Does Investment in Geo-Engineering Create a Moral Hazard Problem?

Does Investment in Geo-Engineering Technologies Create a Moral Hazard Problem?

In the latest episode of Sense and Sustainability, Professor Klaus Lackner of Columbia University describes a form of Carbon Capture and Storage (CCS) technology called “Air Capture.” The idea is simple enough: take already emitted carbon directly out of the air and store it in a form that doesn’t contribute to climate change. Lackner and his research team at the Earth Institute are busy at work trying to develop this technology in economically viable form – though, at the moment, this seems a somewhat distant prospect (projected per ton mitigation costs are prohibitively high, in the hundreds of dollars per ton CO2).

But not everyone believes such research to be a worthwhile endeavor. In fact, investment in air capture research has itself stirred an inordinate amount of controversy in recent years.

Much of the controversy touches on the broader issue of moral hazard. Those who think that mitigation won’t be enough to solve the climate problem (or who adopt a more pessimistic view of governments’ abilities to act in a timely and coordinated manner) contend that societies must, if they are to avert eventual disaster, invest in more drastic measures such as CCS and other forms of geo-engineering. Others believe that doing so might create a moral hazard problem, dis-incentivizing the necessary emissions reductions that must occur gradually, beginning now.

Car insurance provides a useful analogy, one that many might be familiar with if they have taken Econ 101.

In the world of automobile insurance, moral hazard is a perennial problem (one which, as an aside, insurance companies seem to be finding ever more clever ways of getting around). On the one hand, investing in accident insurance represents a responsible choice on part of the driver – both for himself and for other parties that might be involved in a future accident. On the other, it is not difficult to see that, once the driver knows he or she is insured against damage liability, the likelihood of careless driving may increase. While investing in geo-engineering solutions might represent a responsible social decision (as Professor David Keith of the University of Calgary suggests in Episode 14), it may also lead to a non-trivial rise in the likelihood of politicians passing the buck on necessary emissions reductions in the present.

Of course, this analogy takes us only so far. The decision-making process of an individual driver and that of today’s global geopolitical system are miles apart. And of course, at some point one must acknowledge that there is no real way to stop research in geo-engineering per se: only a social choice of how much public subsidy we wish to provide it.