ABSTRACT
The job of the economist is not to be omniscient, but to make use of the economic system to provide proper incentives for entrepreneurs to develop alternatives, based on considerations of risk and return. This chapter distinguishes a next-generation alternative from today's alternatives, and examines next-generation renewables, nonrenewables, and prospects that fall outside those categories such as fuel cells and batteries. It considers the role of markets and government in providing proper incentives for development of alternatives. The conversion of switchgrass to cellulosic ethanol would reduce greenhouse gases (GHG) emissions as compared to corn ethanol. Technology advancement is the instrument to commercialize these next-generation alternatives. However, R&D has public goods characteristics, making it difficult for private companies to prevent others from using unpatented technologies. Government funding, such as by the US Department of Energy (DOE), is prominent in developing these next-generation technologies. Nongovernment organizations such as X-Prize are another channel for rewarding next-generation energy entrepreneurs.
