A week ago, the New York Times published an interesting article on tidal power. While the tides are currently not an important source of electricity, their potential is large. According to some estimates, the technical potential of tidal power is of the same magnitude as current electricity consumption. If even a fraction of this potential could be profitably harnessed in the future, tidal power could offer a significant contribution to decarbonizing the electricity sector. However, tidal power requires significant technological innovation. Current technologies are not profitable enough for commercial production.

Unfortunately, financing technology innovation for tidal power is difficult. The technology promises large social benefits, but the product itself — electricity — is not a bonanza. Venture capitalists are not interested in investing in tidal power innovation because carbon dioxide emissions may be reduced in the future. The possibility that tidal power could play a role in climate mitigation is not enough to secure financing. If tidal power had the potential to be the next smart phone or the cure for cancer, finding funding would be much easier.

There is another major barrier to tidal power innovation. Since there is no established industry in the field, the entrepreneurs run their operations on a small scale. While oil companies can easily invest billions in refining their extraction techniques, such resources are not easily available for tidal power innovators.

Given these problems, public policy is needed to promote tidal power. In my ideal world, a high, global carbon tax would form the cornerstone of a policy package for clean energy innovation. With carbon taxes, the competitiveness of certainly currently booming energy technologies, notably shale oil, would decrease. Similarly, the coal boom in Asia would end. This global carbon tax would then be supplemented with more directed policies, such as competitive government procurement programs for innovative technologies.

Alas, governments are nowhere near agreeing on a carbon tax or anything comparable. In the foreseeable future, tidal power innovation will be based on a patchwork of imperfect policies, such as investment subsidies and project grants. Even these policies are often poorly designed and unstable. There is no established tidal power industry that would effectively lobby policymakers in Washington, DC and other capitals of the world. In the United States, the Ocean Renewable Energy Coalition is doing important work to keep different hydrokinetic energy technologies on the agenda. I wish them good luck in their important work — this is the rare lobby group that may produce more value to the society than it dissipates in rent-seeking.

Advertisements