Is California’s Renewable Energy Mandate Destined for Failure?
August 05, 2008
Breakthrough Responds: Why Carbon Pricing Won’t Cut It
July 24, 2008 | Breakthrough Fellow,
This is a response to Max Epstein's guest post, "In Defense of Carbon Pricing: Why Clean Energy RD&D Isn't Enough." Our response is written by Breakthrough Generation fellow Zach Arnold.
Before anything else, I want to thank Max for his thoughtful post. His arguments have been a big help in clarifying our own thinking.
In my response, I'm going to try to define the problem we're trying to solve, and clarify the differences I see between a carbon price driven regime (as Max advocates) and an investment-led regime (as we're more fond of at Breakthrough). I'm then going to explore the political feasibility of a carbon price, and what a politically sustainable carbon price can and can't do to address climate change. In doing so, I hope to show that, for now, we can't rely on carbon pricing to drive the shift to a clean energy economy.
The challenge ahead: developing and deploying clean energy technologies and creating a new economy
Although cap and trade advocates are fond of invoking the success of the 1990s SO2 trading program that helped cut acid rain pollution, Max recognizes that overcoming the climate and energy challenge is a wholly different undertaking. Cutting acid rain necessitated adding scrubbers - an existing, largely developed technology - onto a handful of power plants in one country. As Max rightly points out, the massive challenge ahead of us is something different entirely - nothing less than the restructuring of the global energy system, entailing a massive shift from well-established and cheap (but dirty) fossil fuel technologies to a broad suite of next-generation energy sources that, for the most part, are expensive and currently marginal. With this in mind, the question on every climate activist's mind must be: "What strategy available right now will maximize innovation and deployment of low-carbon technology?"
This is a very different question from the currently popular framing - "What strategy available right now will lead to the deepest emissions cuts?" Obviously, decreasing atmospheric concentrations of CO2 is the end goal of any climate strategy. But approaching the problem from the perspective of emissions accounting and control is just asking for trouble. Even if we could establish a perfect emissions regime here in the US, we'd have the rest of the world to contend with - and creating a globally comprehensive regime, or even persuading each country to adopt its own, would be quite a task. As another blogger has written:
Think of what it would mean to enact a harmonized global carbon tax (or some alternative regulatory scheme, even less theoretically efficient than a carbon tax). You'd have to get, among others, the French National Assembly, the Parliament of India, the Brazilian National Congress, the Chinese Politburo, and Vladimir Putin to go along. What kind of side-deals do you think would be required to get them to do this? Further, even if we got to an agreement de jure, we would then have to enforce a set of global laws for many decades that would run directly contrary to the narrow self-interest of most people currently alive on the planet. How likely do you think a rural Chinese official would be to enforce the rules on a local coal-fired power plant?
Indeed, developing countries, disinclined to risk slowing economic growth, have time and time again signaled their unwillingness to adopt hard limits on their emissions, now or in the future. In the context of such challenges, tracking, capping, and controlling the world's CO2 is a pipe dream, and certainly not an approach that promises serious reductions in the near term. Instead, our goal must be to make clean technologies as cheap as possible, enabling their deployment throughout the world regardless of the regulatory regimes in place.
Harmony in theory: investment and a carbon price work together
We've now defined the challenge as one of technological development and deployment. At this point, Max might reiterate that carbon pricing is the best way to reduce the price of low-carbon technology, because it would mobilize massive stores of private capital and direct attention to the most efficient and immediately effective technologies. And indeed, a carbon price would help greatly. It would theoretically channel private capital (which, as Max rightly points out, is quite a lot of money) into the battle, while raising funds that could then be used for public investment. Moreover, making dirty energy expensive through a carbon price would reduce the price gap between clean and dirty technology, reducing the work that strategies like subsidies, portfolio standards, and basic development would have to do in order to make clean technologies competitive.
Carbon pricing, in other words, theoretically gives you more bang for your investment buck (although this theoretical relation wouldn't always pan out in real life, as I'll explain below). This is why Breakthrough supports carbon pricing to the extent that it's politically feasible, both as a funding source for public RD&D and a driver of private investment. The question is one of emphasis: do we advocate a carbon pricing regime, supported by limited government investment where deemed strategic - or a massive public investment initiative, funded and facilitated by a modest carbon price?
This is not, as some have asserted, a frivolous or merely academic question. We need to figure out what policy vehicle has the greatest potential right now to change our energy technology complex. And many proposals have already made an implicit judgment, relying on a carbon price to do the heavy lifting and allocating comparatively little (if any) funding for investment. In the next sections, I'll argue that such judgments are deeply flawed.
Theory meets reality: the political prospects of cap-and-trade
First of all, let's get clear about the sort of carbon price that would be necessary to drive big changes. As it turns out, big changes require big prices - carbon prices far higher than anything being considered now. Over at Grist, economist Jim Barrett points out that recent price increases in gasoline - roughly equivalent to the imposition of a $200/ton CO2 tax - have decreased driving by only about 4% nationwide, and residential energy use is likely to be even more stubborn. (These are the two largest sources of American CO2 emissions). Meanwhile, in order to make solar photovoltaics cost-competitive with coal (to cite one example), we'd need a CO2 price of $220/ton. These are prices that far exceed any current carbon price, as well as those projected or mandated under any existing proposal.
But even if high prices are necessary, Max might object, we could make them politically doable by taking some of the proceeds (obtained by government sale of permits) and giving them back to consumers. The idea is that "cap-and-dividend" can make carbon pricing acceptable to the average Joe by cutting him a check to cover or even exceed his losses due to higher energy prices.
Unfortunately, crafting a politically feasible proposal is not just a matter of "running the numbers" (as Max says). Cap-and-dividend fails to address the "pocketbook" anxieties that have sunk and will continue to sink carbon pricing proposals. For one thing, it's not at all clear that under carbon pricing, dividends will cover the losses to each consumer. Max chooses EIA figures to back up his assertion, and those are probably as good as any (although I can't resist noting that the EIA's track record in forecasting is pretty horrible), but in fact, estimates of the consumer cost of carbon pricing range substantially higher. For example, Barrett (whose organization runs its own economic models) puts the annual per-household cost of a $50/ton CO2 tax at $1000, not $30-325. And remember that $50/ton CO2 might not even do much; what happens at $200/ton is anyone's guess. Asking Americans to have faith that these ominous and highly uncertain dynamics of cost and benefit - overseen by the government, everyone's favorite redistributor of wealth - will eventually work out in their favor is a recipe for political failure.
In addition to these threatening uncertainties, cap-and-dividend has some very certain - and very disturbing - equity implications to deal with. Discussing the economic pain of carbon pricing in terms of per-household cost is misleading, because pricing CO2 will have a highly uneven effect across the American economy. Some people will pay a much greater price than others - for example, rural Americans who rely more on driving, or people whose utilities rely more on coal power (e.g., the entire Rust Belt, including some rather important swing states). The overall effect is likely to be a wealth transfer from one group of Americans to another. Barring the construction of a complicated and politically fraught apparatus to distribute dividends based on per-capita carbon reliance, I don't see any way to deal with this problem.
And while the costs will be limited to higher fuel prices and electricity bills for some, others will lose their jobs, as those firms already in dire straits get pushed over the edge - e.g., the manufacturing sector, which the EIA projects will be disproportionately impacted. In this way, implementing cap-and-trade with dividends is likely to bring back the same sort of debate that flared around outsourcing years ago; as in free trade, for each citizen, the benefits of cap-and-dividend will be diffuse (although considerably less certain than those of free trade), and the losses concentrated and highly visible.
In the near term, these dynamics are likely to keep the Gordian Knot as tangled as ever. That is, the only way that a cap-and-trade bill will be passed in the foreseeable future is with substantial cost-containment measures, effectively diminishing the price incentive and hamstringing the regime's impact on technological innovation and deployment. And even with such measures, passing Lieberman-Warner II (or whatever it may be) isn't exactly a safe bet. Keep in mind that L-W, even with billions upon billions in handouts, substantial permit giveaways, and other cost-containment measures, collapsed pretty quickly in the Senate.
Reality, part II: trouble in the market
But carbon pricing doesn't merely face political problems. "Market-driven solutions" like cap-and-trade are also subject to myriad market inefficiencies and inelasticities. Max highlights a few of these, but the fact is, these troublesome dynamics are everywhere. A wide variety of factors, of which price is one, influence people's decision making about how much energy they'll consume, or what sort of car, factory, or power plant they want to buy - so in most cases, simply nudging the prices in play isn't enough.
Generally, the phenomena I'm referring to are known as "market failures" - situations where, for one reason or another, people or firms don't make decisions that would be a net positive for society - or even for their own pocketbooks. These are extremely common in the areas near and dear to energy policymakers' hearts. After all (to cite one example), if people made decisions based simply on overall cost vs. benefit, then every house in America would already be outfitted with a solar water heater and decent insulation - measures that are already profitable for both individual actors and society at large, even without a carbon price. Or consider the serious dearth of energy research - total basic energy R&D in the U.S. is less than the R&D budget of one biotech company.
Market failures like these have a million causes, which perhaps explains why most cap-and-trade advocates tend to avoid talking about them beyond a generic "the government should fix them." However, not only do carbon-price proposals generally not seek to "fix them," but these failures are far more widespread than most admit.
Take electricity production, for example. As a recent article on this subject opined, "Ultimately, the belief that prices alone will solve the climate problem is rooted in the fiction that investors in large-scale and long-lived energy infrastructures sit on a fence waiting for higher carbon prices to tip their decisions." Investors in power plants aren't likely to choose clean options (cogeneration, renewables, even natural gas) if there's uncertainty over the future price of carbon, or over the lifetime emissions of a proposed project. Moreover, insufficient public infrastructure (like transmission lines) and human capital (solar installers, wind turbine technicians) often obstruct clean energy development.
There's also pervasive inelasticities in the areas that carbon pricing targets. As I alluded to before, heating and transportation - which together account for over half of American emissions - have really inelastic demand, meaning that big price hikes don't translate to big changes in behavior. People drive and heat their homes because they have to, not because it's affordable.
Some of these dynamics (e.g., inelasticity) can't be changed through policy, making a carbon price somewhat irrelevant in those instances. But most market failures can. However, if legislation doesn't address a fair few of them (and I'm not aware of an existing carbon price proposal that does), then the impact of a carbon price could be seriously compromised. Were the levels of CO2 pricing currently being thrown around in legislative proposals (low double digits per ton) to be implemented directly, via a carbon tax or cap-and-trade "safety valve" mechanism, we might achieve the worst of both worlds - real financial costs to consumers, but little change in emissions. On the other hand, if the government stood firmly by the principles of cap-and-trade, limited overall emissions, and allowed the market to set its carbon price autonomously, the presence of failures would drive the price up higher and higher, bringing us back to a tricky political problem likely to result in the weakening of the regime.
Market failures don't invalidate the idea of carbon pricing per se - any energy policy will have to take them on. However, they do demonstrate that it would be unwise to focus excessively on pricing as a panacea. Max writes, "The government should stick to targets and let the market figure out how to achieve them. Government action should be targeted to address specific market failures." But when you consider the vast array of dynamics (including, but not limited to, classical market failures) that conspire to limit the impact of a carbon price, it becomes clear that a wide variety of government interventions will be necessary, and not simply a quick fix tacked on here and there. And if these interventions aren't made, as I discussed above, big problems materialize.
The alternative
Pursuing a cap-and-trade-led regime today would entail taking a massive political risk. The payoff, were it to materialize, would be a complicated regulatory regime, one whose efficacy would require costs far above the realm of the politically possible - making it an instant non-starter.
You'll forgive me for being underwhelmed.
Max is right to point out that the challenge we aim to tackle is vast, and we're going to need all the tools we can get to take it on. Would an ideally administered, quickly implemented, high carbon price (supported by various complementary policies) be a good tool to have? Sure. But debating idealized policies doesn't help anything. In the real world, the American polity and the American market are not ready for a tough carbon price. With this in mind, the proper response is not to continue to advocate an unimplementable strategy. Instead, we believe that the best way to respond to the climate challenge right now is to massively expand the role of the federal government in researching, developing, and deploying clean technology.
Unlike cap-and-trade, such a strategy is politically ; Americans are eager for an energy initiative based not on limits and regulation, but on large-scale investment and a public push for energy independence. With energy prices at the top of Americans' concerns, a policy focused on providing new, clean and affordable energy sources - rather than pricing our way to greenhouse gas emissions reductions - would stand on significantly stronger political footing.
And importantly, this strategy isn't a simple compromise, or a capitulation to the prevailing political winds. Government action can spark real change - and in fact, it always has. Stepping up public involvement to such a degree is often dismissed as "picking winners" - substituting the imperfect expertise of the government for the invisible hand of the market. However, leaving the very real imperfections of the market (not to mention every extant cap-and-trade proposal) aside, history indicates that the government can and almost always does play a key role in technological transition. From R&D support for civil aviation, lasers, and software to the demonstration and deployment of technologies like computer networks and modern wind turbines, direct public intervention has been essential over the past century - in every step of the development process, not simply basic research.
(As an aside: it's interesting that Max brings up the PC revolution in this context. While the U.S. government might not have subsidized the IBM 5150 (as Max dryly observes), it actually did buy copious amounts of early microchips, leading to a precipitous decline in per-unit cost and fueling the development of today's semiconductor and personal computer industries. Government deployment strategy at work!)
It's time to embrace the role the government can play. There's no doubt that a government-led investment strategy comes with many problems of its own. We are aware, for example, that public investment and continuing subsidies have all too effectively created mature fossil fuel and corn ethanol industries. But a well-designed, investment-centered policy - a policy that mobilizes public and private capital through direct funding and indirect incentives, addresses pervasive market failures, and inspires Americans to help create our new energy future - has the potential to be truly transformative. We're still working through the details of what such a policy looks like, and we'd love the help of other policy and political minds. But for now, given the circumstances of our time and the nature of the challenge we face, we're confident that this is the direction to choose.
Comments
400 million dollars to develop technology that already exists. What a bargin! Does anyone in the government pay attention to anything that goes on outside of the beltway? Save the taxpayers some money and do some research on the internet.
By sohbet on 2009 07 10
Jesse, you write a couple of things that I think miss the point I'm trying to make. First, you write you support:
"as high a price on carbon as is politically sustainable as well - both as a funding mechanism and as a way to help close those economic inefficiencies you mention."
The high price of carbon does not help close economic inefficiencies/market failures. The point of a market failure is that it is inefficiently impervious (or relatively so) to price changes. This is different than something that may be relatively impervious to price changes just because it has very low elasticity of demand (i.e. is a necessity). This is why I try to move away from the focus of "cost containment" and on to better market design, which allows the pricing to work.
and
"Do it with cap and trade or a carbon tax, you still are relying on as high a price on carbon as is economically necessary to drive reductions."
I'm going to refer to a cap/trade specifically, because I don't lump it with carbon tax as "carbon pricing." They're not as interchangeable as people make them out to be. The cap does not rely on a high price of carbon, rather the price relies on the dynamics (not just overall stringency) of the cap. As Kyoto's ETS has demonstrated, if you are obstinate enough you can engineer a very high price on carbon that accomplishes virtually nothing. But they can also be designed to systemically keep prices low without having to revert to artificial "cost containment."
It would be great if just throwing a bunch of money at "clean technology" could solve the problem, but that's a pipe dream. I mentioned the immediate consequences of a backlog of coal plants going up that will be next to impossible to get rid of for decades because of the basic economics that differentiate between costs that get something built and costs needed to shut something down.
Finally, I really just don't get the insistence that a cap/trade is a politically impossible sell. It's sorta like "who are you gonna believe, me or your own eyes?" Virtually everyone following this assumes we'll have a cap/trade bill passed within 2-3 years. The next president will support one no matter who wins. Lieberman-Warner almost got 60 votes for cloture. While that's not the same as votes for passage, there's substantial room to improve not just policy, but political appeal of that bill. Plus there will be more democrats in both houses next session. Lots of senators were clearly unnerved by the modeling that indicated higher prices, especially in manufacturing. The EIA numbers carry a lot of weight, they were thrown around by both sides. Some pretty simple changes in the bill would lower those permit price projections, and more votes would materialize. We're not missing many votes and they're gonna get them. So why jump ship?
By Max Epstein on 2008 07 28
p.s. obviously there are poor people in all states, including California. My point was first, that there's a reason that some states currently pay less for electricity than others: their residents can't really afford to pay that much more. There's a pretty strong correlation between electricity price per kilowatt hour and median household income by state -- and between price per kilowatt hour and lower carbon emissions. So we shouldn't assume that just because some states pay less than California or New York for electricity already, and those states have the dirtiest electricity mixes, that there's more "room" for them to pay higher prices. In fact, quite the opposite is probably true.
I also wanted to make the point that even the perception of a carbon pricing scheme resulting in wealth transfers from lower average income states to higher average income states is a real political liability for any cap and trade scheme, and in particular for a cap and dividend program that advocates per-capita dividends.
Breakthrough is currently conducting what looks like it'll be a pretty robust analysis of the affects of carbon pricing by state and by income levels which should reveal a lot of these issues. So we're definitely taking a close look at this and we'll share it as soon as we're done.
By Jesse Jenkins on 2008 07 28
Hi Max,
There were several points you just raised, so I'll try to respond to each here:
First, I offered the Oregon examples as anecdotes. Clearly they won't map perfectly (or even closely) onto the federal scene. But I'd argue that you'll have much better luck convincing Oregonians or Washingtonians to pay more for regulations that mandate lower emissions or cleaner electricity sources than you will convincing just about any other state outside the Northeast. And the point was that even in Oregon, and even with hard cost caps on RPS bills, the battle was tough. I'll leave it to you to decide how that affects your judgment about the political likelihood of a cap-and-trade bill without any cost containment passing at the federal level. I was just sharing some of my past experiences and explaining why they make me skeptical of carbon pricing scheme's political viability.
Second, Obama's $150 billion clean energy investment plan would presumably be paid for by auctioning emissions allowances in a cap-and-trade, and I believe he's indicated that in campaign speeches before. But the campaign page is actually not explicit about that, and given the vicissitudes of campaign promises, I'd say it's pretty open where that gets financed from.
As I said above, I'm definitely open to paying for the investments with revenues from carbon auction. In fact, that's my preferred method for paying for it. As I wrote to Sam above, a $20 CO2 price would raise more than enough to fund something twice as big as Obama's $150 billion plan and still leave money left to help counteract impacts on America's poor. The point was that it's not critical where the funds come from for an investment centered approach to work.
I thought I was also clear but will clarify again that I and I think everyone here at Breakthrough is supportive of as high a price on carbon as is politically sustainable as well - both as a funding mechanism and as a way to help close those economic inefficiencies you mention. But let's be clear: saying it's economically inefficient not to price carbon fully doesn't really have any bearing on the political chances of a carbon pricing scheme without cost containment. This is politics and when was the last time politics maximized economic efficiencies?! So sure, in the vacuum of economic academia, pricing carbon to it's full societal cost sounds great to me. But this is the US Senate we're talking about, Americans are far more concerned about energy prices than carbon emissions, and we can't afford to let ideal economic scenarios stand in the way of the a politically successful solution to our pressing economic, climate and national security concerns. The moment is far too urgent. It's time for a new strategy.
I also never suggested we pay for a clean energy investment program by shifting spending from the Iraq war. I completely agree that those arguments are a completer mirage and really mean we'll just pay for it with deficit spending. Now I'd much rather go into deficit to invest in a clean energy future than the Iraq war, but deficit spending isn't my ideal funding source. Still, we shouldn't be afraid to go into deficit to solve the energy, climate and security crises we now face. If that's how we end up financing this stuff, I won't fall on my sword to stop it.
The main point here: when we're talking about an investment centered approach to igniting a clean energy future, we have options. The financing can come from a number of sources or combination of sources, which increases the likelihood you'll find a politically sustainable solution.
When you're talking about a carbon pricing scheme, you don't really have any options except pricing carbon, right? Do it with cap and trade or a carbon tax, you still are relying on as high a price on carbon as is economically necessary to drive reductions. And I am simply unconvinced that there's much likelihood of that kind of approach securing passage in the US Senate, now or in the next few years. There's not a moment to lose, so let's find something that works - and that starts with finding something that is politically sustainable.
My suggestion: a major public investment program designed to ignite a clean energy economy through targeted investments and financed by as high a price on carbon as is politically possible and sustainable over several decades. My guess is that's somewhere in the $10-$25/ton range, which would generate plenty of revenue for investment. If we can't get the price high enough to raise enough revenue, than we've got other options as to where to go to for funding. If the my guess is wrong and we can get a higher price, then great, we'll have extra funds to distribute in the most effective manner. In any case, the carbon price delivers as much reductions as it can at that price and the targeted investments augment that, most likely doing the heavy lifting.
By Jesse Jenkins on 2008 07 28
Also (responding to something a few posts back), not everyone in CA is rich Jesse. I know we have plenty of poor people in DC up through Massachusetts on the East Coast, and I'm pretty sure there are plenty out West as well. Plus the cost of living is higher, which distorts federal statistics on regional poverty. And on top of that, I'm pretty sure the average on the coasts is brought up by way more rich people, not a lack of poor people. So no, I don't think poor urban people on the coasts should have to subsidize electricity for rural America.
By Max Epstein on 2008 07 26
Jesse, the numbers I gave were reference case numbers, meaning assuming no carbon pricing. So obviously if you price carbon and you have fewer coal plants going up immediately that's less of a burden on the reductions you need from the clean sector. I don't get the logic that well, we need to transform our economy, so it will happen or won't but the difficulty in getting there shouldn't depend be exacerbated in any way by continuing to allow the free waste dump subsidy for fossil fuels. Strictly from an economic standpoint, if you acknowledge that carbon must be reduced, failing to price carbon is economically inefficient. And just because some private funds will flow to clean energy following public funds doesn't change the fact that substantially more would flow if a price on carbon was incorporated as well.
Also, Obama's $150 billion dollar clean tech plan is to be funded on a cap with full auction permit. Finally, I wouldn't really compare political prospects for passing clean energy legislation of Oregon state to the feds.
And on funding. It's easy to say well we'll get the money from bloated military spending, ending the war in Iraq. The war in Iraq would be ramped down under Obama, but all troop/funding levels will be decided based on mission needs and not as if those funds specifically are competing for other proposals. So whatever is saved would go to (incompletely) closing the deficit hole if not spent elsewhere. That means banking on that, or "general revenue" is deficit spending. That's paying for it, plus interest, in future taxes on labor/employment/investment. All which harm the economy.
These funds are not going to materialize without a carbon pricing scheme, and likely a cap/trade. Just my opinion, but I think you would be better served to lobby for including more of the carbon revenue for R&D in the cap/trade bills that keep coming up (and will continue in the next congress), as opposed to setting this up as an either/or.
By Max Epstein on 2008 07 26
BTW, for comparison, the Oregon Business Energy Tax Credit expansion sailed through the Oregon legislature while we were debating the RPS bill. It passed the House unanimously. And this isn't a tiny credit. It offers a 50% credit on up to $20 million in qualified project costs for energy efficiency investments, renewable energy installations, green building, and clean energy manufacturing facilities. I'm pretty sure it's now the largest business tax credit on Oregon's books. So I know the current Congress's partisan demogaugery has failed to pass the extension of the federal renewable energy PTC time and time again this year, but let's also remember that they have passed it, several times over the past several years. Federal RPS? Not so much...
That said, I don't deny there's a burden of proof on us and a true test may come next year, if Obama is elected and follows through on his $150 billion, ten-year clean energy investment plan, or if Congress pushes a new approach. I think, for now, polling, past history of government investment vs. regulation's political success, and current public focus on energy rather than climate (now the #1 political issue and energy prices are #2 on American's minds behind the ailing economy) points in the direction we're headed, and away from a carbon pricing regime.
By Jesse Jenkins on 2008 07 25
Max, if we can't deploy enough clean energy, we're sunk, regardless of what policy you use to drive deployment. If we can't fundamentally change our entire global energy grid to stop being reliant on carbon-emitting resources (as it overwhelmingly is now), then we're sunk. At the heart of all of this - both cap-and-trade and an investment-driven approach - is a clean energy deployment and energy efficiency challenge. We must fundamentally change how we make and use energy. Globally. Cap-and-trade is designed to drive that change just as much as an investment-driven regime, so if you're pessimistic about the chances of clean energy deployment, I don't see how you're optimistic about the chances of cap-and-trade's success (particularly at low costs for mitigation). Can you clarify?
Jesse
p.s. don't worry about the double posting. happens all the time.
By Jesse Jenkins on 2008 07 25
Sorry about the double post above.
Jesse, you still don't address the crucial issue: there's just too much market share. You could add enough clean energy worldwide in the next 22 years as the entire 2004 global consumption of coal, natural gas and nuclear combined, just covering new demand and so not even reducing emissions at all. The numbers from the EIA IEO 2007 are in the second paragraph of my original post.
By Max Epstein on 2008 07 25
Jesse,
First, if either one of us had the perfect politically acceptable solution it would be law and this argument would be moot. So in general I'm gonna stick to substance. But the $300 dollars is not just a gimmick, its more money than costs incurred, using Zach's numbers. The Congress can't even pass a 1.7 cent per kwh subsidy for renewable energy, so there's a burden of proof on you as well if you justify $30 billion a year largely on political feasibility grounds. And a production subsidy is easier to pass than a massive research program because the production subsidy directly puts cash in the pockets of campaign contributors.
Second, theres no reason why the carbon price would have to reach $50-100 a ton anytime soon at all. And by the time it would, we'd be much less reliant on carbon anyway. What would you rather have: your car today and $4 gas, or an electric car which requires no gas for 99% of the trips you take, with $10 gas? Your issue about lack of "cost containment" (though I didn't specify, I would in fact not have any traditional "cost containment") misses the point. "Cost containment" measures that get thrown around Congress are intellectually lazy desires of something for nothing. How to keep prices low? Just mandate they can never get high. If only things were that easy.
There are better ways to ensure prices never get that high, by instituting a well designed program with complimentary policies designed to address specific market failures that might otherwise introduce costs. Just a couple from each would include: 1) a fairly ambitious price floor (reserve) that would decrease uncertainty as to the path of prices, as well as accumulate a pool of extra allowances that could be released when demand spikes to mitigate potential price increases/volatility; 2) a multi-year instead of single year compliance period (retiring allowances every 3 years instead of 1, like RGGI proposes for example) which would mitigate the effect of short term price spikes on any one compliance expenditure; 3) higher fuel standards for cars; 4) higher efficiency standards for new residences and appliances.
By Max Epstein on 2008 07 25
Sam,
Good questions, one's we're definitely refining and would welcome anyone else to contribute to answering. Our research to-date indicates the following answers to these questions:
1) How much public money will it take to solve global warming? A public investment project in new American clean energy sources that was somewhere in the ballpark of $300-$500 billion over ten years would spur major development and deployment of clean energy technologies and infrastructure. The costs would more than pay for themselves with increased economic activity and job growth and could be financed through several means, including a modest price on carbon. They would also unlock even greater flows of private capital that would follow these public investments.
2)When would we begin to see reductions? Immediately. We should begin with targeted investments that spur the widespread deployment of existing clean energy technologies (as we scale up our efforts to make breakthroughs in the price and performance of next generation technologies). For example, the investment project could fund a major effort to train an energy efficiency core that could weatherize and retrofit our entire country's existing building stock over 10 years, resulting in huge savings for energy, money and emissions. We should start with a long-term extension of critical renewable energy tax credits that keep our wind, solar and geothermal industries booming and secure increased greenhouse gas reductions. We should deploy a new high voltage "supergrid" to tap our huge domestic reserves of renewable energy, including wind in the Great Plains and solar in the Desert Southwest, bringing large amounts of renewables online. We should make investments to help Detroit and the US auto industry retool and recharge to produce electric and high efficiency vehicles. Etc.
3) Where would the money come from? As I indicated before, the most likely (and probably effective) place for it to come is a modest price on carbon. A modest, $20 carbon price would raise over $55 billion per year just from the electricity and gasoline sectors alone (according to my estimates based on EIA data). That'd give us enough for the $30-50 billion a year we need for this initiative, plus enough to offset the impacts on low-income folks with targeted rebates and investments (i.e. weatherization assistance, incentives to purchase more efficient cars and appliances, etc.). Another place (that's probably just as politically challenging but would make sense): end the unnecessary subsidies to the oil and gas industry, which could raise $10-20 billion/year I believe. But when you frame this around investment and not carbon pricing, it really doesn't matter where it comes from. It could be carbon pricing, shifting subsidies from clean to dirty energy sources, charging royalties on new oil and gas production, deficit spending, new public clean energy bonds (like the war bonds of an earlier era), general budget money, or any combination of the above (or others). It doesn't really matter. I've got my favorites, you've probably got yours, but what counts is that we come up with the money, use it wisely and strategically, and ignite a clean energy economy.
By Jesse Jenkins on 2008 07 25
Max, you think we shouldn't underestimate the appeal of the kind of pitch you make for a cap-and-trade bill with $300/person rebates. My personal work history makes me highly skeptical that kind of pitch would work for something as expansive and widely-impacting as an economy-wide price on carbon.
In my last job, I worked as a renewable energy advocate in the Northwest where I helped pass the Washington Clean Energy Initiative and Oregon Renewable Energy Act - both of which established statewide renewable energy standards for the state's largest utilities.
We're talking about two of the greenest, most progressive states in the United States: Oregon and Washington. Both laws had hard, 4% caps on the cost of compliance with their new standards, meaning any utility would be off the hook if compliance with their new RPS targets would be more than 4% more expensive than meeting load with non-renewable resources. Each bill only required enough new renewables to meet just about the expected growth in electricity demand over the next couple decades (15% by 2020 for WA and 25% by 2025 for OR), and both exempted smaller utilities from the standard. Both also included complimentary measures for efficiency that would help reduce people's electricity bills and counteract any potential increase in rates from the RPS portion of the bills.
Even given all that: green, progressive states, hard cost containment (at just a few percent incremental cost), exemptions for small utilities and complimentary cost-saving measures. Even given all of that, these bills were VERY hard to pass. After outspending our opponents 2.5 to 1, the Washington ballot initiative passed by just 51.5%-48.5%. After a huge campaign in which basically everyone in the state, including the largest utilities were on board with the bill - everyone but big industry players and rural electric cooperatives - we were biting our knuckles to see if we got that extra vote that put us over a majority (once we got that one vote, several more followed, but beneath the final vote total, it was really just one or two votes that made it go).
Also keep in mind that a federal renewable portfolio standard failed to secure passage again last year, despite having a hard cost cap of 1.5 cents/kilowatt hour of incremental cost for renewables.
So when you say that we should be optimistic about the chances of passing a bill that internalizes an economy-wide carbon price of upwards of 50-100 dollars/ton (and ultimately higher), inherently causes major ramifications across the US market (that's the point right? to get people to change), ignores regional differences in equity and wealth (those states with the lowest electricity rates are also generally the poorest in the US, so no, we probably shouldn't ask them to pay what rich California's pay for electricity), and has no cost containment measures, forgive me if I'm skeptical... I also doubt that the promise of a $300 check in the mail is going to do that much to change the picture either (unless you can find some good research/polling that indicates that rebates are a political winner).
Jesse Jenkins
Associate Director, Breakthrough Generation
By Jesse Jenkins on 2008 07 25
I wonder if you could answer these basic questions:
How much public money will it take to solve global warming?
When could we begin to see reductions?
Where would the money come from?
I've never seen anyone from Breakthrough these simple questions. I would think BT would focus on figuring out how their plan will solve the climate crisis, before publishing even more half-baked analysis on why other plans won't work.
By Sam on 2008 07 25
Ugh, this came out long, sorry.
While you mention that scrubbers were an important technology for SO2, the point was that the cost effective mass deployed solution was scrubbers that do less scrubbing. This was not the direction anyone was planning and so not how any public deployment projects would have gone, which would have thus been less efficient. In addition no one saw reclassifying coal coming. So while I agree CO2 is a much bigger problem than SO2 was, I disagree that you can distinguish SO2 because it was simply a matter of deploying available technology.
Second, I
By Max Epstein on 2008 07 25