Should We Fund Ocean Renewables With Subsidies...or Prizes?

Here's an interesting idea from Professor Jonathan Adler at Volokh Conspiracy. In this article in the National Review, Adler proposes that government-sponsored prizes for energy innovation would be more effective than traditional subsidies at encouraging the development of low-carbon-emission energy technologies. From Adler's blog post:

Direct government subsidies are a particularly poor way to encourage innovation. Perhaps it should be possible to direct research and development funds toward the most promising and valuable technological endeavors, but this rarely happens in practice. Government subsidies tend to be dispersed on political criteria, rewarding large, politically connected incumbent firms, rather than innovative upstarts. Failing industrial dinosaurs with lobbyists on the payroll are in much better position to snatch up government goodies than revolutionary thinkers toiling in garages or private labs. Offering substantial financial rewards for those who develop particular innovations or solve specific problems is a far better way to spur technological innovation and practical scientific research. As the patent system demonstrates, the hope of a large financial windfall is a powerful inducement for innovation, and can encourage many different people with different strategies or insights to tackle a given problem. If climate change is an urgent threat, and the private sector underfunds climate-related research and development, government funding of prizes along the Virgin Earth model could yield substantial returns.

Adler's idea is interesting, but I'm not sure how it would apply to marine renewables. Some of the barriers to the emergence of a marine renewable industry - such as permitting projects, integrating power into the grid and making costs competitive can't be solved with prize money. While prizes seem like a good idea for single application solutions that won't operate in a competitive market (like designing a space ship), I'm not sure how effective prize money would be in developing new energy technologies. Still, Adler's piece is interesting and worth a read.

What are your thoughts? Please comment below.