June 10, 2008
Setting climate priorities straight
By Teryn Norris & Jesse Jenkins
As the prospects for high carbon pricing and cap and trade continue to diminish in the midst of a severe economic recession, some climate advocates are beginning to wonder: is there any alternative? In a recent op-ed we wrote for the Huffington Post, we argued:
Despite Obama's appointments, climate advocates are thus left to worry: is Obama really prepared to expend his political capital championing a policy that will increase U.S. energy prices in the midst of a recession?
Not likely. Until recently Obama voiced support for carbon regulation, declaring at a governors' climate conference in mid-November that his climate agenda "will start with a federal cap and trade system." But since then, as the recession has deepened, he has said little to nothing about cap and trade...
A serious alternative to cap and trade would focus on making clean energy cheap, prioritizing major, sustained public investments to drive down the price of green technologies as quickly as possible. This would require federal investments on the scale of $500 billion over the next decade to support and accelerate each stage of the energy innovation pipeline: research, development, demonstration, and deployment.
Matthew Yglesias, an author and writer at the Center for American Progress, addressed this issue directly in a post yesterday titled "No Alternative," where he argued there is no better alternative to carbon pricing:
Needless to say, the political difficulties of rigorous
emissions curbs aren't something that people have just noticed. And so
a lot of thought and energy and print and pixels have gone into mooting
alternative strategies, most famously the Break Through strategy of trying to make clean energy cheap rather than trying to make dirty energy expensive...
story short, I just don't see a better way than either taxing carbon
directly, or else indirectly taxing carbon through a cap-and-trade
program with auctioned permits. It's true that if you do what Nordhaus
and Shellenberger do and just assume the existence of hundreds of
billions of dollars in funds to throw around, then "throwing funds
around" looks easier. But given the need to raise whatever money you
intend to spend, you might as well raise it by making dirty energy more
Yglesias' basic argument is that there are similar political
obstacles to "making clean energy cheap" as to "making dirty energy
expensive," since you have to increase taxes in some way or another to
generate revenue for the public investments in clean energy technology
innovation. From a climate perspective, he argues, there's no better
way to generate that revenue than from a carbon price, which would have
at least some impact on emission reductions.
Yglesias raises an important question about climate policy
priorities. To address it, we'll first run through the basic logic
that leads us to the conclusion that making clean energy cheap should
be the priority for climate policy, and then we'll address the
implications for funding and revenue generation:
1) Low-carbon energy technologies remain significantly more
expensive than their conventional competitors. Low-carbon technologies
like solar photovoltaics, advanced batteries for plug-in hybrid and
electric vehicles, and next generation nuclear energy have considerably
higher costs than their market competitors. For example, the levelized
generation cost of solar photovoltaic electricity is three to five times that of pulverized coal.
2) U.S. policymakers will never increase the price of carbon to
levels that would be necessary to make most low-carbon energy
technologies cost competitive with fossil fuels. We've repeatedly
observed this fact throughout climate policy debates, particularly with
Lieberman-Warner, and it's even more salient in the midst of a severe recession.
3) The opposition to high carbon pricing is even greater in developing countries, especially in China
and India, where policymakers argue that global warming was created
largely by wealthy countries and that poorer nations should not limit
emissions, or raise fossil fuel prices, until they reach per capita
living standards and emission levels similar to those in the developed
world. That means the only thing that will significantly curb emissions
growth in the developing world is the presence of clean, massively
scalable energy technologies with real, unsubsidized costs that are
competitive with fossil fuels. Therefore, even if U.S. policymakers
increase domestic carbon prices, this will do little or nothing to
address the majority of future global emissions growth.
4) The single largest obstacle to transitioning to a
low-carbon economy is thus the high price of low-carbon energy
technologies. A central objective of climate policy in the United
States and other developed countries must therefore be to drive down
the unsubsidized costs of clean energy. Until the real price gap
between conventional energy technologies and scalable low-carbon energy
alternatives is explicitly addressed by public policy, it will continue
to present obstacles for emission reduction strategies, including cap
and trade. If a high price for carbon pollution to "make dirty energy
expensive" is politically unrealistic, then we need a strategy to "make
clean energy cheap" -- i.e. to reduce the real, unsubsidized price of
clean energy technologies through public investments in each stage of
the technology innovation pipeline. This will require investments on
the scale of $50 billion per year.
One critical point is that we are not simply proposing that we
subsidize clean energy generation in order to bring down its subsidized
cost. We are proposing to subsidize clean energy development and
deployment in a very targeted and specific way in order to bring its
real, unsubsidized costs down -- all in an effort to develop the clean,
scalable and affordable energy sources we need to power the global
economy, both here and in developing countries.
This is a critical distinction. We are not proposing to simply
replace a carbon price to make dirty energy expensive with a taxpayer
subsidy of equal size to make clean energy cheap (in subsidized terms).
Rather, we are proposing to use public investments in a highly specific
and targeted way, at several defined points in the innovation process,
in order to drive cost reductions in the unsubsidized price of clean
energy technologies. The cost of these investments will therefore be
smaller than either a generic and ongoing subsidy of clean energy
production or an economy-wide carbon price sufficiently high to drive
real clean energy innovation. The assumption that this is simply a
question of whether we pay out of one pocket (the taxpayers) or another
(the consumers) misses the objective of our strategy to make clean
Finally, none of this is to argue against a price on carbon as one
tool to raise money for technology investments and to pull mature and
relatively cost-competitive technologies into the marketplace. As we've made clear,
we support a modest price on carbon if the majority of the revenue goes
toward technology investments. However, carbon pricing should be seen
as secondary to the fundamental work of making clean energy cheap and
should not be seen as a prerequisite for these investments.
If you accept that making clean energy cheap should be the primary objective for climate policy, you become largely indifferent about the revenue stream for public technology investments. A modest price on carbon dioxide starting in the range of
$10 per ton and increasing over time would be preferable from a climate perspective, but if this
is not politically achievable in the short-term (it probably isn't due
to the recession), funding for the critical investments to make clean energy cheap must come from elsewhere. The
fundamental work of making clean energy cheap shouldn't be held hostage
to carbon pricing.
In an forthcoming Breakthrough Institute report, we highlight several possible revenue streams
(including a modest carbon price), none of which would result in
significant tax increases. But we also suggest that given the major
national security and economic ramifications of foreign oil dependency
and global climate destabilization -- as well the potential for these
investments to create whole new growth industries -- this spending can
justifiably be incorporated into the general federal budget or funded
in the short-term through deficit spending.
But the greater
problem than finding a funding source, we think, is the failure on the
part of climate advocates to articulate and define a strategy to truly
make clean energy cheap. We've seen abundant evidence that the public supports big investments in clean energy technology, which
is why Obama began to place it at the center of his economic policy agenda. These
are investments that will create entire new growth industries and jobs,
reduce energy costs, slash our trade deficit, improve our national
security, and improve the environment -- a far more inspiring agenda than carbon pricing that puts climate change at the front-and-center.
auction revenue toward technology development. But there is still no
front-and-center strategy for how to accomplish rapid and effective
price reductions in these technologies. The 500 billion dollar question, then, is whether Yglesias, the climate
movement and the broader progressive community will accept making clean energy cheap as our top energy and climate priority.