There's Plenty of Energy in This Race

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The Nuclear Option

In the candidates' policies over the long term, there is a fundamental philosophical difference. McCain and his advisor Doug Holtz-Eakin are firm believers in the power of the market. The government should not offer tax incentives or other subsidies to wind, solar, ethanol, or other renewable energy sources, they argue. Instead, a climate policy that sets caps on carbon dioxide emissions (and that allows trading of those emissions) would be enough.

Such a policy would raise the price of fossil fuels, making renewable energy more economically competitive. "A cap-and-trade plan would provide automatic incentives for every alternative form of energy," explains Holtz-Eakin. That's why McCain did not vote for the extension of tax credits for wind and solar power last year when they came up in the Senate (and failed to pass by one vote).

McCain isn't completely consistent in his belief in the Invisible Hand. Even as he attacks Obama for wanting the government to pick winners and losers, McCain is in favor of taxpayer support for new nuclear plants. "The only technology McCain wants to subsidize is nuclear power," says Joseph Romm, a former Energy Dept. official in the Clinton Administration.

Obama's Incentives Plan

To Obama and his supporters, alternative energy needs more help than the market forces can offer. In part, they say, that's because oil and gas have been the beneficiaries of decades of subsidies, so the playing field is far from level to begin with. In addition, most new technologies need some initial support to develop them to the point where they can compete without subsidies.

So Obama offers a combination of incentives and mandates. He would require that 25% of the electricity produced in the U.S. come from renewable sources by 2025. He suggests a $150 billion government investment in clean energy over 10 years. He'd even set up a U.S. venture capital fund to support nascent companies. And he wants lower caps on emissions of greenhouse gases than McCain supports, which would make fossil fuel even more expensive.

Which plan will work better? Many economists say that mandates and incentives are essential to meeting the twin goals of reducing energy dependence and combating climate change. But some also worry that a big government-funded effort to develop new technologies might not be the best use of the money. Remember Synfuels?

What is clear is that on this issue, the Presidential race is offering a choice.

Carey is a senior correspondent for BusinessWeek in Washington .