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I recently became acquainted with the work of Danny Harvey, Prof. of Geography and a climate scientist at U. Toronto. Over the last few years, Danny has been putting together a large-scale energy plan that might be called a Renewable Electron Economy, to which a portion of this website is devoted. I believe Danny’s work is invaluable because he presents a great deal of detail about a wide range of technological solutions and also links these to climate scenarios. His website has a series of extensive powerpoint files which provide you with a great overview of most of the relevant issues in the climate and energy debate with a strong technical and scientific grounding. The materials on his website are available for educational use and with permission for other uses. Upon my request, he has sent the announcement of his new two volume book “Energy and the New Reality” published by Earthscan to which the powerpoint slides are linked. The first volume concerns reducing energy demand through energy efficiency and the second volume with carbon-free sources of energy. I highly recommend that anyone with even a mild interest in climate and energy issues take a look at Danny’s work.
Two new books by Danny Harvey (Dept of Geography, University of Toronto),
Energy and the New Reality, Volume 1: Energy Efficiency and the Demand for Energy Services (Earthscan, UK, 614 pages)
Energy and the New Reality, Volume 2: Carbon-Free Energy Supply (Earthscan, UK, 576 pages),
comprehensively and critically assess what it would take to stabilize atmospheric CO2 concentration at no greater than 450 ppmv, and can be purchased through links on my website (given in the email signature).
Some of the key conclusions from these books are that
• it is still technically and economically feasible to cap CO2 at no more than 450 ppmv without replacing existing nuclear power capacity as it retires and without resorting to carbon capture and storage (CCS), although the latter could be – in combination with bioenergy – part of a strategy to more rapidly draw down atmospheric CO2 from its peak than would otherwise occur;
• nuclear energy and CCS would, at best, be too little too late, whereas reliable C-free energy systems can be built up on the required time frame and likely at no greater cost than nuclear energy or CCS; and
• we will almost certainly have to abandon our insistence on continuous economic growth above all else if we are to have a reasonable chance of avoiding eventual global ecological and social catastrophe.
Complimenting these books are powerpoint presentations (with figures, summary tables, and explanatory notes) for each chapter (a total of 1899 slides) that can be obtained either through the publisher’s website (www.earthscan.co.uk/?tabid=102427) or the author’s website (faculty.geog.utoronto.ca/Harvey/Harvey/index.htm). These powerpoint files would be a valuable resource even without purchasing the books, but if slides from them are used in any public presentations, the source of the figures (whether the author of the books or the original sources given with the figures) should be acknowledged.
Also posted on my author’s website are (1) pdfs of the table of contents and chapter highlights for each book, (2) pdfs of the summary (policy) chapters from each book, (3) the package of Excel files used to generate all of the energy demand and supply scenarios presented in the two books, (4) an Excel-based building stock turnover and energy demand model, (5) the FORTRAN code and input files that are also used in one step in generating the energy demand scenarios, and (6) the flyer for the books and a link to the publisher’s website for those who wish to purchase the books (for professors, complimentary copies can be obtained if the books are adopted as course textbooks).
The author’s website also contains an Excel package on climate and carbon-cycle modeling that will be part of the online material associated with the author’s chapter in the forthcoming book, “Environmental Modelling: Finding Simplicity in Complexity, 2nd Edition” (Wiley-Blackwell, John Wainwright and Mark Mulligan, eds.). CO2 emission output from the Energy Excel package can be conveniently pasted into the second Excel package and used to generate scenarios of global mean temperature change for a variety of easily-changed assumptions concerning climate sensitivity and the strength of various climate-carbon cycle and internal carbon cycle feedbacks.
FURTHER DETAILS ON THE EXCEL FILES AND FORTRAN CODE:
The idea behind posting the Excel files and FORTRAN code is to permit those who are so interested to generate their own scenarios with their own input assumptions concerning population, GDP per person, activity levels per person, and physical energy intensities for various energy end uses in 10 different geopolitical regions, as well as to generate scenarios for energy supply from various C-free energy sources. Outputs from these files include global demand for fuels and electricity, annual material and energy inputs required to build a new energy infrastructure, land requirements for bioenergy, and annual and cumulative CO2 emissions to 2100 (the CO2 emissions in turn were used as inputs to a coupled climate-carbon cycle model to produce the scenarios of global mean warming and ocean acidification that are given in ENR Volume 2). The FORTRAN code applies a building stock turnover model to 2 different energy sources (fuels and electricity) in two different building sectors (residential and commercial) in the 10 geopolitical regions, and uses as input the growth in regional building floor area as generated from the Excel demand scenarios, along with a variety of other inputs.
The stock turnover model has also been implemented in Excel for one generic fuel, building type and region for those who wish to adjust the inputs to a particular region and building type of interest so as to explore the impact of alternative assumptions concerning growth in total floor area, rates of building renovation and replacement, and the change over time in the total energy intensity (annual energy use per unit floor area) of new buildings and of newly-renovated buildings.
The climate-carbon cycle Excel package (subsequently referred to as the CCC package) has three parts. The first part contains a number of worksheets that explain the physics of climate change and the development and properties of simple climate and carbon cycle model components. The second part of the CCC package contains a highly-simplified representation of the energy demand and supply framework used in my two energy books. These give scenarios of global fossil fuel emissions of CO2. CCC package also has worksheets that give land use emissions of CO2 and total anthropogenic emissions of CH4, N2O and halocarbons (all subject to alteration). The impacts (radiative forcings) of tropospheric ozone and aerosols are computed in a manner that is roughly consistent with the fossil fuel and land use CO2 emissions. The third part of the CCC package contains a coupled climate-carbon cycle model (built from the components illustrated in Part 1) that is driven by the outputs from Part 2. The climate sensitivity and a number of carbon-cycle and climate-carbon cycle feedbacks can be specified (including the possibility of eventually catastrophic releases of CO2 and methane from permafrost regions beginning slowly at some user-specified threshold temperature change). The climate-carbon cycle model in the CCC package can be driven either with the fossil fuel CO2 emissions that are generated from Part 2 of the package, or with the CO2 emissions that are produced from the Excel package for the two energy books (these emissions can be pasted into the CCC package). In this way, those who are so interested can explore the range of possible impacts on climatic change (given uncertainty in climate sensitivity and climate-carbon cycle feedbacks) resulting from very specific assumptions concerning future population, economic growth, activity levels and physical energy intensities at the regional level, and in the rate of deployment of C-free energy supplies at the global scale.
Tags: cap and trade, carbon tax, Electric Vehicles, Feed In Tariffs, Infrastructure, rail electrification, Renewable Energy
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In Part 1, I offered a critique of cap and trade in its existing implementations and located key flaws which make it highly unlikely that it will achieve its emissions reduction goals, even if somehow it is strengthened. In part 2, I highlighted two problematic aspects of cap and trade and then went on to examine what are the fundamental challenges of climate policy. Then I offered a list of the general features of any effective climate policy.
Turning to positive solutions rather than criticsms, I will offer here two main options, the first one mainstream and the second heterodox and project-based; both of which are easily configured for quicker and more certain emissions reductions than via cap and trade.
Comprehensive Climate and Energy Policy Package with Carbon Tax/Fee
Climate policy has emerged with a focus on markets and changing market behavior (ignoring infrastructure development to a large degree), so the “mainstream” approach below would also transparently give responsible parties control over the process. While the “one-stop shop” aspect of cap and trade overextends this already misapplied policy, a package of interacting measures that are, with fairly straightforward calibrations, guaranteed to cut emissions quickly can easily be put together. The below policy package avoids handing off climate and energy policy to an unaccountable carbon market and invite undue influence by financial traders. It also has the potential to be much more effective than a cap and trade centered policies. On the other hand it is “market-based” in that it relies on the more accurate carbon tax/fee price signal to shape market behavior rather than cap and trade’s muddy signal.
1) Emissions-Reduction Path with Targets: Set an emissions-reduction path with target goal posts (2015, 2020, 2025, etc.): Not the reassuring “cap” metaphor but an analog to the cap without the false reassurances that it contains. The target or path could be expressed in terms of an average carbon-intensity for economic activity that yields the same path. Using a carbon-intensity target allows adjustments to be made so efforts to cut emissions do not shut down industries before they are able to transition to lower carbon alternatives. I would recommend the “emergency pathway” as defined by Greenhouse Development Rights that uses the 350 parts per million carbon dioxide target, though others may object to its ambitious goals.
2) Carbon Fee or Tax: Set a carbon price in the form of a carbon fee or tax fixed but rising year by year that will, according to at first estimates and then experience, reduce emissions along the path. If the tax does not yield the necessary cuts, increases in the tax/fee levels will be accelerated. A tax or fee enables companies to calculate the value of carbon emissions and make the actual investments that will cut emissions rather than deal with a broad range of expected carbon permit values, as would result from cap and trade.
- Calibration – A carbon tax would be calibrated to achieve the emissions targets along the path in bullet “1” though overachieving will be encouraged. If tax levels inflict damage on economic well-being or capacity, tax levels may be reduced, though it is to be expected that there will be periods in which some economic pain will be inflicted by the tax to encourage better economic decision-making and innovation. Expectations need to be set from the outset that some pain is involved in transitioning to a more sustainable economy, though excessive pain is to be avoided.
- Revenue stream – There are arguments among tax/fee advocates (as well as cap and trade advocates for the revenues from permit auctions) about where the revenues should go. Here are my recommendations:
- One third of the carbon tax revenues should be used to dampen the effects of the costs of rising energy prices on the poorest, preferably via energy efficiency upgrades to housing (modeled on weatherization programs).
- One third should be used to help fund infrastructure that enables a zero carbon future (electric trains, electric transmission)
- One third will go into a international carbon trust which will fund development products, changed agricultural practices, forest maintenance and growth efforts with strict performance standards and baseline assumptions.
- Exemptions and Credits – Some argue against any exemptions and credits, seeing a flat tax as simpler. However, I, as an example, believe taxing certain activities that cut carbon is counterproductive. Additionally I want to show that it is possible to develop and regulate cross-border certified emissions reduction credits in a tax system if such a credit sub-system ends up being desirable. I believe however that these necessary accommodations to the complexity of the situation are much more transparent and can lead to more productive dispute resolution than via the arcana of the trading system.
- It makes no sense to levy the full carbon tax level on the very infrastructure projects that lead to carbon neutrality. If a construction project embeds fossil emissions in a zero-emission technology (electrification of a train system, renewable energy infrastructure), then the emissions from construction equipment or concrete making for that project should be at least partially exempt. Alternatively there could be a percentage exemption depending on the level of carbon reduction achieved (coal to natural gas conversions).
- Just as with the current offset market it might be made possible to sell certified emissions-reduction credits that represent emissions reductions in other areas or other countries. These credits would need to be rigorously certified and limited to only a certain fraction of carbon tax liability.
3) International Agreements – Utilizing existing international institutions, nations around the world can come to agreements on both monetary fees for carbon emissions and overall emissions reduction targets. The addition of a monetary amount will force action by governments and businesses more rapidly than the abstractions of the carbon market. Agreements will focus on:
- Worldwide Emissions Targets and Path
- International Carbon Price(s) – Calibrated to achieving emissions targets, the international carbon price will be closer to actual microeconomic decision-making than permit pricing system of cap and trade. Choices are either a unitary price or a development-adjusted price depending on level of development. Some countries may be more “entitled” to pollute given their lesser historical contribution to total atmospheric concentrations of carbon. On the other hand, despite an “entitlement” to pollute more, some developing countries may want to go “cold turkey” and use the higher carbon tariff of the developed countries to spur sustainable development at home.
- Carbon tariff regime – with differential taxation in different countries, countries would levy tariffs upon importation either up to the amount of the unitary international carbon price or up to the amount of the development-adjusted carbon price. While this contradicts “free trade” orthodoxy, under an international agreement there should be no problem in levying this type of tariff. The WTO can be outfitted to handle disputes and generating agreements carbon tariffs and integrating climate policy with trade.
- International Standards and Best Practices – Agreement on standards, certifications, and grading systems for energy efficiency and low emissions technologies (see below)
4) Zero-Carbon Infrastructure Development– While the Obama Administration has embarked on pieces of this, a full-scale climate policy would front-load spending, including deficit spending, on building zero-carbon infrastructure and energy generation. The main source of funding would come from tax revenues and use fees. This area is largely neglected by the cap and trade instrument.
- Renewable Energy Supergrids and regional grids – Link high renewable energy areas with demand centers via development of a HVDC and where appropriate high voltage AC transmission.
- Renewable Energy Zones – Expedite environmental impact studies for high value renewable energy zones with strong sun, wind, geothermal resouces.
- Feed-in-Tariffs – Funding of private, community and household investment in renewable energy generators via clean energy surcharges to electric bills.
- Electric Freight Transport System
- Grade-separate and improve existing freight railbeds
- Add additional tracks to high traffic railbeds to allow more rail freight
- Electrify all high and moderate traffic rail routes
- Electric Passenger Transport System
- Build high speed rail backbone
- Enable improved track-sharing between freight and passenger traffic for lower-traffic routes.
- Build electrified bus and tram routes in high density/high-traffic city environments.
- Electric Vehicle Recharge Infrastructure
- Trickle charge (220V and lower) public charge network
- Battery-swap infrastructure
- Fast-charge (480V and higher) public charge network
5) Best Practices, Certifications, Standards and Rulemaking– Develop for most economic sectors, a set of best practices and standards that are based on cutting emissions as well as other elements of sustainable development (conservation of the earth’s natural wealth). Standards would be either voluntary or mandatory depending on the level of imposed costs of meeting these standards by market participants and the existence of alternatives to meet the overall goals of the standards. Rigorous standards like the passive house standard should be encouraged as well as graded standards that represent a “path” to carbon neutral solutions. In certain vital areas, standards may be come laws to rule out certain practices that are simply unacceptable. An example of the latter could be a moratorium on new coal power plants.
6) International Afforestation Program – Using revenue streams from carbon fees and tariffs, generate local solutions to maintaining living biomass. Carbon taxes or other disincentives may be levied on activities that release excess carbon into the atmosphere.
7) International Agricultural Carbon Sequestration Program – Using revenue streams from carbon fees, incentivize low-emission, high sequestration variants of agriculture and food practices. In the future, once a baseline for carbon sequestration may be achieved, carbon taxes may be levied on high emission forms of agriculture.
8) Black Carbon Reduction Program – One of the more tractable climate problems though still a challenge is to introduce existing emissions control technology or develop alternatives to combustion of hydrocarbons and biomass that produce soot or black carbon. We already have most of the technology to limit soot emissions from internal combustion engines and factories. More challenging is coming up with culturally-acceptable solutions for cooking with wood in less developed countries.
9) International Technical and Scientific Cooperation – Create the equivalent of an international energy and climate research fund that supplements the work being done on national levels towards specific technical solutions to emissions. Could develop in conjunction with IPCC WG III. One area of research should be emergency measures like geo-engineering.
If adopted as a package, the above measures address all 11 generic elements of carbon policy and have none of the 10 drawbacks of cap and trade. This approach transparently identifies governments as the responsible parties for reducing carbon emissions. This comprehensive climate and energy policy does not interfere with their ability to respond to changing climate circumstances and removes unaccountable financial markets from the core of climate policy.
Tags: cap and trade, carbon tax, Energy Efficiency, Energy Policy, Energy Pricing, Sustainability
In the first part of this post I identified 10 features of cap and trade, the favored climate policy of many policy elites at this point in time, that make the policy ineffectual. I outlined how cap and trade was sold to America and the world based on faulty assumptions as well as its superficial political appeal to the then Clinton Administration. Contrary to the story told in climate activist and sympathetic policy circles, cap and trade has been comparatively ineffective as a means to reduce emissions of either SOx or GHGs. I argue that this is a structural problem with cap and trade, not a mistake in implementation.
The Gulf Between Gutlessness and “All the Guts in the World”
Cap and trade is a hybrid policy, the mixture of a price mechanism and permit regulation. In theory, the three “motors” of cap and trade are the economic pain caused by having to buy permits (or the anticipation thereof), the profit gained by market participants in exploiting the permit and pollution troubles of others, or the prospect of running out of permits and being subject to some penalty inclusive of actual “police action” on the part of regulators. As with any permitting system, permits are meaningless without the threat of, potentially, monetary and criminal penalties. For instance, fish and game wardens need to be able to stop hunters and fishermen from taking animals for which they do not have permits.
However, cap and trade systems hide and, it appears infinitely, postpone the moment where regulators would have to essentially shut down the operations of various industrial or power generation facilities because they no longer possess permits to pollute (which they would have to do to operate using their current technology). For instance if a financially troubled power utility or plant operator ran out of permits on November 5, to meet the cap regulators would have to shut down one or more power plants until January 1. This might mean blackouts and brownouts to homes, businesses and, of course, hospitals. It would therefore take “all the guts in the world” for a regulator or government to enforce the cap, standing down the cries of people who will have to live with no or extremely unreliable electricity. Yes the notions of “banking and borrowing” permits are meant to reassure system users that this day of reckoning will never come. Yet this process undermines the power of the permits and the firmness of the cap.
Furthermore, at the point when this theoretical moment of enforcement might occur, the net effect would actually show the regulators/government in a very negative light because punishment might come as a consequence of a lack of “clever” permit-market behavior on the part of the power plant operators. Their power plants may be no more carbon intensive than the next but they may simply have been outfoxed by other permit buyers or various manipulators of the permit market. In this case, the punishment will seem arbitrary.
So we can now understand the design and behavior of the designers of real existing cap and trade systems a little better by recognizing this disjuncture between the lax disbursement of permits (Kyoto/EU-ETS and current Congressional bills), the various softening and smoothing mechanisms (banking and borrowing) and the need for some kind of real enforcement of the cap. It would subvert the politics of the policy to actually meet the cap through the harsh regulation that would almost certainly never happen or would be largely meaningless within the cap and trade framework.
While regulatory and political guts will be required to meet the climate change challenge, the imposition of harsh measures should be seen far in advance to allow adequate time for polluters to take action to cut emissions. Cap and trade’s framework does not allow for this type of lead-time before administrative measures are taken.
True Belief in Markets vs. a Baroque Policy Mess
As you might glean from how I write about these matters, I am no market absolutist nor believer in the efficient market hypothesis (EMH) which assumes exclusively rational information processing by market participants in aggregate. I think it is more reasonable to assume that people can be both economically rational and economically irrational or can alternate between the two at different times or in different contexts. Economists are also coming around to realizing how central irrationality is in our economic behavior: there has now been about a decade of behavioral economic research as well as the coming to grips with the fact that our recent crash was in part caused by a belief in the almost total predominance of rational, utility-maximizing economic behavior.
Whatever the balance of rationality and irrationality in human economic behavior, cap and trade (or carbon taxation/fees) with good justification attempts to mobilize the economic rationality of individual market actors in the service of climate protection by introducing a carbon price that will influence procurement and operations decisions. Rational economic man (or woman), according to the theory, only needs the information of price to make rational, optimal decisions. In cap and trade, the carbon price and market is supposed to be the link between merely pro-forma climate action in the form of permit giveaways/postponement of action by regulators and the theoretical, never-to-be-activated harsh punishments for exceeding the cap. Polluters are supposed to know that they are in trouble when they start paying more and more for polluting, sending to them a signal, the price signal that they need to change their operations. Rather than the impingement of some set of rules upon the company’s operations, the price is going to tell that economic actor “how much” it will be worth it for them to do something, so they can make an rational choice among a range of options.
The most productive use of a price signal will be if firms anticipate the economic pain caused by the signal before it gets expensive for them; once they are in trouble and overpaying for permits they will have less of an ability to make expensive long-term investments, especially if they are an emission-intensive business like power generation or cement making. With cap and trade, there may be sudden surprises in the carbon markets which will put firms into trouble even with adequate planning.
I’ve already outlined how flawed cap and trade is in generating the price signal due to the variability of the carbon price that results both via auctioning and via permit trading. In both cases there will be a lot of market “noise” related to how much people think something is worth rather than what it is worth fundamentally in terms of the climate. The “how much” will be almost impossible to calculate accurately under cap and trade as conceived and as urged by climate action groups that believe in cap and trade with all permits auctioned off as the gold standard of climate regulation. This will make investment decision making tools like net present value difficult to use as you cannot calculate the negative cash flows into the future that are attributable to the carbon price. This is not because net present value (NPV) is more environmentally insensitive than any other investment tool: it’s just sloppy policy-making to defeat the purpose for which you are instituting a policy! Cap and trade would have to invent its own more baroque micro-economics and corporate finance tools that will always be more inefficient and fault-prone than using a simple price signal and NPV.
So if true belief in markets and economic rationality of individual market actors is fundamental, then a carbon tax or fee that is correlated directly with the amount of carbon or global warming potential (dealing with more powerful greenhouse gases than carbon dioxide) emitted is the clearest, most predictable price signal. Cap and trade’s baroque double decker market structure is like a climate policy that has been thought up by an overeager 5-year-old who gleefully stacks markets on top of markets because it seems more “market-like”. Having one “meta-market” emit the carbon price to the real market for carbon emissions reduction solutions is a bad idea. An excess of markets in this case does not encourage rational economic behavior on the part of individual market actors.
“It’s All that We Have”: Making Do is not Good Enough
A number of commentators, bloggers, and politicians critical of the state of climate policy nevertheless hang on to cap and trade. Some agree with some of my criticisms while others might find my foregoing criticisms gratuitous or simply giving aid and comfort to climate deniers. Or, even if they are frightened of the monumental hand-off of responsibility that is contained within the cap and trade system, they might feel that so much political capital has been spent on cap and trade that it must be defended as the embodiment of climate policy itself.
Below, I will suggest that in fact we have a wealth of choice in the area of climate policy, almost all of which will be more effective and efficient than cap and trade. For one, governments around the world including the Obama Administration are taking action in other areas that do not deal with carbon pricing or trading of permits or credits/offsets. You could say that governments that openly advocate a cap and trade system might be seen as also hedging their bets. Secondly, it will be fairly easy to replace cap and trade with an ensemble of different measures or a carbon tax with any number of features. If history is any guide, other countries have implemented a carbon tax within months rather than the years long efforts to install cap and trade systems.
It pains me that so many people many of them good-hearted and well-intentioned have expended political capital and reputations on such a faulty instrument. In their own defense, depending on their social scientific or business backgrounds, they could not necessarily have known differently. However, that is no reason to stay with an instrument that has a high probability of gumming up the wheels on climate action rather than speeding it up.
Before describing alternatives to cap and trade, I want to first outline what I think the tasks are that the policy needs to address. Without a common vocabulary for these tasks, stripped of bias towards a particular policy instrument, you, the reader, won’t be able to evaluate whether these are substantially better than what we have already. In most cases I am not reinventing the wheel, but simply observing and compiling what I see is out there already.
The Fundamental Challenge of Climate Policy
The fundamental challenge facing governments, climate activists, green-oriented businesses, and concerned citizens is a neat intersection between a massive policy challenge and a massive political challenge of the early 21st Century. Policy and politics are not always so closely intermingled but in this case they run for historical reasons very closely together.
Instituting cap and trade rather than more effective policies is a bad idea spawned of an era in which government was supposed to become more “market-like” in all matters. We have discovered in so many areas of life that this philosophy of government is flawed, despite continuing political disagreements around this issue in governments around the world. Our current generation of politicians got elected by taking one stance or another (but mostly one stance) on the either/or proposition of whether government or markets were “better”. Markets unregulated, as it turns out, encourage short term thinking and satisfaction of immediate appetites. Fortunately or unfortunately, to face the future threat of climate change, a revision of government’s distinctive place vis-à-vis regulation of markets and our own appetites is required.
Climate policy has the unenviable task of
- saying “stop” to our impulses to overuse fossil fuels and overexploit the world’s forests and soils,
- directing, under constant political attack, substantial streams of public and private investment to building a new energy and energy-use system and
- changing our patterns of land use to fix more carbon in plants and soil.
This places government, and government is the only instrument up to the task, at loggerheads with citizens’ and businesses’ impulses to use more and more energy (and non-renewable natural resources), as cheaply as possible with a disregard for the negative consequences. While ideally such policies would enact a form of “aikido” on our wishes, using the momentum of our wants for more and better stuff to instead be used to transform society for good, there still needs to be a firm boundary and governmental “center of gravity” that is clear to all (otherwise it cannot perform aikido on anything). In the end, what is required is the return of government’s legitimate role and moral authority to set this type of reasonable limit and redirect energies that would otherwise go elsewhere.
The analogy of speeding on the highway can bring this closer to our personal experience. Without traffic cops, many of us, including myself, would drive too fast, increasing the possibility of fatal accidents; furthermore automakers have tended to put whatever mechanical efficiency gains that come from among other devices, turbochargers, into making cars more powerful and “fun to drive” than into gains in mileage. Yes, there are those of us with a conscience or without the interest in driving fast but we cannot count on these forces alone to curb fast driving, especially given the powerful automobiles to which we now have access. The police who catch speeders are not very popular but, if they avoid corruption and are not subject to absurd ideological attack, they maintain moral authority and can do their job.
Fossil fuel use (or wanton deforestation) is similar to the propensity to speed in that it offers us and our economy an easy way to satisfy our wants without regard for the long-term consequences. Fossil fuels are notably energy dense and we in most developed or in oil-rich countries do not pay nearly enough for them given their social and environmental costs. In an uncharacteristic moment of clarity within his Presidency, George W. Bush put his finger on it when he said that “America is addicted to oil”. As in addiction, only firm limits and sometimes harsh measures are able to stop the addict from re-using the drug he or she desires. The authority of government to intervene (double entendre!) in the domestic economy has been over the past 30 year undermined by an ongoing political barrage that suggests that government has less legitimacy and moral authority than the market. Cap and trade is an effort to wrap government in the faux moral authority of the market, as promoted by the market fundamentalist creed of the last 3 decades. The market unregulated, as it turns out, is amoral, not caring that much about long term consequences. Markets are not “bad” or essentially immoral, they just are tools that lately have been called on to do tasks to which they are ill-suited. As even Alan Greenspan now attests, they have been fundamentally misunderstood most notably by him and by many others.
Especially in the US but also abroad, governments, in order to do their work, must re-establish moral legitimacy in many areas of domestic policy which have been thrown into question by our decades-long experiment in market fundamentalism. The substance of the politics surrounding cap and trade is largely about the moral authority of government to restructure our energy system and secondarily about the legitimacy of natural science. The content of this moral legitimacy is that government can when functioning well, represent the general or common interest in making and enforcing rules, collecting taxes, and spending that revenue for the purpose of maintaining and improving the future viability of the nation. Even more so in the area of climate change, which will mean over a period of a decade or two, dramatic changes in at least three sectors of our economy, governments’ moral legitimacy needs to be well established to effect whatever policy is chosen.
Cap and trade’s “prospectus” (a.k.a. political sales pitch) suggests that government can after declaring a “cap” essentially recede into the background, while the “hand” of the permit trading market does its work. Its superficial political attraction is that it reinforces the pre-existing “rap” that government is “bad’ or ineffective and the market is “good” and effective. However, to work in any shape or form, climate regulation and policy, including cap and trade systems such as they are, is going to need government action in spades. So, cap and trade sets up its advocates for a long-term political defeat: even if a weakened form of it passes, people will ultimately start to wonder why there is so much government involved in cap and trade (and so ineffectually at that). Maybe its advocates believe that “people know” that cap and trade is really just another government regulatory program and won’t feel betrayed; given the state of civic understanding of government’s role, I believe they are sorely misinformed.
Ultimately the leaders of government(s) are going to need to take responsibility for protecting their people and the environment from substantial degradation via curbing our own emissions of greenhouse gases. The language and parallel institutions of cap and trade interfere directly with the process of by which government leaders would take responsibility, suggesting that automatic processes will “take care of themselves” via the invisible hand of the carbon permit market. I have demonstrated that such an invisible hand will play tricks with the policy itself compromising its effectiveness. Both the policy in its pure form and even more so efforts to curb its tendencies will create a baroque structure that does not work directly and efficiently on the basic tasks that are required to reduce carbon emissions rapidly within a decade.
The Basic Elements of Climate and Energy Policy
To open up the field of alternatives to cap and trade, as well as understand cap and trade better in context, we need to understand what the generic tasks of any climate and energy policy would be. A comprehensive climate and energy policy has most of these elements independent of policy instrument choice:
- Disincentives for (or rules against) the use of fossil fuels, leading either immediately to switching to virtually carbon neutral fuels/energy sources or vastly more efficient use of fossil fuels prior to switching to carbon neutral energy.
- Incentives for private investors to build carbon neutral electric generation and carbon-neutral energy storage as replacements for fossil electric generation.
- Incentives for vastly more efficient energy use of all types in transportation, buildings and industrial processes (or conversely disincentives to “waste energy”).
- Provision of or facilitating the financing of site- and regionally-specific public goods that lead to carbon neutral energy use (electric transmission, electrification of railways, build out of railways, electric vehicle recharging networks).
- Revenue sources for financing public goods and incentive programs that enable a society to cut emissions.
- Incentives for maintaining and increasing carbon sequestration in land use in agriculture, silviculture and in forest preserves.
- Disincentives for (or rules against) the release of sequestered carbon in land, vegetation, and sea.
- Reduce black carbon emissions via introducing emissions controls or alternatives to biomass combustion or other black carbon sources.
- Develop, identify and institute standards for lower- and zero-emissions technologies and processes.
- Generate regional and national plans based on better and best practices to curb emissions
- Fund basic climate and energy research
There is no single policy that does all of these tasks well nor will some policy package address all of them. We see that cap and trade is an attempt to address a number of them with a single instrument, most particularly numbers 1, 3, 5, and 6. As we have indicated cap and trade’s inherent laxness and unclear carbon price signal interfere with 1 and 3 (energy efficiency, fuel switching, and restriction of fossil fuel use). It does offer to join these efforts with 6, which has spurred interest in the developing world. Again there have been difficulties in establishing whether funded carbon sinks/offsets needed the funding and also run into problems with 7, the release of carbon once sequestered. Would development projects need to pay the money back if the forest they are leaving to grow is cut down by them or someone else?
The temptation of policy makers, in their first take on a climate policy to lump a number of concerns together is understandable, especially if climate policy, in relative terms, has been a low priority. However cap and trade has been extremely cumbersome to set up and ineffective or marginally effective in each of these areas with a high probability of continued problems given its long list of inherent flaws. Moving to or at least seriously considering any one of a number of alternatives is advisable given cap and trade’s ability to block other policies and clog governmental channels. Furthermore translating our thinking about climate into its terms limits our ability to imagine other scenarios that will work much better. In every one of these categories there is a more effective instrument than cap and trade, meaning that we of necessity must move to a multiple instrument platform because of cap and trade’s lack of effectiveness as well its (and any instrument’s) lack of comprehensiveness.
I will offer here (in the next part) two main directions, one mainstream and the other “heterodox”, that both will achieve more quickly and easily emissions reductions than cap and trade.
Carbon Pricing is Just One Piece of the Puzzle: Towards a Comprehensive Climate and Energy Policy – Part 5 (of 5) February 26, 2009Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Green Activism, Green Building, Renewable Energy, Sustainable Thinking.
Tags: Cap and Trade System, carbon tax, Comprehensive Climate and Energy Policy, Electric Vehicles, Electrified Rail, Passive house, Utility Regulation
In the first three parts of this long piece (one, two, three), I outlined how our economic common sense has changed since the economic crisis of late 2008; monetarism/supply-side economics has given way to some newer version of Keynesianism. I went on to claim that a primary focus on carbon pricing shows traces of the idealized vision of the market that one finds in the “free market” schools of economics; climate activists have pinned most of their hopes on carbon pricing to remedy the singular catastrophic market failure of unaccounted-for carbon emissions. In part 4, I pointed out that there are two other important market failures which block effective action on climate in the US and elsewhere. We then have the following list of market failures that are relevant to climate and energy policy:
- Externalization of costs of climate change attributable to carbon emissions
- Externalization of costs of infrastructure building and maintenance and high fixed capital costs of long-term private capital investment
- Deployment of capital intensive clean energy technologies
- Coordination of management and finance of upgrades to electric grid.
- Re-design and electrification of transport infrastructure
- Externalization of costs of scientific research and development
Outline of a Comprehensive Climate and Energy Policy
A comprehensive climate and energy policy can allow for differentiated roles for national states, regional and local governments, and for private businesses and individuals with differing potential contributions to reducing carbon emissions and building a 21st century sustainable economy. Thus a view of economies as not just a uniform collection of individual actors responding to a pricing regime makes the picture more complex but also potentially more effective.
- A reversal in emissions trends is necessary within the next 5 years
- Sharp reductions in emissions are necessary within the next 10 years
- A “glide path” to zero net emissions needs to be entered into within the next 3 years, there is no time for commitment to new long-lasting infrastructure with incremental reductions.
- The US and the world population are generally not yet ready to pay anything more than a fraction of the externalized cost of current carbon emissions.
- Uncertainties and changes in economic theory and assumptions require an examination of the degree to which climate policy contains disputed assumptions about economic behavior change and investment behavior.
- Government policy and leaders have a key role in addressing failures of the market to respond to challenges both internal to and external to the market.
- Costs and benefits of government policies and expenditures must be adequately explained and accounted for by policymakers and political leaders.
- The economically stimulative effects and benefits of a comprehensive policy will either match or exceed its net costs for the United States, involving outlays and revenues in the area of several trillion dollars over the period of a decade.
“Traditional” Regulation (partially addresses “Market Failure 1”)
If governments can and at times must take a leadership role in managing the economy, they can do so in part by imposing laws that are in our long-term benefit. Especially if ample consideration is made of the resulting costs and administrative overhead required to implement laws and new rules, these new rules can remove long-standing barriers to making progress in the area of energy, energy efficiency and climate protections.
We have seen that carbon pricing was proposed as a means of avoiding some of the supposed bureaucratic drawbacks of traditional regulation. As it turns out in the case of sulphur dioxide that traditional regulation that dictated the installation of emissions scrubbers was, in some countries, more effective than the US cap and trade system in reducing acid rain pollution. In addition to a fascination with a particular partial economic model, relying on carbon pricing alone might be simply an abdication of the authority of government in the face of resistance by industry. Sometimes leaders need to “put their foot down”, if there is an overwhelming case to be made for new rules made and administered wisely.
- Coal Plant Moratorium – The primary regulation that must be a part of a comprehensive climate and energy policy is a moratorium on new coal-fired power plants without carbon capture and sequestration. If power utilities find this onerous, they must lobby for regulations and subsidies that make this possible for them on all levels of their businesses. There is no time to wait for the erection of a carbon pricing system to “suggest” that this should happen through an array of artfully calibrated disincentives.
- Utility Revenue Decoupling – An additional key regulation that is often overlooked is decoupling the revenues of investor-owned power utilities from the amount of energy sales, which is the regulatory regime in California. This allows power utilities to participate in energy efficiency projects as it carries with it a fairly significant financial incentive for them to cut energy use by end users as they receive higher power rates the subsequent year from the public utilities commission if they have achieved their goals.
- National Building Codes that Meet or Exceed California Title 24 – California has led the nation in energy efficiency requirements for new buildings and renovations with its Title 24 standard. A much more ambitious standard that would require a revolution in the home construction and renovation industry in the US would be to adopt the passive house standard in which space conditioning costs are slashed by 80 to 90%. Additionally “smart codes” may help urban planners and developers site and build buildings and communities with lower total energy requirements by developing “in-fill”.
- National Renewable Electricity Standard (as Target) – The adoption of a percentage minimum renewable energy for the national electric grid– is productive as long as it is
- ambitious (25% or greater by 2020),
- paired with substantial finance support for renewable energy,
- a rising percentage of renewable energy projects are built as replacements for fossil resources (dispatchable or synchronous with power demand)
- is pro-rated based on renewable resource base per region thereby balancing risk between regions dependent on their resource wealth.
National Energy Efficiency Standards – Utilities and government can be mandated to cut energy use by an aggressive percentage per 4 year period (10-15%). As in California, a portion of electric rates collected can be used to pay for a portion of the efficiency upgrades in the form of rebates. Additionally the Energy Star program and minimum efficiency standards for hard goods should be expanded and made more aggressive. A carbon price can hasten the implementation of an efficiency standard by raising the price of energy.
- Aggressive Auto Efficiency Standard (CAFE) – Without high fuel prices, auto efficiency standards are difficult to impose as buyers tend to demand larger, less efficient vehicles. Still, an efficiency standard can create targets based on engineering best practices that may help automakers plan their auto line as well as function as a public expression of intent.
From a position of government authority but responsiveness about the imposed costs and implementation path, governments can generate new direct regulations that may be as effective or more effective than existing instruments. If we believe that government has a regulatory role in financial markets, it makes sense to consider how effective rule-making by the government has in the past and can continue to spur economic progress in the area of energy.
Effective Carbon Pricing (partially addresses “Market Failure 1”)
If we take away the expectation that carbon pricing will across the board address all key issues related to a future looking carbon policy, we can more easily define the parameters that would make a carbon pricing system effective. A carbon pricing model assumes a market of independent actors who have choices to make as to how to structure their business and private lives, which the price will influence to emit less carbon. Secondarily, depending on a still unfinished political process, the collected revenues may either function to displace other taxes, return a dividend or finance clean energy projects. The following then should be criteria by which the effectiveness of a carbon pricing policy should be judged (all carbon pricing systems will not qualify for every criterion):
- Noticeably effects the price of fossil energy, carbon intensive products, carbon emitting activities and land-use practices whether in or outside the current market. Must inflict some economic “pain” in its first edition in order to be effective and this pain has to have information value for market participants.
- Through this pricing. increases the desirability of lower or non-carbon emitting activities and products
- Enables effective choice of a broadening category of lower carbon alternatives on economic grounds alone
- Signals a will to curb carbon emissions among the leadership, and additionally inspiring voluntary “above and beyond” cuts in carbon emissions.
- Creates a competition between carbon emitters to emit less than their peers.
- Generates a revenue stream and incentive structure for allowing movement towards or maintenance of carbon sequestering land use practices
- Enables an international trade in or regulation of trade of carbon equivalents
- Would dampen or eliminate price volatility in the carbon price to enable effective investment planning on the basis of the carbon price and/or the revenues generated therefrom.
- Progressively raises carbon price in a planned sequence to exert pressure for further emissions cuts.
- Creates or energizes the market for carbon-emissions reducing innovations, spurring research and development.
- Is directly adjustable by regulators/legislators to enable the system to learn from experience.
- Is not so onerous to the taxpayers/consumers that it becomes politically vulnerable (this is partly a function of public outreach about the link between climate change, carbon pricing, and economic development as well as design of the system)
Carbon Pricing Instruments
At a House Ways and Means committee hearing earlier today, the options associated with carbon pricing instruments were not fully laid out for lawmakers to review the interlocking parts and options available. The packages that were presented were “cap and investment” and “tax and dividend”…these are not the only options, policymakers can mix and match depending on how they weight the above criteria.
Pricing Determination and Administration
- Carbon Tax
- Cap and Trade – There are many variations to cap and trade — it is an exceedingly complex instrument and outlining all permutations goes beyond the scope of this analysis.
- Full Auction of Permits
- Partial Auction/Partial give-away
- Full give-away of permits (no price)
- “Hybrid” Cap and Trade (Price Ceiling and Floor for Permits) – a hybrid of a cap and trade and a carbon tax stabilizing the carbon price in a range.
The selection of the carbon price administration mechanism will emerge from political negotiations between the different interest groups involved.
Any of the above instruments can be mated with any combination of the below mechanisms to distribute the revenue from either permit auctions or tax collection. There is no inherent relationship of the carbon tax or the cap and trade systems with any particular means to use the resulting funds collected.
- Carbon-Emissions Mitigating Investment – devotes the proceeds of the program to emissions reduction
- Partial or Complete Dividend – attempts to soften the effect of rising energy and goods prices by returning revenue on a per capita basis
- Displacement of other Taxes/Revenue Streams – phasing out a payroll or other taxes by using carbon revenues.
- Need-based Dividend or Investment – focal efforts to soften the impact of carbon pricing by either a dividend mechanism or targeted investment in energy efficiency for the neediest.
The selection of the distribution mechanism has everything to do with the political design of the ultimate carbon pricing program and how it is introduced to voters and consumers. The potential complexity of both the resulting instrument and the process by which we will arrive there makes reliance only on carbon pricing a politically risky maneuver for people who are concerned about protecting the climate.
Design, Fund, Incentivize Zero- and Lower Carbon Infrastructure and Fixed Capital Investment (Addresses Market Failure “2”)
While it would have been preferable for governments to have engaged in a full scale “countercyclical” policy of collecting tax revenue during the boom years of the last few decades to reduce debt, we are now facing a period in which it is “do or die” for economies to stimulate demand, restructure their financial systems, and halt the slide into a Global Great Depression II. Engaging in deficit spending to build or expand existing infrastructure to halt rising carbon emissions is a worthwhile cause to risk future inflation for current and mid-term economic and environmental benefits. Some private capital may be organized to build some of this infrastructure but with significant
Different countries and regions have different infrastructure needs but for the US the following projects would add value to communities as well as represent a significant economic stimulus. China is currently pushing ahead with a much more aggressive infrastructure program than the US, including rail building. The selection of projects should be based on transparent criteria that include both needs assessment and short, medium and long-term cost/benefit analysis:
- Build an electrified passenger and freight rail network for the US
- Create a national rail plan that allows efficient co-mingling of freight and passenger rail along existing and new, non-HSR rail lines
- Grade separate existing rail lines (with multiple positive externalities associated) in high traffic areas.
- Build a high speed rail (HSR) network along high traffic corridors
- Incentivize and create the regulatory structures to build a National Unified Smart Grid to link renewable energy zones to demand centers; most likely there will be a mixture of public and private ownership of transmission.
- Incentivize the building of renewable electric generators through secure, premium wholesale electricity rates (Renewable Energy Payments).
- Rebate and tax credit incentives for energy efficiency upgrades to existing buildings.
- Incentivize the building of clean energy storage through incentivizing non-fossil grid ancillary services.
- While preserving or extending existing levels of mass transit service, electrify high traffic bus routes.
- Incentivize building of electric vehicle fast charge and trickle charge networks in cooperation with municipalities and utilities.
Increase funding for Clean Energy Research and Development (addresses Market Failure 3)
While the federal government has continued to fund clean energy research even through the Bush Administration, an increase in funding for research into renewable energy technologies, clean energy storage, sustainable biofuel alternatives, and cleaner, more efficient nuclear technologies are important to see if we can “leapfrog” existing technologies or reduce costs in the building of clean energy infrastructure. Some have suggested budgets ranging from $3 billion to as much as $40 billion per year as a means of expanding scientific exploration, creativity and innovation in the area of clean energy. If there is a reasonable chance that an innovation can open a new source of clean energy or increase the efficiency or cost-effectiveness of existing options, we should not hesitate to pursue it. On the other hand, oversight over these budgets should keep the focus on what can pay off within the next ten to fifteen years.
The Principle of Non-Perfectability
While very simple systems may reach something called “perfection”, complex systems, including living things, social and economic systems, and the earth’s climate will never be “perfected”. The advocates of self-regulating markets tended to treat markets as a “pure” or perfect social institution. In chronicling so many market failures and needed programs to remedy them, I am not suggesting that policy will “perfect” the market or be able to completely address these market failures.
Purpose of a Comprehensive Policy
The purpose of this piece is to outline what a revised, reality-based economic and political framework for understanding both the course of previous energy and climate policy and the trajectory for effective future policy will look like. The lore of a self-sufficient, self-regulating market put policymakers and clean energy advocates on the defensive and narrowed the focus largely to transforming the actions of individual market actors. In response, efforts were made to “perfect” the market through a carbon price. If we are to create a reality-based set of policy instruments we have to face facts both about the nature of economic models and the physical realities on which they are supposed to act. I am supportive of the Repower America program, but feel it does not fill out enough the actual mechanisms by which it would achieve its ambitious goals, therefore the proposed framework. A comprehensive climate and energy policy addresses both flaws in systemic functioning and problems of incentives and disincentives that cause individual market actors to continue to ignore the very serious consequences of anthropogenic warming.
Carbon Pricing is Just One Piece of the Puzzle: Towards a Comprehensive Climate and Energy Policy – Part 4 February 20, 2009Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Green Building, Green Transport, Renewable Energy, Sustainable Thinking.
Why Not Bring Positive Externalities Into Market Pricing?
One of the limitations of carbon pricing is that, as a support for renewable energy or other clean generation technologies, it is a roundabout and scattered means of “leveling the playing field”. Energy markets that still enjoy the climate-altering bonanza of fossil fuels are generally less excited from a narrow utilitarian perspective about renewable energy without heavy policy support, excepting in some areas large onshore wind projects. One of the motivations in carbon pricing is to level the field by attaching so significant a carbon price to fossil fuels that renewable energy will be competitive with or gain a market advantage over fossil fuels. As renewable electric generation technologies in general require some form of storage to generate energy in a way that is exactly equivalent or superior to fossil resources as well as perhaps new infrastructure like transmission, the cost of accessory technologies would also need to be accounted for in order to truly level the playing field. This carbon price would need, in the case of some renewable technologies, to be at least one order of magnitude higher than we expect that price to be (expectations run between $10 to $20/tonne CO2).
The price gap between sources of renewable energy and fossil energy has to do both with the sunk costs of an economy built around fossil fuels plus the comparative physics of renewable vs. fossil energy. Renewable energy is generally diffuse, except in some extreme locations; otherwise, if it were not diffuse, most living creatures would not have been able to evolve in such a high-energy and therefore harsh. To capture large swaths of renewable energy requires the building of large facilities that then concentrate or store the energy for use. These large facilities mean that renewable energy generators require a large up front investment that ultimately, if planned right, returns many times the amount of energy and money that was invested in it but over a period of years. To surmount this hurdle requires a commitment on the part of policymakers and regulators to renewable energy that operates in a longer time frame than that dictated by fluctuations in the energy markets. In addition, most renewable energy comes in the form of an energy flow rather than an energy store, which is the form of fossil and nuclear fuels. Tapping into energy flows to do useful work requires a different engineering orientation as well as additional energy storage devices.
Energy markets, represented by energy traders and energy consumers, remain relatively unmoved by these technical and physical challenges related to the price gap between fossil and clean functional replacements for fossil generators. The focus of markets is upon the current availability and pricing of energy assets, products and services. For a longer term view of energy whether fossil, nuclear or renewable to be incorporated into markets almost invariably requires the support and direction of government, either through subsidy or regulations. The recent drop in oil prices due to the economic downturn has endangered and postponed plans to build renewable generators, as even with the current tax incentives, these investments look less attractive than business as usual. As with many capital intensive industries, investors need assurances that the long-term investment in large and expensive facilities will pay off over a period of decades.
While a full accounting of the negative externalities of fossil fuel use would put renewable energy in a very favorable light, the sudden application of these costs to the entire economy that is dependent on fossil fuels for 85% of its energy would penalize most energy users severely and disrupt the economy in ways that are not intended by even the advocates of an aggressive carbon pricing regime. Historically, policymakers have attempted to incentivize renewable energy development by rewarding renewable energy developers with incentives that can viewed as way to price in at least some of the positive externalities related to renewable energy: notably its clean-ness, local or regional origin and its sustainability.
Most studies of the relative cost of various carbon emissions reductions solutions place renewable energy at a significantly higher level than many readily available energy efficiency technologies that under many circumstances now pay for themselves without any aid. So a carbon price that is designed to level the playing field for some energy efficiency measures, would be far lower than one that made renewable energy projects “win” over existing or even some new fossil resources. The exception to this are large onshore wind projects that would receive a substantial boost from a lower carbon price, though wind alone cannot, at least with our current technology, fully displace fossil resources.
The foreseeable initial carbon price will also not yet spur some of the more aggressive energy efficiency measures in the area of space conditioning, which accounts for 30% of total energy use in the US. Ground source heat pumps and solar adsorption cooling are technologies that can radically reduce building energy use but currently offer paybacks in the region of 8 to 12 years depending on the space conditioning load of the building and the climatic zone. For some building owners these are already affordable but may require an additional incentive for them to consider a new technology. Again, leveling the playing field for these promising technology through disincentivizing fossil fuels may not lead the market to embrace a new paradigm without incentives.
The most direct method of incentivizing renewable energy development is by creating a wholesale electricity rate structure that assigns higher and more secure long-term value to energy generated by different renewable technologies, allowing project developers to get financing for their large upfront fixed capital costs. The renewable energy payment systems, also called “feed in tariffs” are one means by which legislators and power system regulators have rewarded renewable energy generators for their positive attributes. Most often, however, the form of this reward is not by enumerating and pricing the specific positive externalities but by using the formula “cost of generation plus a reasonable profit” averaged across an industry at a given point in time. “Cost plus reasonable profit” is the formula used for building large one-of-a-kind structures either in power generation or construction that because of their uniqueness cannot find a workable price via the market. The security of this arrangement, guaranteeing them a premium rate for their electricity generated over a period of 20 years, enables project developers to at least survive and with greater cost efficiency to thrive as businesses. The fixed premium rate allows for cost recovery plus a reasonable profit on the initial investment in the renewable energy facility.
The additional cost of the premium payments are pooled among all electricity ratepayers which raises electricity costs slightly. However, this rise in electricity rates can also have the virtuous effect of encouraging more energy efficiency, so a renewable energy payment system can create a virtuous economic circle.
Other methods of incentivizing renewable energy development have proved to be less reliable. Tax credits that have been part of the US toolkit to incentivize renewable energy on and off for 30 years have provided some help but have varied in their effectiveness, in part because they draw on revenue from other parts of government budgets which can lead to disputes about which program deserves to be cut in favor of favorable tax treatment for renewable energy. Furthermore, these credits have not had the same stimulative effect as feed in tariffs to jump starting a renewable energy industry. With the current financial crisis, there is also a major shortfall of tax equity, meaning a dropoff in firms and investors that have made their money elsewhere and seek investments in renewable energy as a tax benefit. If tax benefits are to continue providing an incentivizing effect for renewable energy, other credit instruments like a federally guaranteed renewable energy bank or renewable energy payment systems would need to pick up this shortfall.
Another area where positive externalities can be brought into the market by policy is in the introduction of zero emissions vehicles to the road, most notably electric vehicles. The initial investment in batteries as opposed to a gas tank, as with renewable energy, adds a sizeable increment to the cost of a vehicle despite its overall lower cost of ownership. Proposals that offer tax credits or rebates to individuals and businesses that lower this hurdle would again be offering a payment for a positive externality that the market currently does not recognize. Current economic stimulus packages proposed by the Obama administration as well as the US Senate, include tax incentives for electric vehicles calibrated to the amount of all-electric range these vehicles offer.
In the area of energy efficiency, rebates for new technologies have also proved to be a means to generate new markets for somewhat more costly technologies with positive externalities. California’s energy efficiency rebate program has helped that state level its per capita energy use over the last 30 years and has helped drive the US market for energy efficient devices and innovation.
The relentless focus of policy on a disincentive (the carbon price) ignores key aspects of human psychology within which a combination of incentives and disincentives enables optimal learning rather than the simple application of either one or the other. The current low ranking of climate change in polls of people’s concerns during the current downturn may have something to do with the general message of restraint that has been paired with climate change rather than opportunity and hope. If we think about it, children raised only on disincentives (guilt, shame or punishments) or only on incentives (praise, bribes) are likely to end up twisted or lacking self-discipline in ways that are myriad and complex. Beyond what can be achieved through information, persuasion and expressions of intent, a coherent mixture of carrot and stick approaches seems commonsensical to healthy growth and learning. As we are entering a new world in transforming the basic energy foundation of our economy from carbon to non-carbon sources and energy use constraint, we and our economic growth engines stand in ways like children before our own demand for energy and the need to change it. Surely we should apply our best understanding to this task and not just one fraction of what we know.
A Comprehensive Climate and Energy Policy
If we turn our focus from a singular catastrophic market failure to multiple market failures, the form and timing of climate and energy policy initiatives will start to match more closely the actual physical array of assets with which actual real economies are currently working. The notion of a singular market failure, however huge, bears with it the unspoken assumption (not necessarily a belief of Nicholas Stern) that markets are otherwise self-sufficient and well-functioning. We have seen that in fact markets, along with their strengths, are, in most sober assessments of economic history, failure-prone or critically dependent on non-market institutions in a number of areas, some which were outlined earlier. To some, this sounds like heresy but this sensitivity to criticism of markets is more a function of the recent tendency towards hagiography of the market mechanisms rather than the product of a honest effort to balance their benefits and weaknesses.
The monocular or central focus on carbon pricing as a climate policy has borne the traces of the neo-classical economic “tail” wagging the climate and energy “dog”. An allegiance to an economic theory that overvalues market mechanisms has seemed to have shaped climate policy more than a consideration of the on-the-ground facts. The notion of the singular market failure leads to the overvaluation of carbon pricing as the prime means to achieve a carbon neutral society. As we are now experiencing a sea change in our economic common sense, it makes sense to revise climate policy in response to this sea change.
Rather than simply a choice between political preferences or allegiances, there is a concrete difference in how these economic theories and by extension the resulting policy instruments interact with the target of their regulations and investments. A carbon pricing system acts upon the economy as a series of individual (inclusive of corporations as “individuals”) actors or “atoms” which respond to the price signal in their own unique ways. A policy orientation that seeks to re-engineer and re-organize economic systems like infrastructure that requires the coordination and cooperation of individual actors and “parts” of the system, interacts with the world as ensembles of actors rather than a series of independent individual actors. A dogmatic allegiance to the monetarist/supply side view prohibits or proscribes the latter orientation. A realistic assessment of the tasks ahead will require both kinds of orientation to the world built into climate policy.
A Policy Orientation Commensurate with the Task
Changing our ways of using energy and land is a huge task, a task that advocates have for some understandable reasons attempted to minimize. Exosomatic energy, energy that comes from non-food sources like fossil fuels, nuclear fuels and renewable energy, has been the primary support for economic development over the course of the various industrial revolutions of the last two centuries. Up to a certain, fairly high, minimum of energy use, economic development and wealth correlates with exosomatic energy use. The heroic narrative of increased technological sophistication and human ingenuity has hidden the brute facts of rising consumption of what have been largely fossil fuels. That one person can now do the work of fifty or one hundred manual laborers has everything to do with the continuous availability of concentrated energy products or services at a fairly low price. Our economic system is also based on an agricultural, food and fiber system that not only is highly dependent on fossil fuels but also uses land in ways that do not conserve the soil or stabilize atmospheric concentrations of greenhouse gases.
The scientists who have documented our contribution to a changing climate have endured much criticism for suggesting that the energy and land-use foundations of our economy are endangering the long-term sustainability of the earth. However, understandably, they have not also wanted or been able at one fell swoop to outline how we might reverse the political and economic orientation of our society, which at the time was praising markets and the pursuit of narrow self-interest perhaps leavened with voluntary charitable or altruistic acts. Both Al Gore and Jim Hansen, the two main targets of much criticism and scorn, have made the goals we have increasingly clear but have, in my opinion, at times held back from exploring the scale and extent of the work and expenditure needed to do an “energy transplant” on our society from dirty to clean energy sources.
If in fact, the future of the world and all of what might be considered human wealth depends on reducing carbon emissions, isn’t it worth it for us to pay something towards that goal? Policy recommendations should reflect the seriousness of that goal and a recognition that most people should contribute something towards that goal, as it benefits them. Policy suggestions that minimize the cost or need for participation by a majority of the population in building this new energy basis for our societies are selling people short.
Public Expenditures…for What?
Currently it appears as though as a nation we will spend somewhere between one and four trillion dollars to bail out the banking system after it rushed earlier this decade to take advantage of some highly risky opportunities to make a profit. Yes, borrowers are also partly to blame for buying houses which they couldn’t afford, but financial common sense had been sacrificed several years before by the leaders of the financial system and by regulators who did not believe in regulation. We may never see concrete results from this massive expenditure of tax payer dollars only that we may have prevented a full-scale collapse of the financial system and economy into chaos.
An even more controversial area to discuss is the degree to which the government should commit resources to the already overweighted housing sector, now in a deep crisis. Not only has the economy expanded in the area of finance but also became overly dependent on housing and real estate before the big crash of 2008. Many Americans were simply not earning enough money to afford the homes that were being built or sold in the last few years of the bubble. Should a large portion of our public assets be committed to propping up home values beyond the ability of Americans to pay for those homes through income from other sectors of the economy? A balance may need to be struck between managing the crisis, future housing needs, real estate as investment, and non-housing sectors of the economy.
On the other hand, a transformation of our energy and transport system will boost an underweighted area of our economy. I have termed the US historical relationship with energy, the “Cheap Energy Contract” which restricts the amount of money that the energy sector can charge per unit energy; to build a clean energy economy quickly, there will need to be revenue from a variety of sources in excess of what we currently spend to build the useful infrastructure required. Industrial and construction jobs, far from being part of our past, may become again part of what helps bring living wages and buying power back to the American consumer, independent of commercial and residential real estate and finance sectors.
Furthermore, our infrastructure is deteriorating and as noted in Part III, inadequate to the task of reducing carbon emissions. There is no other way to pay for some of this infrastructure other than through public funds and it will serve the public and other businesses well to have a better rail system, a cleaner electricity and energy system, and avoiding dependence on the fossil fuel roller-coaster. Therefore everything speaks for a substantial commitment of public funds to these public goods which support the economy as a whole, especially now that we are in search of the economic solutions to our dire situation. In the end, the amount of
A Climate and Energy Policy for the Committed and the Indifferent
Currently climate change ranks as one of the last concerns in polls of American public opinion, despite the commitment of the Obama administration to take steps towards reducing carbon dioxide emissions. The task then for both climate activists and the new Administration is then to construct a climate policy that, in addition to educating the public about the dangers of continued unchecked carbon emissions, makes it worthwhile for people to care about climate change.
An important element of the existing climate action proposals is that they both try to lower their profiles in terms of fiscal impact and rely largely on “negative reinforcement” or punishment of “bad behavior” in relationship to emitting carbon. While the small minority of the population that is appropriately terrified of the effects of climate change or has enough financial liquidity to pay the penalties is accepting of these disincentives, the vast majority either doesn’t understand the proposals or is worried about their impact on their personal finances. A vocal minority opposes any and all climate regulations or regulations in general, and are increasingly a force to be acknowledged in passing but not taken into consideration in formulating effective policy.
What I am calling a “Comprehensive Climate and Energy Policy” is designed then to be an instrument that addresses the concerns of the vast majority of people who care about their communities and families but is not yet predicated on an overwhelming concern for the climate. A Comprehensive Climate and Energy Policy, relying on both incentives and disincentives, will help address the more pressing concerns of Americans as well as be a more effective means to achieve many of the goals of the climate action community. Including areas where there is overlap between the goals of these communities can help create momentum for our economy in general and in particular, towards an economy that emits less carbon into the atmosphere.
The Green Jobs movement, led by among others Van Jones, has pioneered this approach to climate policy with an emphasis on the jobs generated by building a new clean energy infrastructure. One of the products of a Comprehensive Climate and Energy Policy would be the stable domestic jobs that Jones and others have called for.
If general economic theory needs to borrow from Keynes as well as neoclassical economics, shapers of climate and energy strategy may be then freer to choose the appropriate instruments for the many tasks related to building a post-carbon economy. In a society dependent upon market exchange of goods and services, economic policy and with it climate and energy policy are meant to address failures within the spontaneous commerce of markets to deliver goods and services that are vital for economic and social wellbeing.
We have located here not one but approximately three and half market failures that are relevant to climate and energy policy which specifically address the challenges related to our upcoming climate and energy challenges in the US.
- Externalizes costs of climate change attributable to carbon emissions
- Externalizes costs of infrastructure building and maintenance and high fixed capital costs of long-term private capital investment
- Deployment of capital intensive clean energy technologies
- Coordination of management and finance of upgrades to electric grid.
- Re-design and electrification of transport infrastructure
- Externalizes costs of scientific research and development
Rather than subsume all of these challenges under “1”, a comprehensive climate and energy policy is able to flexibly address the existing challenges in a given context by applying measures where needed to reduce carbon emissions with the goal of a carbon neutral society
The value of a comprehensive policy becomes clear if we look at national differences in emissions level, infrastructure and other sunk costs, and overall level of economic development. In Switzerland, for instance, per capita carbon emissions are approximately one quarter of those in the US. Much more densely populated, Switzerland already possesses an almost entirely electrified rail network and adequate public transportation in many of their cities and towns. Electricity in Switzerland is generated largely via hydro and nuclear. Already possessing an infrastructure than can be configured for lower or zero-carbon emissions, a carbon pricing regime may help Swiss consumers and businesses utilize that infrastructure even more efficiently and use energy more efficiently. By contrast, the United States has a long way to go in building an infrastructure with a similar capability.
With 4 times the population of the US and 150 times the population of Switzerland, India possesses still different challenges as it is both a rapidly industrializing and a less-developed country depending on region, economic sector and social class. India has a per capita emissions level one quarter of that of Switzerland and one sixteenth that of the US but because of its massive and growing population is starting to contribute substantially to overall worldwide carbon emissions. The Indian government and the world development community would like to see the average Indian make substantial strides in terms of their overall welfare and use of services with a stable level and even a decrease in net per capital carbon emissions. In the last few years before the current downturn, there has been a move by the rapidly growing Indian middle class to emulate the petroleum and energy consuming ways of the West including the use of petroleum-fueled automobiles. Because of its high population density, it would make sense for India to build a potentially zero-carbon electric public transport system, as there would be literally no physical space in India to build a car culture like that of North America, even if all those vehicles were zero emissions. Carbon pricing alone will neither inspire nor finance such a massive undertaking. On the other hand, within the carbon trading system, some projects have been built as part of the “Clean Development Mechanism” and some version of this may remain a source of investment for projects that can show a quick reduction in carbon emissions.
The “hard problem” of rapidly industrializing and less developed countries becomes a little easier if we don’t assume that governments in those countries are passive bystanders or simply funnels for a global carbon pricing regime. The Indian government, as will other governments, need to devise national and regional strategies that rely on public was well as private funding of low- and zero-carbon facilities.
Tags: 350 ppm, Al Gore, Bill McKibben, Decision Space, Emotion and Decision-making, Green Infrastructure, Infrastructure Economics, James Hansen, Mark Jacobson, Target CO2
In my last post on “picking winners”, the role of political and economic leaders and experts in helping shape the future low or post-carbon society started to become clear. We will not be able to rely solely on the impersonal forces of a market or market-based regulatory regime like carbon pricing and trading to build clean energy infrastructure rapidly. Even in our current economy, infrastructure always bears the brush-strokes of large-scale government programs or the work of the largest corporate entities and their founders. The framework of the US economy of the last century bears the marks of people such as Andrew Carnegie, John D. Rockefeller, Thomas Edison, George Westinghouse, Theodore Roosevelt, Franklin Delano Roosevelt, Robert Moses and Dwight D. Eisenhower. (Analogously, in the world of computer code, early sometimes arbitrary decisions by coders are still felt decades later as they become part of the legacy of various pieces of still-useful software.) Infrastructure and even the finer grain of economic life is not only attributable to impersonal forces but shaped as well by individual or group decision making.
While the results of earlier decisions may function as monuments to these individuals, we also live with both the negative and positive consequences of these partly personally motivated decisions. The Interstate Highway System bears the mark of Eisenhower’s own experience in attempting to traverse the nation in 1919, encountering the deficits in the existing highway system. It also bears the marks of economic forces at work around Eisenhower, including the shared belief that individual and family auto-mobility fueled by petroleum was and would continue to become the dominant means by which Americans moved about and structured their built environment. Yet, within that framework of assumptions, which have attracted increasing numbers of critics, the Interstate system is a triumph of social and economic planning.
Planning the Framework for the Post-Carbon Economy
Planning the infrastructure for a post-carbon world will have, in some senses, more exacting requirements placed on it than previous great pulses of public works construction. Applied to the work will be the metric of carbon emissions invested in the construction itself against the potential for carbon emissions reduced by that infrastructure over its lifetime. Furthermore if we accept the target of 350 ppm carbon dioxide within a decade or two, a net reduction from the current 382 ppm with an accelerating rate of carbon emissions and a half-life of hundreds of years for carbon dioxide in the atmosphere, there are very high demands for rapidity in the building of an infrastructure that would support this level of decline in emissions. Furthermore, as we have become unused to massive infrastructure projects over the last few decades, we will have to become reaccustomed to the expense and practical impact of these projects. Finally, we now live in a uniquely information-loaded society with a 24 hour news-cycle, where there is expectation for a high level of transparency in most public proceedings and the capacity for even greater levels of transparency. While our very sophisticated information systems may be helpful in some regards they also can place every decision under a microscope.
Making the right choices in building this new infrastructure will rely heavily on rigorous scientific and engineering analysis but in addition will employ some guesswork as projections will need to be made for usage patterns and energy demand in 10, 20 and 30 years in the future. The assumptions that are employed will be key but should always be based as much as possible on either known quantities or reliable scientific theories. The cultural trend in the US of the last three decades has been a progressive questioning of the values of science and technology, yet, despite the anti-science vogue now it seems ending with the Obama administration, we have good reason to believe that we still have the know-how to design and break ground on these projects.
Key Post-Carbon Technology Choices in the Energy Domain
At a recent meeting convened by the climatologist Jim Hansen, the central focus was on providing a menu of choices for policymakers and industry executives on ways to reduce substantially or eliminate GHG emissions. For that meeting I formulated the notion of a decision space to allow for a standardized yet rigorous model for deciding between or weighing apples and oranges. More later on decision spaces.
I would describe the fundamental post-carbon decision making domains as follows, some of which were discussed at the Nov. 3rd meeting, though have been the subject of many discussions online and in the real world for a number of years now:
- Electricity (including Electrochemical Batteries and Capacitors)
- Non-biosource synfuel
Functional and Economic Role
- Energy supply
- Energy demand (efficiency and conservation)
Fundamental Geographical Unit of Analysis
- Multiplex (simultaneous geographical levels)
- Small-scale renewable
- Large-scale/Any-scale renewable
- Conventional (3rd-generation) nuclear
- 4th-generation nuclear (experimental)
- Coal/Natural Gas with Carbon Capture and Sequestration (experimental)
- Biomass Plus Carbon Sequestration/ Biochar burial
Electricity Transmission Current Type
- High Voltage AC
Electricity Transmission Form Factor
- Underground transmission lines
- Above ground transmission lines
Energy Storage Technology
- Thermal energy storage (solar – high temperature)
- Pumped hydroelectric
- Large-scale batteries
- Small-scale distributed batteries/vehicle to grid (V2G)
- Hydrogen extraction, compression and storage
- Biomass (woody and cellulosic)
- Biofuel (liquid)
- Biogas (gaseous)
Carriageways and Traffic Design
- Overhaul existing railbeds (allowing higher speeds)
- New high speed rail
- Grade-separation of existing rail
- Magnetic levitation rail (maglev)
- New light rail (urban/suburban and aboveground/underground)
- New suburban/regional rail
- Bus rapid transit and busways
- Podcar/Personal Rapid Transit
- Linear induction motor rail (experimental)
- Bicycle friendly traffic design
- Pedestrian friendly traffic design
Transport Energy Conversion and Distribution
- Electrify new and existing rail
- Plug-in 480 volt+ (quick charge) infrastructure and grid reinforcement
- Public battery exchange
- Multifamily and street 120-240 volt (trickle) charge infrastructure
- Electrify local roadways (trolleybuses and trolleytrucks)
- Electrify highways (experimental)
- Biofuel refineries and distribution systems (pipelines, etc.)
- Hydrogen electrolysis and distribution infrastructure (a.k.a Hydrogen “Highway”)
- Home electrolysis (for hydrogen)
Optimize use of existing transport infrastructure
- Public bicycle rental (Velib model)
- Internet and mobile phone enabled ride sharing
- Improved vehicle sharing infrastructure
- Smart Highways and traffic avoidance, driving automation
These choices are not necessarily mutually exclusive yet policymakers, community and corporate leaders will need to choose priorities among these, often with partisans of one or another solution providing them with information and opinions. There are so many factors involved that it is impossible for individual decision-makers to command all the relevant facts, requiring the help of consultants and experts and I believe a best-practices decision-making process.
In the arguments around these issues that have until now mostly taken place in cyberspace or private forums, people are wont to create their own list of favorites with more or less supporting evidence. Some have sectioned themselves off into sub-communities to reinforce the choice of one device or source of energy or another.
Emotion-based vs. Reason-based Decision Making
Recently in popular and popularized psychology much has been made of the importance of emotions in thought and decision making. Most widely-known is the popular book by Malcolm Gladwell, “Blink”, which celebrates the precision of spontaneous decision making over the more archetypical thought-out, planful variety. Academic psychologists and brain scientists have observed that brain-damaged patients who don’t have access to their emotions are poor decision makers. In my own studies of psychology, I have every reason to believe that an integration of emotional life with rational thinking is healthy for us human beings.
However, one individual making decisions for themselves is in a different circumstance than leaders and representatives of groups making decisions that affect more than just their own welfare. Here, whatever the use participants make of their emotions, agreed-upon statements of fact or opinion, we call “reasons” are required for there to be discussion and mutual influence and eventual agreement between “deciders”. We have gone through a period of time where our President has called himself the “decider” which technically was true, but he also subscribed to a philosophy of decision-making “from the gut” that ended up leading to what many feel to be disastrous consequences for our country. We are almost assured that President-elect Obama will engage in a more transparent decision-making process that calls upon reasons to make decisions.
While I hope that people’s passions and interests will inform their rational processes, there is also a role for disciplining passions and putting them in perspective. Our emotional responses to the prospect of climate change and environmental degradation can be drivers of our engaging in a decision making process but should not “rule” our ability to think and communicate about the options. This will necessarily be a group and we hope democratic process that will enable us to come to effective and relatively durable solutions to the tasks at hand.
The Paradox of Choice
A brilliant idea and book by behavioral economist Barry Schwartz highlights some of the challenges facing decision makers in this complex arena. In “The Paradox of Choice”, Schwartz highlights how increased choice can put a strain on individuals and families in advanced consumer societies where we are supposed to be masters of our destinies through an expanding selection of choices in almost every area of our lives. Reviewing the options and ramifications of each choice available to us becomes a mind-bogglingly complex and time-consuming task. Schwartz suggests that targeting satisfactory or “good enough” solutions rather than “perfection” is one technique that people can use to simplify their lives as they face a mind-bogglingly large set of options.
It is here that the value of emotionality in decision-making comes to the fore. Emotional and “intuitive” responses to situations short circuit the lengthy intellectual processes of examining alternatives in great detail. A “gut” response to a situation or decision can lead to SOME decision rather than NO decision being made. Our emotions can line up the sense data and experience we collect into “good” and “bad” more quickly than a more reason-based approach. Obsessiveness is a personality characteristic that makes some people more prone to intellectuality and emotional disconnection in decision making, sometimes leading to tremendous indecisiveness as the details of each option are weighed ad infinitum. However with some important decisions, a level of obsessiveness is a desirable characteristic (some would dispute that this should be called “obsessive” if it is functional) as many factors and risks need to be weighed.
Our decision-makers faced with planning a post-carbon world or at least nudging us in that direction, don’t have the same luxury as consumers to consciously reduce their efforts and time in evaluating choices available to them for their own wellbeing. Additionally, we have come to a point in our political life when “gut” level decision making is now passing out of favor. More and more people now recognize that too much is at stake in the decisions that political leaders make for self-preservative cutting of corners or quick intuitive decisions. On the other hand, political and large corporate decision-makers have access to the resources which would allow them to paint a fuller picture than ordinary consumers.
In addition, the demand that decision-makers be accountable for their decisions to others forecloses the predominant use of “gut” level decision making. To communicate about and incorporate the insights of others in decision-making, one needs to have reasons for decisions based on shared facts. Emotions are by their nature private or at least ambiguous and subjective in their valuation. If the decision is about a personal or family matter these emotions are more important but in the domain of politics and macro-economics, the decision-maker’s personal idiosyncrasies are supposed to have less weight. The largest entities where personal idiosyncrasies are perhaps beneficial to decision-making are in corporations like Apple, through which the founder’s (Steve Jobs) vision and interests have co-designed their product line in tandem with engineering teams and their adoring market.
Decision Matrices and Decision Space
One technique used in group decision making that requires the weighing of multiple factors is called the decision matrix or Pugh method. Named after the Scottish product engineer Stuart Pugh, the Pugh method also known as a “multi-criteria decision analysis” is used in engineering and quality teams in industry. In a decision matrix, each decision-relevant factor is given a weighting and then individual prototypes or situations are rated on each factor yielding a score. That prototype with the highest score is deemed to be the best according to this decision making model. The ratings could be based on objective measurements and/or numerical ratings of people’s subjective opinions. Decision matrices allow a simple “go or no go” decision to be made from a welter of factors that may be objective or subjective numerical ratings.
The LEED green building rating system is a version of a decision matrix but instead of a single winner or a ranking, buildings are rated according to 4 distinct scoring levels which lead to the awards LEED Certified, LEED Silver, LEED Gold, and LEED Platinum. The rating system weights different factors more or less depending upon the USGBC’s assessment of what constitutes a more sustainable building or building practice.
What I am calling the decision space is the social and scientific terrain of which a given decision matrix is one possible map. A decision space is a multidimensional (n-dimensional) virtual construct within which decision-makers move to make reality-based and reason-based decisions. To structure and call attention to the decision space means to alert people involved to the different factors and the “meta” decision making process of how to decide. For buying a pack of gum, one doesn’t need a decision-space or a decision-matrix though health conscious or obsessive buyers might make their own impromptu ones. By distinguishing between the decision matrix and the decision space, I am calling attention to the process by which individual decision matrices may be generated through a scientific and political process. Without the notion of a decision space, I’m afraid that a given matrix, with its selection of factors and weightings, would become treated as a given rather than an object or work and potential revision.
A Provisional Post-Carbon Decision Space
While experts and leaders may think they already know what the solutions are, one individual probably does not know enough to choose among ALL the solutions in building the infrastructure we need for the post-carbon economy. A post-carbon decision space is one way of requiring an attitude of Socratic wisdom, of knowing what you don’t know, of decision-makers. If a post-carbon decision space were available, decision makers would need to justify the choice and weighting of factors in designing a decision matrix and require that sufficient data be collected to rate available choices. Gut level and charisma-influenced decisions would be highly unlikely as choices would get rankings that we hope would be informative and influential. While, I wouldn’t go so far as to insert the requirement that the resulting rankings be binding upon decision-makers and decision-making bodies, the data output would seem to indicate which choices are better and which choices are worse for a given application.
In this provisional post-carbon decision space, I came up with the following factor structure. As to reasonably address all of these facets requires consultation and study, I would think that an attitude of Socratic wisdom would be helpful.
Prerequisites (Is this a post-carbon technology at all?
- Reduces GHG emissions 90% as compared to replaced technology
- Available for deployment by 2018
- Current Cost of Deployment (per unit useful product and per unit GHG avoided)
- Projected Future Cost of Deployment (5 year, 10 year, 15 year horizons) (per unit useful product and per unit GHG avoided)
- Potential for Profit (margin between true cost and perceived market value or prescribed price)
- Potential for Workforce Development and Employment (project-oriented and long-term)
- Percentage discount from expectable carbon price ($50/tonne carbon dioxide)
- Capitalizes on sunk costs/existing infrastructure
- Losses from abandoned GHG-emitting assets
- Available incentives to recover economic losses from abandoned GHG-emitting assets.
- Requirements for new ancillary infrastructure
- Dependence upon government subsidy
- Allows investment in small monetary and time increments/rapidly recursive development depending upon results
Efficacy as Climate Protection
- Availability for deployment in 2009/2010 or soon thereafter/Technological maturity
- Scalability to energy demand and GHG emissions reduction targets
- Geographical range of application
- Coal replacement value (how closely matches energy output of coal-fired technologies)
- Petroleum replacement value
- Natural gas/propane replacement value
Efficacy as Energy Source
- Energy Return on Energy Invested (current and projected future)
- Reliability and Availability
- Primary energy is a stock or a flow
- If a flow, storage capability and cost for primary energy flow
- Dependence on exhaustible or rare resources/(narrow) sustainability
Continuity with Existing Social Institutions
- Convenience/Consumer acceptance of products and services
- Continuity with existing industry expertise.
- Continuity with existing employment structure.
- Favored by established economic interests and industry players
- Disruptiveness for existing industries and interest groups
- Physical Proximity or Accessibility to Decision-maker
Systemic Risks and Dependencies
- Dependence on government management of operations
- Non-Carbon Ecological footprint (land use, water use, air use, non-GHG emissions, volume of solid and liquid waste of fuel extraction/generation, manufacture and operation, toxicity of waste and emissions )
- Potential for catastrophic failure
- Vulnerability to changes in atmospheric or climatic conditions
- Vulnerability to attack or vandalism
Eventually, to be useful weightings would need to be assigned to these factors. Some may be “worth” 5 to 10 times more as a category than others but this evaluation will in many cases also be evaluator- and context-dependent.
Mark Jacobson’s Petroleum-Replacement Analysis
The most comprehensive example of a post-carbon decision matrix is, to my knowledge, Stanford professor Mark Jacobson’s recent rating of 12 post-carbon alternatives for replacing petroleum for all US on-road vehicles. His rating system considered 12 options that combined an energy carrier and an energy source that would substitute for our current on-road vehicle fleet and petroleum fueling infrastructure. Jacobson does not consider the complicating factors of changing modes of transportation (from road to rail, for instance) or reducing vehicle miles traveled through consolidating trips. The twelve options were battery electric vehicles powered by wind, concentrating solar power, solar photovoltaic (typical solar panels), geothermal, tidal, wave and hydroelectric among renewables and additionally by nuclear and coal with carbon capture and storage. In addition Jacobson considered wind power extracting hydrogen from water through electrolysis and powering fuel cell vehicles as well as corn ethanol and cellulosic ethanol powering internal combustion vehicles. Jacobson rated these options using the following factors: available energy resources (size of resource), effects on GHG emissions, effects on non-GHG air pollution and mortality, land and ocean use, water supply, effects on wildlife and the environment, energy supply disruption, and addressing the problem of intermittent renewable energy sources.
This pioneering analysis indicates that wind power powering battery electric vehicles would be the most favorable petroleum replacement followed by wind power powering hydrogen fuel cell vehicles and concentrating solar power powering battery electric vehicles (BEVs). Most of the recommended options suggest that the most favorable energy carrier to replace petroleum would be electricity stored in vehicle batteries, thus supporting the renewable electron economy concept. However, contrary to my and other analyses based largely on energy efficiency, Jacobson finds that hydrogen fuel cells paired with wind, using his analytic categories are superior to a number of renewable plus BEV options. Using the weightings he does, his analysis discounts the need to develop almost three times the clean electricity generation facilities to support the hydrogen option.
Jacobson’s is also yet another analysis that indicates that biofuels as we now know them or can conceive of them in the near future are a far inferior option as mass replacement for petroleum. Jacobson ranks corn ethanol last and cellulosic ethanol second to last in terms of their overall negative impacts as compared to their positive impacts. They are far inferior in his decision matrix to all the other options considered with a wide gap separating the biofuel options from the battery electric and single hydrogen fuel cell options, making the internal diversity of the latter seem fairly trivial. Another decision matrix with a higher weighting for a liquid fuel compatible with existing internal combustion technology might make biofuels appear more favorably. However, Jacobson’s analysis crucially gives weight to the costs of local air pollution, which biofuels will in some cases worsen, and land and water use, of which biofuel production requires massive amounts. Renewably fueled electric-drive transportation has no or very low impacts in these areas. While arguments can be made for re-jiggering the weightings and adding factors, Jacobson has established a precedent of a multi-dimensional analysis, which cannot be ignored.
Towards a Best Practices Post-Carbon Decision-Space Tool
Jacobson’s analysis points to the value of a multi-dimensional decision matrix designed for a given question, organization or locality. Even if the results of a such a decision matrix are eventually subjected to a more “rule of thumb” type of decision-making process, the process of considering and collecting data about the factors that relate to a given decision will provide discipline to decision-makers and encourage transparency. Even if a more private deliberation is desired, using a best practices model will allow for multiple factors to be taken into consideration and rationales discussed with the relevant team.
A post-carbon decision space tool can also interact with the various carbon pricing regimes being discussed at state, national and international levels. The macro-economic level at which these discussions have occurred could mesh with though not necessarily always “agree” with the results of a well-designed decision matrix. As I have indicated, in the previous post, the building of infrastructure lies in certain regards “orthogonal” to whether or not the builders of that infrastructure are emitting less carbon. The building of infrastructure in the next decade will involve large carbon emissions, so in some sense will be penalized by a carbon pricing regime.
Furthermore, knowing that there is a price on carbon will not necessarily deliver to the actors involved the information they need to make decisions about how to emit less, with the exception of increase efficiency or “do” less. The post-carbon decision space will allow for multiple factors to be taken into account and will also deliver a more qualitative selection of alternatives with both their expectable carbon benefit and a weighing of other factors key to long term viability.
20 Technologies to Save the Climate: Are Breakthroughs Mandatory or Icing on the Cake? April 9, 2008Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Green Building, Green Marketing, Green Transport, Renewable Energy, Sustainable Thinking.
Tags: Commercialization, Energy Policy, IPCC, Renewable Energy, Research and Development, Technology
1 comment so far
(With this post I’m skipping a little ahead of my series on the Renewable Electron Economy but policy debates are starting to heat up as we head into the election year. )
A recent controversy has sprung up around the criticisms of the UN’s Intergovernmental Panel on Climate Change (IPCC) by a group of fairly well-known analysts, who say the IPCC has severely underestimated the need for heavy investment in basic technology research to solve the climate crisis. In a piece called “Dangerous Assumptions” written for Nature magazine’s Commentary section, Roger Pielke Jr, Tom Wigley and Christopher Green say that “enormous advances in energy technology” will be needed to stabilize carbon levels in the atmosphere at somewhere near the target 450 ppm or below. This contradicts assertions by the Nobel Prize winning body of climate scientists that in fact we already have or soon will have the technology we need to reduce our carbon emissions to acceptable levels. Al Gore, who is due to expand upon his ideas for global warming solutions in upcoming months, has reiterated recently that we already have the technology that we need to meet the climate challenge.
In response to the Nature piece, Joe Romm, on his blog, Climate Progress, has written that Pielke Jr et al. are an example of a species that he calls “delayer-1000s” by which he means that these are people who would allow carbon dioxide concentrations to slide up to 1000 ppm or more than double current levels. Romm, a former Deputy Sec’y of Energy in the Clinton Administration, whose current mission is to popularize climate science and solutions to climate change is not averse to painting a vivid picture of what might happen under various climate scenarios. One would expect no less from the author of “Hell and High Water”, a view of what climate change has in store for us.
Romm has pointed out that Pielke and the physicist Marty Hoffert who has staked out a similar position are both affiliated with the Breakthrough Institute. As readers of this blog may remember, the Breakthrough Institute is the brainchild of controversial critics of the environmental movement, Michael Shellenberger and Ted Nordhaus who declared the “Death of Environmentalism” a few years ago. Romm has been critical of Shellenberger and Nordhaus for their propensity to attack the environmental movement and to advocate, long term research projects in ways that at least divert attention from taking immediate action on global warming. Their institute, after all, is named “BreakThrough” the point being they want to inspire government to invest heavily in long-range scientific research that they hope might lead to those technological breakthroughs.
The Big Question: Do We Have the Technology?
All personal disputes aside, the main question that is dividing Romm, Gore, the IPCC on the one hand and Pielke et. al. Hoffert, Shellenberger & Nordhaus and perhaps Google in its RE<C form on the other, is whether we, with our current technology or technologies that are in the research pipeline, can build essentially carbon neutral societies the world over within a period of approximately three to four decades. Three decades is a long time, so the notion that technology might be “frozen” at the current state of development is perhaps the first red herring that this controversy generates; within three decades new technologies will emerge in some form or other whether we have a policy for it or not. No one is suggesting that we NOT invest in research and development, though we are starting in the US at a point where much can be improved upon in the area of clean technology research.
The “Dangerous Assumption” that these critics of the IPCC are decrying is that a normal rate of technological improvement is inadequate to the task of cutting GHGs by 80% or more. Their favored policy recommendation is to have the (US) government invest massively in long-range research projects that contrasts with their critics’ emphasis on policies that speed the deployment of existing technologies. They make little positive mention of policy tools like carbon pricing or feed-in tariffs that are designed to speed the development of existing technology. The implication is that those who suggest policy drivers for deploying current technology are naïve and operating under a “dangerous assumption”. Another favored criticism that Shellenberger and Nordhaus tend to level at their opponents is that their opponents are acting/talking like the (tired, ineffective) environmental movement. Romm believes that those who support the Breakthrough concept are devaluing if not opposing immediate policy recommendations that target current technologies and current technology use.
What then is the current set of technologies that we already have or can expect to have within the next decade? I will give my account below of current and emerging technologies and list what their advantages are for reducing carbon emissions. The analysis below is represented in chart form <== or here. Following the Renewable Electron Economy scenario that I believe has the highest probability of success, I have ordered these in approximately descending order of overall carbon emissions reduction potential. Note that the order of these is approximately the reverse of the famous Vattenfall-McKinsey chart which lists the least expensive options first; here the keystone technologies of a completely carbon neutral economy come first, some of which are currently more expensive. (I am italicizing technologies in this list that overlap with previous listings in terms of their GHG reduction potential; I am putting those technologies that can act as carbon sinks in bold):
1) Combination renewable energy power plants – emerging technology that coordinates intermittent and periodic renewable electric generators (wind, wave, tidal, and solar photovoltaic or CSP without storage) with dispatchable renewables (biomass, hydroelectric, CSP with storage, and pumped hydroelectric) to serve electric load. (59% GHG reduction potential)
2) Concentrating solar thermal power (CSP) with 6 to 18 hours of thermal storage – existing and emerging technology can reduce coal use for electricity generation by 85%-90% in areas up to 2500 miles away from the world’s deserts. (45% GHG reduction potential)
3) Photovoltaic cells – existing and emerging technology that is deployable in distributed energy, remote settings. (25% GHG reduction potential)
4) Forest preservation, restoration and expansion – existing and emerging technology to fix atmospheric and newly emitted carbon dioxide; reduce emissions from deforestation. (>18.2% GHG reduction potential)
5) Wind turbines – existing technology that may be able to cover as much as 33% of electricity demand with appropriate grid integration. (15% GHG reduction potential)
7) Electrification of Rails and Roadways – Rail and road electrification is an existing technology that can be extended to more large vehicle traffic in regional and intercity routes (11% GHG reduction potential)
8 ) Biomass pyrolysis and biocoal burial – an emerging technology that generates a bio-oil and carbon rich “bio-coal” or charcoal that when buried fixes carbon for hundreds of years. Reduces production of energy from biomass in exchange for fixing carbon. Biocoal can act as a soil enrichment. (>10% GHG Reduction potential)
9) Batteries/Ultracapacitors with 200 Wh/kg energy density or greater/variety of chemistries – allow 90% of local and regional traffic to be electrified reducing transport energy use by 70% or greater (>9% GHG Reduction potential)
10) Biomass-fired power plants– an existing technology that with carbon capture could act as a carbon sink; dispatchable and can back up wind or solar generators. Require policy regulation to ensure non-competition with agriculture for food. (6% GHG Reduction potential)
11) Vehicle Recharge Infrastructure – existing infrastructure in detached houses, emerging in public areas; emerging quick charge infrastructure. Enables battery electric vehicles or plug in hybrids to extend all-battery range indefinitely (4% GHG Reduction potential)
12) Voluntary Veganism – vegans eat no animal products so if people go on a vegan diet for 5 days/week or more we would reduce a massive amount of GHGs. The figures from WRI I used attribute 5.1% GHGs to livestock but I have seen figures as high as 18% of global GHGs are attributable to livestock. Numerous environmental benefits are attributable to plant-only agriculture though there is and will be massive resistance to forgoing meat and milk products (including from me). I quite like meat and cheese though I did have a pretty tasty vegan meal at Café Gratitude not too long ago; this technology can be further developed by chefs and by consumers. (>4% GHG reduction)
13) High efficiency lighting/daylighting – High efficiency fluorescent lighting, daylighting, tubular skylights are here, LEDs and fiber optic daylighting are emerging cutting >75% of lighting energy over incandescents (4% GHG reduction potential)
14) Sustainable biofuels – Cellulosic ethanol is an emerging technology – because of our current liquid fuels paradigm much touted and over-hyped. To be sustainable require strict policy oversight or voluntary certification – in the Renewable Electron Economy would fuel air and sea transport along with bio-oil. (3% GHG reduction potential)
15) Wave and tidal power – Existing and emerging RE generation technologies (3% GHG reduction potential)
16) Electric Arc Heating/Biocoal – Electric arc furnaces already are used in melting steel scrap and a similar principle or biomass substitutes could be used in high temperature industrial applications in place of coal and natural gas (2% GHG reduction potential)
17) Magnetic Induction Heating – Existing technology allows for hyperefficient stovetop cooking with electricity; future applications may allow for more efficient electric ovens. (1.75% GHG reduction potential)
18) Syngas waste to energy – Generation of a syngas from municipal waste avoids the formation of dioxins and other toxins; emerging technology can reduce waste by 95% entirely avoiding methane emissions (substituting less potent carbon dioxide) and reducing the need for landfill space except for separated toxic metals, producing dispatchable electricity from the combustion of the syngas in a gas turbine (>1.5% GHG reduction potential).
19) Methane harvest from sewage – capturing methane to generate power or fuel vehicles from sewage (CH4 to CO2) (>1.0% GHG reduction potential)
20) Enhanced telecommunication technologies/holographic presence – reducing business travel by 75% – extension of Internet/videoconferencing capabilities. (>0.5% GHG reduction potential).
These by the standards of 2008 exciting but in no way futuristic technologies deployed on a global scale have the potential to reduce our GHG emissions by at least 93.7% with little effect on end user “utility”. The most significant change in end use, and perhaps the most challenging, is the voluntary (or incentivized) reduction in the use of animal products.
The conclusion then to be derived from this analysis is that we do not NEED radical new technologies to reduce GHGs very substantially, especially if we follow the Renewable Electron Economy model and are willing to invest as a government AND a society in clean technology. Such innovations might be nice to reduce costs or ease the transition but they are not necessary.
Therefore it would seem that Pielke et al. and their supporters’ assertions would seem to be more lobbying for gee-whiz science projects rather than scientific analysis.
Potential Criticisms of This Model
1) I am using year 2000 data that may be no longer reflective of current emissions or future trends.
a. Response: These technologies are mostly highly scaleable so that more or less of them could be deployed in response to changes in GHG emissions profile
2) Veganism is a substantial sacrifice for most inhabitants of the developed and rapidly developing worlds
a. Response: If this is a planetary emergency, some sacrifice of personal utility may eventually seem like a rational response. Even if people choose a reduced meat/dairy diet, which will have substantial GHG benefits, they will not lose the taste experience or dietary benefits of these foods. This remains by no means a high tech or inaccessible solution and culinary giants might even improve the technology through inventive use of vegan ingredients.
3) The numbers I am using for GHG reductions are guesstimates.
a. Response: Each of these technologies substantially reduces GHGs in each of the major acknowledged GHG sectors; most can be scaled up or down with fairly wide latitude, even accounting for a 30% increase in global population.
Do These Roads Diverge?
If what I have laid out here is anywhere close to being a realistic assessment of existing and emerging technologies, the course of action is pretty obvious: get as many of these technologies in deployment as soon as possible. Pricing may be higher in the beginning, which could be shouldered by richer countries but then economies of scale in manufacture will bring many or all of these within reach of some of the rapidly developing countries that are the focus of concern.
I believe the strongest policy combination is some form of carbon pricing with the addition of performance based incentives, such as feed in tariffs to promote key technologies more rapidly than the politically acceptable carbon price will allow.
Research and development is not excluded from any policy recommendation but the emphasis on technology investment almost to the exclusion of contemporary policy drivers is a curious phenomenon. Research and development, be it at current levels or at levels 50 or 100 times as high, is a traditional role for the US government and is no departure from business as usual.
Will an Emphasis on R&D Lead to Delay?
Rather than resort to name-calling, there is a very serious issue here that has been lent extra urgency by the publicity lent to Pielke’s/Breakthrough’s position through its publication in the prestigious Nature journal.
As I state above, Breakthrough/Pielke are packaging their position as heterodox and daring when in fact it is a simple restatement of a very common position that the US government has occupied throughout the last half century: the funder of basic and applied research in the sciences and energy. Maybe the AMOUNTS that Pielke/Breakthrough are asking for are larger and are applied to a new theme (solutions to climate change) but the format and relationship of government to constituency are the same.
The folk at Nature may have felt that as it is a plea for more money for research it is a natural fit for their science journal. However, they may not have been in a position to evaluate how uninspired the Pielke piece is in terms of its actual policy recommendations.
Nordhaus and Shellenberger, the founders of BreakThrough, seem to be laboring under the belief that their advocacy of more money for research is a break from the past and perhaps it is a break from THEIR past. They have made a great deal of their differences of opinion with leaders of the environmental movement and, in a way, are more likely to discount anything that agrees with the consensus of that movement. Thus they are able to occasionally get publicity from the wider media world as they “turn state’s evidence” against their former colleagues. In a way, Joe Romm, by attacking Nordhaus and Shellenberger is continuing to play into this game.
Whatever their motivation, if someone were to consult Nordhaus and Shellenberger as policy experts, they would get the distinct sense that all the action is with R&D investment and carbon focused policy instruments are at best dull necessities.
If a policymaker came away with that impression, I believe there would be a lost opportunity to create policy drivers that incentivize accelerated deployment of existing technologies.
Apollo Project or Liberty Ships?
Furthermore, there is a tiresome formula into which the S&N recommendations as well as the public face of Google’s RE<C fall into: that technology advances are about what might be called ecstatic gee-whiz moments of wonder, of dramatic breakthroughs. The microelectronics and the biotechnology revolutions have, I believe, spoiled the public, investors and commentators into thinking that innovations occur in an accelerating crescendo. A study of renewable energy flux, along with its synchronization and storage problems leads us to the conclusion that the creation of large industrial scale operations to build large numbers of renewable generators and install them more efficiently will be a much bigger portion of the renewable energy revolution than the micro-world of molecules and atoms. Yes, there are admirable and elegant designs and inventions that have already occurred and that will occur in the future, but there will also need to be large scale deployment and manufacturing in a way that hasn’t been seen here since the second world war.
In a way, the beguiling high-tech metaphor of the Apollo Project, which Nordhaus, Shellenberger and others drew upon in founding the Apollo Alliance, is a little misleading. Apollo rockets were one or two of a kind, though obviously some of the technologies were later commercialized in larger numbers. What we are talking about more is the far more profound and economically stimulative wartime mobilization of WWII where one had both a Manhattan project going on and the broad participation of the population in accelerated wartime production. In fact, as impressive as some of the achievements of the Apollo project were, the manufacturing techniques that enabled shipyard workers to build a complete Liberty Ship, on average in 42 days through pre-fabricated assembly of ship parts will be just as or even more crucial than more glamorous inventions of the past half century.
To drive this scale of production, there will not only need to be government involvement but also stimulation of private actors through regulation and market incentives to move this process forward. To push all of the action off on R&D and government spending is not to grasp the need to drive change, in the most effective and forward-thinking way, in the entire economy.
With adequate information about the dangers AND opportunities we face both economically and ecologically, more and more people will realize that cleaner and better energy and energy services will need to be paid for. While Romm seems to shy away from embracing the fundamental break with what I call the Cheap Energy Contract, Nordhaus and Shellenberger are still obeisant to the assumption that people in the US will not be willing to pay more for energy in order that it become both a source of employment and profit for them and their neighbors and free us from some of the geopolitical problems we have blundered into.
I believe this attitude of remaining entirely supine in front of our own wishes for cheap stuff is unsustainable for us as an economy; eventually we will need to be willing to or required to pay each other for our work and pay for a cleaner environment rather than continue to pay more and more for our fossil fuel addiction.