ADVOCATES of unregulated free markets like to argue that consumer demand for clean technologies will solve our environmental problems. Developments in the US car industry might seem to be proving them right. The popularity of the has prompted almost every other major manufacturer to develop hybrid or all-electric vehicles. If enough people buy them, these could save hundreds of millions of tonnes of carbon dioxide emissions in coming years (see 鈥淏orn to be wired鈥�).
Yet look more closely, and things are rather different. The rise of the electric car has little to do with concern for the environment and everything to do with high oil prices. In other words, we got lucky. The lesson is not so much that the free market by itself will save the environment 鈥� that鈥檚 unlikely 鈥� but that consumer demand can work wonders if consumers are given the right incentives.
Governments have plenty of opportunities to help here. They could start by ensuring that industries pay the full environmental costs of their carbon emissions. This would force some uncomfortable changes, such as higher energy prices where the energy is derived from fossil fuels, but it would give a massive boost to producers of renewable energy.
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This is the kind of thing that Nicholas Stern, former chief economist at the World Bank, was talking about in his on the economics of climate change, which he labelled 鈥渢he greatest and widest-ranging market failure ever seen鈥�. The boom in electric cars gives us a glimpse of how that failure can be put right if governments are prepared to force the changes.
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