The Frontal Cortex

I'm excited by Nissan's announcement that the next generation Maxima will come up with a cleaner burning diesel engine:

Nissan Motor will offer its flagship Maxima sedan with a cleaner-burning diesel engine in the United States by 2010, the company's chief executive, Carlos Ghosn, said on Wednesday, offering new details of a plan intended to resonate with environmentally conscious consumers.

Modern diesel technology, already widespread in Europe, is slowly making its way to the United States. The new engines are a far cry from the coughing, stinking diesel engines of the past, and have lower greenhouse gas emissions and better fuel economy than gasoline engines.

Hybrids get all the hype, but diesels are a much more economical way to save gas and reduce emissions. The diesel engine is also a testament to the benefits of strict environmental regulation coupled with high gas prices. There's a reason the modern diesel engine was pioneered in Europe: the European car companies were forced to innovate. While GM is still dragging its heels and pouring its R&D dollars into building Cadillacs with 500 horsepower, foreign automakers are one step ahead of the curve, having spent the last few decades designing fuel-efficient engines. Meanwhile, the Big Three automakers (which are quickly becoming the not-so-Big Two) spent the last few decades giving us ever bigger trucks and SUV's. They've all but abandoned the small car market to imports.

Far sighted companies recognize that, sometimes, governmental regulation and targeted taxation is a requirement for innovation. It generates the incentives that drive R&D forward. This is why we need a carbon tax and stricter fuel efficiency regulations. As Thomas Friedman noted in his recent article:

Jeffrey Immelt, the chairman of General Electric, has worked for G.E. for 25 years. In that time, he told me, he has seen seven generations of innovation in G.E.'s medical equipment business -- in devices like M.R.I.s or CT scans -- because health care market incentives drove the innovation. In power, it's just the opposite. "Today, on the power side," he said, "we're still selling the same basic coal-fired power plants we had when I arrived. They're a little cleaner and more efficient now, but basically the same."

The one clean power area where G.E. is now into a third generation is wind turbines, "thanks to the European Union," Immelt said. Countries like Denmark, Spain and Germany imposed standards for wind power on their utilities and offered sustained subsidies, creating a big market for wind-turbine manufacturers in Europe in the 1980s, when America abandoned wind because the price of oil fell. "We grew our wind business in Europe," Immelt said.

As things stand now in America, Immelt said, "the market does not work in energy." The multibillion-dollar scale of investment that a company like G.E. is being asked to make in order to develop new clean-power technologies or that a utility is being asked to make in order to build coal sequestration facilities or nuclear plants is not going to happen at scale -- unless they know that coal and oil are going to be priced high enough for long enough that new investments will not be undercut in a few years by falling fossil fuel prices. "Carbon has to have a value," Immelt emphasized. "Today in the U.S. and China it has no value."