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Elon Musk Perfectly Explains How Carbon Pricing Could Spark an ‘Innovation Explosion’

You might have heard about carbon pricing, but what is it and how could it solve climate change? Electric car pioneer Elon Musk explains.

When asked if he is confident that there still is time for an “explosion in innovation” to solve climate change, the Tesla founder told MSNBC’s Chris Hayes that he’s actually not so sure.

Musk said his biggest concern is the large share of our economy that is still based on petrol or diesel.

Using the example of cars, Musk said: “There’s a hundred million new gasoline cars made a year. Even if all new cars were electrical it would take 20 years to change out the fleet,” adding that despite Tesla’s new Gigafactory we’re “very far” from all new cars being electric.

Market Breakdown

In the meantime we are “quickly exhausting the carbon capacity of the oceans and atmosphere,” Musk points out, referring to the limited amount of carbon that we can still safely emit according to scientists, before things get really dangerous.

So what’s stopping an explosion of innovation from saving the planet? A breakdown in the market system, the superstar entrepreneur says.

“I’m ordinarily quite a big believer in the market – because the market is just the sum of individual decisions – but when there’s a breakdown in (…) the market, that’s where things go awry,” he said.

Fish vs. Carbon

Despite local initiatives, there still is no global price for carbon emissions. Depending on where you live, you may be able to pretty much freely pump greenhouse gases into the atmosphere – or even mass produce and sell machines that do this.

“It makes things that are carbon-producing very rewarding, because the true price is not being paid,” Musk says.

And instead of paying that true price, you can make a “tremendous amount of money” being a petrochemical engineer, Musk explained.

Musk then goes on to compare the failure of the market to unregulated fishing in international waters. “Since no one (…) owns that particular fishing area, it will get fished to extinction – because there’s no price for that.”

Since no one owns our planet’s atmosphere either, Musk fears it may suffer a similar fate. “There’s no price for carbon, so we do all these things that cause long-term damage,” he said.

‘Tragedy of The Commons’

In economic theory this market problem is known as ‘tragedy of the commons‘, as mentioned by Musk. Wikipedia defines it like this: “A situation within a shared-resource system where individual users acting independently according to their own self-interest behave contrary to the common good of all users by depleting that resource through their collective action.”

The theory by economist William Forster Lloyd was originally based on the effects of unregulated grazing on common land, known as “the commons” back in nineteenth century Britain.

Over the years, “commons” has come to stand for shared and unregulated resources such as oceans and rivers but also the fish stocks and atmosphere referred to by Musk.

Good News

The good news? The International Emissions Trading Association (IETA) reports that just over one billion people already live in regions and countries that have implemented policies to put a price on carbon.

The EU runs the world’s first major carbon market – which is seen as one of the most effective ways to put a price on carbon – and remains the biggest one. But China is set to launch its own carbon trading system in 2017, and the Paris Agreement on climate change has boosted momentum for carbon pricing in countries around the world.

Just this week investors in charge of a total of $13 trillion called on world leaders to implement a price on carbon.

So even though right now, as MSNBC’s Chris Hayes put it, “Instagram is selling for billions of dollars, and you can make an iPhone app that makes a lot of money or go sell mortgage-backed securities,” the real explosion of innovation – and business opportunities – could still be on the horizon, and carbon pricing may just set it off.

Find out how Climate-KIC can help you launch a start-up company in the low carbon economy.

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