Thomas Friedman has an interesting piece in the Sunday New York Times.  In it, he outlines the two strategies he sees for addressing climate change—the "Earth Day" strategy and the "Earth Race" strategy. 

The former is embodied in what transpired in Copenhagen.  It is about finding a "global mechanism for codifying and verifying" carbon emissions and reductions, country by country, and transferring billions of dollars to developing countries to help them meet their obligations.  Friedman rightly implies that this method has a low probability of success because it depends on dozens and dozens and dozens of countries, all working together cooperatively, to affect the desired result.  Any one or small group of relevant nations could derail the effort by not participating or fully meeting its commitments.

A much more effective means, Friedman suggests, is the "Earth Race" strategy.  This approach is rooted in greed—"the only engine big enough to impact Mother Nature."  Of course, this begs the question, why are other large, intractable problems, like healthcare, not better subjected to the stimulative forces of capitalism's key driver?  But I digress.

Hmmm, the "Earth Race" strategy sounds suspiciously supply side for the quasi-liberal/moderate Friedman, doesn't it?  Well, it did, until he unveiled a key detail.  In order to excite the greed necessary to positively impact the climate, he wants the "Senate to pass an energy bill, with a long term price on carbon that will really stimulate America to become the world leader in clean tech."  He further says, half-correctly, "Only a market, shaped by regulations and incentives to stimulate massive innovation in clean, emission-free power sources can make a dent in global warming."

Admittedly, this is a hands-down better solution than the exceedingly untenable "Earth Day" scheme.  But, why shackle capitalism via such unnecessary regulation?

Friedman is dead on to identify greed as the only legitimate way to address a problem of such scale and perceived time sensitivity.  However, the suggested regulation really only catalyzes those who need to deal with the potential penalty.  Robust tax incentives, on the other hand, aimed squarely at innovators, have the advantage of unchaining the full power of the capitalist system.  They provide all, not just those directly impacted, with a reason and motivation to find/build a better mousetrap.  Would you rather have an industry or two working to innovate in order to avoid some regulatory consequences, or would you prefer to unleash the innovative capacity of our entire economy?

Take the auto industry as an analog.  Government-imposed CAFE standards really just incent the car makers to innovate.  There is no extraordinary benefit for others to solve the problem above and beyond what is available to any person/company who provides a useful product to an interested buyer.  As such, capital is not drawn to this purpose over numerous other equally or more attractive opportunities.  With tax incentives, though, orders of magnitude greater numbers of innovators can and will be induced to pursue unusually high profits.  The innovators benefit, the targeted industries benefit, and society benefits.  A win-win-win.

As we've seen in the auto industry with the regulatory approach, car makers have spent more time and effort finding ways to circumvent (and defer the effective date of) the regulations than actually inventing technologies to significantly and rapidly advance the state of the art.  And, others have not been incented enough to act, or deploy the quantity of capital necessary for dramatic, speedy improvement.  So, over the nearly 35-year lifespan of CAFE standards, incremental, rather than transformative progress has been made.

Kudos to Friedman for recognizing that greed is the best prescription for what's ailing the planet, and that incentives are a vital component.  But, just as we don't want to pollute the environment, let's not pollute the free market waters.  The suggested regulation would be superfluous and distracting.  We should direct our full focus and energy toward implementing an incentive regime that attracts the requisite capital and innovative effort.

Then, and only then will we put ourselves on the fast track to energy independence and a healthier planet.