The mythology of deregulation

Over my couple decades of work in environment and energy policy a consistent theme has emerged from those opposed to clean energy. Repeatedly and relentlessly they push a “deregulatory agenda” that “relieves” business of the burdensome regulations relating to the environment. It doesn’t seem to matter what’s been the policy for the previous years, it’s always the same — less regulation is better. But better for whom? It’s obviously not better for the humans and wildlife affected by pollution of air or water or loss of habitat, but that’s the considered trade-off we must make, right?

This seems to be the traditional way of looking at any kind of environmental regulation, from emissions in our air or water to clean energy. We calculate the business costs of regulation and (hopefully) balance them against the benefits to human health and welfare to figure out if it’s worth doing. Environmentalists have gotten used to fighting the pitched battles to get “externalities” such as asthma rates, sick days, property losses from sea level rise or wildfires recognized in the cost-benefit analysis. But my years working in clean energy have shown me that there’s a whole group of beneficiaries that get short shrift in the public debate about regulation — the solution providers.

{mosads}Established industry moguls have been incredibly successful in propagating the myth of the “job-killing regulation.” Fundamentally, this myth relies on a general misunderstanding of some basic facts about our economy.

First, the laws of supply and demand and competitive markets aren’t suspended just because society demands industries stop imposing costs on the rest of us as they produce products for our consumption. Restrictions on ozone-depleting aerosols and acid rain-producing smog from power plants were predicted to be doom for their industries, but the products continued to be useful so industry quickly found technological solutions that were cheaper and more effective than expected.

Second, the U.S. economy is largely a diversified, circular one, with the vast majority of economic activity consisting of us buying and selling goods and services to each other. So, nearly all of the time one American’s expense is another American’s income. Whether it’s a power plant operator cleaning up their smokestacks or a manufacturer figuring out how to clean up their waste water, the owner is nearly always looking to some outside company to bring solutions to their problems.

A current D.C. weather-inspired example: Suppose your town imposes a new regulation that requires sidewalk salt to be “pet friendly” (if my dog could vote ..). The current market-dominant salt supplier would certainly cry foul and label it a job-killing regulation foisted upon us by those that care more about dogs than hard-working Americans. But the makers of pet-friendly ice melter would now have a big market opportunity. They would staff up and expand operations to take advantage and, even if you assume there would be an initial increase in consumer prices, the new competition and investment would push prices back down to a new market equilibrium.

It’s at this new equilibrium where the rubber meets the road in assessing the costs and benefits of regulation. If pet-friendly ice melt never gets as cheap as salt was, then there’s a social cost to the regulation to weigh against. But if the new equilibrium is the same or even cheaper than the old technology then, society has simply taken a step forward, and is better off. There is, however, the chance that the formerly dominant industry didn’t adjust to the new reality, and suffers for it. Overall, jobs weren’t “killed,” but they certainly moved away from the industry incumbents that couldn’t innovate.

This is where we are with clean energy technologies. The market equilibrium we’re likely to see with technologies from wind and solar power to electric vehicles is one that not only stops imposing costs on future generations, but actually costs the near-term economy less than the dirty technologies being replaced. It’s an investment opportunity in social welfare that we’d be crazy to miss. This is why nearly every industrialized country on the planet is pouring resources into making sure their domestic companies can lead the shift. But that doesn’t mean everyone is on board.

{mossecondads}Incumbents present regulation as a constraint on the economy, as not worth the cost, as if that is the choice. This falsehood so profoundly misrepresents the nature of innovation and capitalism that it’s hard to take them seriously. It’s not a legitimate argument, but it is a serious battle to protect their current market-dominant position. It’s time the rest of us recognize the centrality of regulation in technology innovation.

Throughout our history, America has been at the forefront of innovation by embracing new challenges and seeing the opportunity within them. It’s time to stop listening to the naysayers who want to keep milking our dying, dirty energy economy for the last drips of cash and seize the opportunity that’s staring us in the face.

Mike Carr is executive director of New Energy America. He previously served as principal deputy assistant secretary for Energy Efficiency and Renewable Energy, and as senior counsel on the Senate Energy and Natural Resources Committee.