Lumpy Social Goods in Energy Decarbonization: Why We Need More Than Just Markets for the Clean Energy Transition
To avoid the worst consequences of global climate change, the United States must achieve daunting targets for decarbonizing its electric power sector on a very short timescale. Policy experts largely agree that achieving these goals will require massive investment in new infrastructure to facilitate the deep integration of renewable fuels into the electric grid, including a new national high-voltage electric transmission network and grid-scale electricity storage, such as batteries. However, spurring investment in these needed infrastructures has proven to be challenging, despite numerous attempts by regulators and policymakers to clear a path for market-driven investment. Unchecked, this problem threatens to artificially limit complementary investments necessary for the clean energy transition. In this Article, I lay out a theoretical framework that explains the tepid development in certain necessary infrastructures for the energy transition. I argue that clean energy infrastructure is a part of a classically lumpy social good. Lumpy social goods are those that realize all or most of their value contingently upon the assembly of multiple
components necessary to produce the good. In this case, the complementary components to be assembled are high levels of renewable generation, on the one hand, and transmission and storage infrastructures necessary to integrate those generation sources into the smooth operation of the grid, on the other. The lack of sufficiently concrete coordination of these complementary projects drives investors into an unproductive Assurance Game, despite efforts by the Federal Energy Regulatory Commission to grease the gears for transmission planning. This theory not only helps clarify the root causes of past policy failures, but it also points the way to the kinds of policies that can help overcome these dynamics and accelerate investment. It also illuminates a weakness in energy markets' ability to respond to the climate crisis, which may necessitate changes to foundational policies.
Daniel E. Walters,
Lumpy Social Goods in Energy Decarbonization: Why We Need More Than Just Markets for the Clean Energy Transition,
U. Colo. L. Rev.
Available at: https://scholar.law.colorado.edu/lawreview/vol93/iss3/2
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