The biggest gains from investments in new renewable-energy technologies are not easily captured in private transactions, because they produce environmental services that are largely unpriced. Companies can sell consumers with a conscience a “share” in global greenhouse gas reduction – that’s what the growing business of carbon offsets
is all about. But consumers who don’t pay also get the benefits, creating a strong temptation to free ride. Companies can’t market to the consumers likely to benefit most, because they haven’t yet been born. Conventional fossil fuels are cost-effective now only because the environmental costs are dumped into a global commons that imposes costs on other people and future generations.
Public policies could remedy this problem, by imposing a tax on carbon emissions so that their market price better approximates their social cost. Adopting clean-energy standards would also increase demand for clean and green production, giving private companies greater incentive to invest.