3 min read.Updated: 26 Nov 2020, 09:30 PM ISTTyler Cowen
America’s incentive model for vaccines isn’t universally applicable
Given the success of Operation Warp Speed in driving vaccine development [in America], some commentators have called for Warp Speed equivalents for clean energy—including batteries, geothermal power and nuclear micro-reactors. Before agreeing to any such plan, however, it’s worth asking what enabled Operation Warp Speed to deliver quality vaccines so fast.
The programme commits the government to purchasing a large number of vaccines in advance (it also gave many of the companies research and development money). The total cost of the programme is about $18 billion. That is hardly cheap, but neither is it a budget buster. And it pales when compared to the short-run benefits of stemming the pandemic.
In contrast, total US energy expenditures are far more than $1 trillion per year, and most of that total is not green. A pre-purchase of so much energy, which in green form could prove more costly yet, would not have sufficient political support.
A related problem is that climate change is caused by global energy emissions, not just US emissions. Yet unless the new green energy innovation is truly cheap, most of the world still won’t use it, even if the advance-purchase programme succeeds within the US.
Obviously, a pre-purchase green energy programme might proceed in a more targeted fashion. How about advance purchases of just small nuclear reactors? But those outputs are much harder to allocate than are vaccine shots.
There is little question as to where the vaccine shots should go, namely in the arms of Americans, and many Americans want the shots. But how do you get state and local governments to agree to accept nuclear power reactors? Prepaying the product development and construction costs might help, but it probably won’t alter most political decisions, which in recent times have (unfortunately) run against nuclear power.
What if the government were to commit to, say, an advance purchase of energy-storage batteries? That might work, but it is still a much harder problem than encouraging vaccines. There are few varieties of anti-covid vaccines, and they are applied to most people in the same way. It is a more daunting problem to pre-order the right sizes and kinds of batteries.
Might it be easier for the government to subsidize battery research, rather than pre-ordering particular battery units for later distribution? Maybe so, and it would be smart policy. But it is the status quo, not a new application of Operation Warp Speed.
These are only two examples. There may well be other areas where advance government purchases work well for green energy. Still, the success of Operation Warp Speed relies on some features particular to vaccines, namely relative homogeneity of the product and simplicity of distribution and application.
Operation Warp Speed was also made easier by the internalization of vaccine research within companies or alliances of companies. The pre-purchase agreement limits risk, and within that framework the companies face strong competitive incentives to create a successful product. In the meantime, the work is removed from the public eye, and at the end there is a definitive yes or no decision from the Food and Drug Administration. It is hardly simple, but it could be a lot more complicated.
In contrast, building a new energy infrastructure requires the cooperation of many companies and institutions, including local governments and regulators. One company can’t simply do everything. The greater the number of institutions involved, the slower things get. Note that most of those institutions will not be getting pre-purchase funds from the federal government and they will face their usual bureaucratic and obstructionist incentives. When it comes to green energy policy, there are still too many veto points.
A striking feature of vaccine development is just how few social goals are involved. A vaccine should be safe, effective and easy to distribute. In broadly similar fashion, the highly successful Manhattan Project of the 1940s also had a small number of goals, namely a working and deliverable atomic bomb. When it comes to energy, there are already too many goals, and additional ones are often added: job creation, better design and community aesthetics, reductions in secondary pollution, and so on.
I am a confirmed advocate of greater speed in scientific research. But society needs to start by recognizing the trade-offs. Operation Warp Speed is a wonderful achievement in bringing innovation to areas where it is lacking. [But] it is not applicable to every conceivable problem facing society.
Tyler Cowen is a Bloomberg Opinion columnist and a professor of economics at George Mason University, USA.
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