F. K. Weyerhaeuser Fellow Steven F. Hayward

Right now the U.S. economy is "decarbonizing," that is, lowering the amount of carbon emissions per dollar of economic output, at a rate of about 1.5% per year. This is encouraging. The problem is that our economy grows faster than that rate--2.5% to 3% a year on average--so our overall carbon emissions continue to rise.

Our policy goal should be to get our rate of "decarbonization" to exceed our economic growth rate. Once we turn that corner, the energy-environment trade-off will start to work to our advantage, and possibly to the advantage of the whole world if we can develop low- or no-carbon energy technologies that can compete with cheap fossil fuels.

The first prerequisite for this to occur is continued economic growth, both here and especially in the developing world. Only if nations such as India and China continue to grow will they have the capital and know-how to invest in cleaner technologies, many of which are going to be more expensive than fossil fuels for a long while to come.

Second, governments should not pick winners or give out extensive subsidies. (Translation: Ethanol is a bad idea, and other existing "renewables," such as wind power, are unlikely to ever be more than a niche source.) Better to have a small carbon tax to place a price floor for competing technologies, and offer large cash prizes, similar to the X-Prize for private space flight, for specified energy breakthroughs.

Venture capital is already starting to pour into the field; a suite of prizes would accelerate this. Governments should resist a patchwork of energy mandates and standards. Don't tell us what kind of light bulbs to use or cars to drive. Let consumers chose from among a diversified supply of energy sources.

Steven F. Hayward is the F. K. Weyerhaeuser Fellow at AEI.