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Entrepreneurs Must Lead the Charge in Carbon Reduction

Entrepreneur & Innovation Exchange
Published online at on November 09 2022
DOI: 10.32617/838-636bce1137bcf
Entrepreneurs Must Lead the Charge in Carbon Reduction
Dave Ketchen (Auburn University)
Andrew Balthrop (University of Arkansas)
KEYWORDS: Innovation, subsidies, carbon reduction.
Entrepreneurs, not federal government subsidies, are
the key to societal improvements. Consider, for
example, the newly passed Inflation Reduction Act. It
aims to reduce carbon emissions by giving billions of
dollars to consumers via subsidies. In doing so, it
misses the mark. Indeed, organizational research
makes clear that this sort of market intervention often is
ill-advised. Using Monte Carlo simulations, Hunt and
Fund (2016) found that government subsidies can
forestall more radical changes in long-term investments
into alternative technologies. Tokar, Jensen, and
Williams (2021) spotlight hidden costs in an effort to
urge caution about regulating e-commerce to manage
carbon emissions. Most recently, Hafsi and Baba (2022)
illustrate the problems associated with policy
overreaction, wherein emotion -- and not logic -- drives
Desperation to show action against climate change,
rather than logic, seems to underlie the program in the
Inflation Reduction Act that offers $14,000 in rebates
and tax incentives to households that purchase and
install new green appliances and equipment.[2] One
group of winners in the bill are those selling or installing
heat pumps, who receive a $2,000 tax credit for cost
and installation, and between $1750 and $8000 in direct
Heat pumps are a good technology and generally pretty
green. When used to cool air in the summer, they are
just air-conditioners (i.e., machines that pump heat
outside). But they can be operated in reverse during the
colder months, pumping heat from outside in. This
eliminates the need for a furnace, which is where much
of the energy savings are created. No energy is used in
producing heat; instead, existing heat is moved around.
There are many varieties and complexities: Heat pumps
can be used for water heaters; and, in addition to
outside air, water, solar, and geothermal sources can be
exploited as the source of heat.
But it is not clear that heat pumps will meaningfully
address environmental problems. The residential and
commercial sectors account for only 13% of carbon
emissions.[4] Much of the emission reduction from heat
pumps depends on the source of electricity generation.
If you are among the 21% of the U.S. population that
relies on coal for electricity, the purchase of a cheaper
tankless gas water heater[5] and a contribution to the
Nature Conservancy with the money saved might have
a greater environmental impact. Other environmental
considerations must be balanced. While heat pumps are
generally better in terms of greenhouse gases, life cycle
analysis indicates they are worse in a variety of other
environmental dimensions, particularly water use.[6]
Entrepreneurs Have Moved the
Historically, entrepreneurs such as Henry Ford, Thomas
Edison, and Steve Jobs have targeted societal needs
in their cases, transportation, artificial light, and
computing and created new products to fill those
needs. The results have been spectacular improved
quality of life for consumers and vast economic returns
for entrepreneurs. But imagine if the government had
paid for people to buy horses in the early 20th century
the adoption of automobiles might have been delayed
by years. Similarly, imagine if the government had
reimbursed consumers who bought DOS-based
personal computers in the 1980s Apple’s world-
changing innovative products might have never had a
chance to gain traction.
Who will be the next Ford, Edison, or Jobs? There are
exciting possibilities for decarbonization within firms’
supply chains, especially in transportation. One
possibility is to use battery-electric trucks that operate
similarly to electric passenger vehicles. Nikola and
Tesla are two companies that are working through the
inherent challenges of developing this technology,
including limited range and excess weight, which
translate into reduced transport capacity. An alternative
is hydrogen fuel cell electric, such as the vehicles sold
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(Ketchen & Balthrop, 2022) Page 2
by Hyzon Motors. Removing trucks from the road is
another solution being practiced by JB Hunt’s
Intermodal division, as they put long-haul truck routes
onto less carbon-intensive trains. It is not yet clear which
of these approaches is best. Maybe all of them have a
viable future. We need market competition to figure it
Opportunities abound in the consumer sector as well.
ChargerHelp! is a Los Angeles-based, minority-owned
startup that is attacking a difficult problem for electric
vehicle owners up to 40% of public access chargers
are broken at any given time.[7] Most problems are due
to software glitches. Launched in 2020, ChargerHelp!
provides on-demand technical assistance, much like a
tow truck goes where it is needed. Founders Kameale
Terry and Evette Ellis recently received 1,600
applications for 20 new positions. This is a classic
entrepreneurial success story identify a need and fill it
– both without government help.
What policymakers should do
In sum, rather than picking winners, government
policymakers should set parameters and let
entrepreneurs compete and flourish within those
parameters. One tangible example is carbon taxes.
Raising taxes involving carbon emissions shifts
incentives away from carbon-based energy and
encourages entrepreneurs to develop alternatives. As a
modest thought experiment, consider that the federal
gasoline tax of 18.4 cents per gallon was set in 1993.
Doubling the tax which would mirror inflation over the
last two decades would make carbon-based energy
less attractive to consumers and make relatively
expensive alternative fuels less costly on a relative
basis. This would in turn create a playing field within
which the economics surrounding entrepreneurs’
alternative energy inventions become more favorable.
[1] Hunt, R. A., & Fund, B. R. (2016). Intergenerational
fairness and the crowding out effects of well‐intended
environmental policies. Journal of Management
Studies, 53(5), 878-910
Tokar, T., Jensen, R., & Williams, B. D. (2021). A guide
to the seen costs and unseen benefits of e-commerce.
Business Horizons, 64(3), 323-332
Hafsi, T., & Baba, S. (2017). Exploring the process of
policy overreaction: The COVID-19 lockdown decisions.
Journal of Management Inquiry, 10564926221082494.
bill/5376 (Title V, Part 2 Section 50122).
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Policy overreaction is a common phenomenon, especially in complex and emergency situations where politicians are led to make decisions fast. In these emergency decisions, emotions run generally high and cognitive processes are often impaired. The conditions of policy overreaction are in place as emotions overwhelm decision makers’ rational processes. Drawing on the response patterns of three countries to the COVID-19 pandemic, we develop a process model of policy overreaction which describes the effects of negative emotions and institutional isomorphism on policy decision-making. Our model highlights four critical stages: negative emotions buildup, propagation of fear, isomorphic decision-making, and leading to an intractable crisis. This article shows precisely how the cascading effect of negative emotions, particularly fear, is contagious and spreads to generate crowd effects, which bend considerably policy makers’ ability to make rational decisions. Our theory provides a better understanding of the process by which policy overreaction takes place.
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