Sharing the Clean-Car Prize

John McCain’s suggestion yesterday that the federal government offer a $300 million prize for the development of a next-generation battery for plug-in hybrids or electric cars is being derided in some quarters as bringing a “game-show ethos to American politics.” It is also awkward that Daniel Yergin’s definitive account of the oil industry’s quest for domination was entitled The Prize.

The idea of offering a cash award for a technological innovation is hardly unprecedented. Such bounties, however, are usually offered by private entities such as the X Prize Foundation. What McCain is forgetting is that when a prize is offered by government—that is, when taxpayer money is the source of the reward—the public should get some direct benefit for its “investment.” A benefit, that is, beyond the fact that the new technology would be available for sale.

This is the principle behind the proposal put forth by people such as James Love of the Consumer Project on Technology to replace privately financed drug research with taxpayer-funded prizes. Pharmaceutical researchers would get substantial sums for the creation of new treatments that create demonstrable improvements in health conditions. This does not, however, create windfalls for the winners. Drugs that receive the prize—which was incorporated into a bill introduced last fall by Vermont Sen. Bernie Sanders—would not have patent protection and thus would be widely available at a cheap generic price.

There’s no indication that McCain has this trade-off in mind. He presumably would want the winners of the battery competition to be rewarded twice—with the prize as well as the patent.

Until prizes and other “carrot” approaches succeed in bringing about cleaner cars, some government “sticks” will remain necessary. One disclosure-based version of the latter is being introduced in California. The state’s Air Resources Board announced last week that, beginning next January, every new car put on sale in California will be required to carry a label informing potential buyers of the vehicle’s environmental impact. The label will rate the car based both on its emissions of greenhouse gases and its contribution to smog. The Board already has a website that provides data on the cleanest, most fuel efficient cars on the market.

Compared to his dismaying embrace of expanded offshore oil drilling last week, McCain’s clean-battery-prize idea is not completely foolhardy. But he shouldn’t forget that the role of government is to put a check on business shortcomings—if only through mandated disclosure—rather than fostering more winner-take-all “solutions.”