Are We Dooming Ourselves With Green Innovation?

solar farm

Financial innovation has lately come under new scrutiny, with lots of people questioning whether we should have some kind of restriction on new financial products to prevent something like the next AIG from developing. Unfortunately, it’s really hard to tell what’s going to be dangerous to the financial system in advance of any blow-up.

At the very least, however, we’re all now aware that we can accidentally create systemic risk. And there’s a growing awareness that the risk can grow up in places we least expect it. The best example is how much concern was expressed over the years about “lightly regulated hedge funds” when the real systemic risk was being brewed up inside of a Connecticut branch office of a boring insurance company that was already under tight scrutiny from the New York Attorney General’s office.

But, for some reason, not enough of this scepticism about innovation is being applied to our green tech and clean tech revolutions. Right now, creating cheap energy out of wind, for instance, seems like a fine idea. But is it? Are we really prepared as a society to deal with the consequences of electricity manufactured without having to use up fossil fuels?

You’re probably thinking: “What could go wrong with cheap, clean energy?” And that is precisely the problem. Our inability to foresee risk in these technologies should be troubling. It seems highly unlikely that we could have something as revolutionary as cheap and clean energy without unintended consequences. But so much of our debate is about the environmental and economic costs of our current system that we’re not giving much thought to what comes next.

So, just as a thought experiment, let’s think about what it would mean if we could stop using oil. First, it seems likely that nearly free electricity would lead to more house fires. People would let appliances run longer, they would short out, occasionally sparking fires. Second, we might be less socially involved if air-conditioning was basically free. Staying home would become dramatically cheaper. Third, the political consequences of an impoverished Persian Gulf are likely to be violent.

Another consequence might be increased sprawl and suburbanization. As energy becomes cheaper, spreading out becomes more economical. The social costs of sprawl are mostly invisible and the impact so disparate, that few people even notice it. Here are some: cities decline, local traditions fall off, people become more dependent on centralized government as community support dries up, and demand for subsidized housing climbs. And that’s all just from one side-effect of cleaner, cheaper energy.

None of this provides a decisive case against energy innovation. But it is an outline of the kind of discussions we should be having before we get ourselvs in trouble. Some of the dire consequences might seem far fetched but so did bankrupting AIG because of exposure to credit default swaps.

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