainly going to listen to him, i.e., “An oil guy is concerned about global warming?” I attended, met John and learned that he had written a book after retiring from Shell. I read that book over the next month, finishing it a few hours before I spoke to the three AIChE Operating Councils on March 30, 2019 about The Climate Solutions Community. Over the past two years, John and I have engaged in many discussions on climate solutions. On August 22, 2020, John spoke at a Climate Solutions Symposium that I chaired. Sadly, John left us on June 2, 2021 from stage 3 melanoma. That was a great loss, as John had something important to say about our free market dilemma. After publishing his book in 2011, he toured the country and tried to convince others of his proposal.
How can good climate solution decisions be made in the face of free market challenges such as the following? Some of these challenges seem fortunate, but they aren’t.
Fortunately, we have a considerable amount of investment in climate solutions. This is great news, but it presents us with a quandary. If I were to invest a large chunk of cash into a climate solution, would I tend to promote that solution? You’re darn right I would. That is a bias.
Fortunately, many are working on climate solutions at universities, national laboratories, energy institutes, and other institutions. If I were one of those people, dedicating my career to a climate solution, would I tend to promote that solution? You better believe it. That is a bias.
Unfortunately, there is a vast segment of the public – in the U.S. and globally – who fervently support their favorite climate solution, arguing against others. The debate is polarizing. Some listen to contrary views but too many are convinced that their favorite will save the day. Biases.
Unfortunately, our free market is overlaid with political agendas. If I were a politician and my constituency favored a certain climate solution, would I tend to promote that solution? Damned right I would. If I didn’t, I wouldn’t get re-elected. The mother of all biases.
Trillions of USD must be spent annually for decades to come, in order to solve our planetary problem. Let us all come together to figure this out. We can do better in making climate solution decisions. In the early 1990s, the Wicked Problem Approach was used by Dr. Dick Hutchinson and his colleagues to figure out how to protect the United States from chemical and biological terrorism. This is the only real-world application of the Wicked Problem Approach, ever, on this planet.
Gordian knots such as (a) emergency preparedness for chemical and biological terrorist threats, in areas of high density multi-million population centers, and (b) decisions on climate solutions can only be made through dispassionate deliberate collaboration. Otherwise, the free market system and our human biases interfere destructively. The Wicked Problem Approach mitigates those interferences.
Join us in our initiative. In my view, there is no other way to get out of our planetary dilemma.