June 16, 2010
The Emerging Climate Technology Consensus
Update (Jul 16, 2010): Expanding on a Washington Post op-ed, Vinod Khosla delineates his argument "about the deficiencies of an isolated cap-and-trade or carbon-pricing bill," and joins the climate technology consensus. Khosla writes, "If we want to make a significant difference, we need to get on the path to reducing carbon worldwide by 80 percent now by focusing on what I call "carbon reduction capacity building" -- in other words, we need to develop radical carbon-reduction technologies. A utility cap (or a carbon price) won't build capacity -- it will just increase our utility costs and decrease our manufacturing competitiveness without any increase in our technological competitiveness. On the other hand, although a policy that promotes capacity building will increase research investments in the short term, it will likely decrease overall electricity costs in the medium to long run (through the magic of competition, technology and regulatory certainty), while simultaneously reducing carbon. Disruptive technologies require investment; they don't come from the status quo."
Update (Jul 14, 2010): Other observers have reached similar conclusions about the faltering pollution paradigm. Walter Russell Mead and Clive Crook weigh in on "The Big Green Lie" but can't agree on what it is. Mead argues that it is "that the green movement is a source of coherent or responsible counsel about what to do" while Crook argues that "it's the diminished credibility of the claim that we have a problem in the first place." But both agree that cap and trade and the effort to establish a global carbon pollution regime are dead. Meanwhile, Newsweek's Stefan Theil observes that "the whole concept of radical, top-down global targets is coming under scrutiny" and suggests that the "new climate realism" will "look at other options beyond the current set of targets" and "include a broader mix of policies" including "a shift of subsidies into research and development" and "greater efforts to adapt society to a warmer climate."
Update (Jul 10, 2010): See Andrew Pendleton and Matthew Lockwood of the UK-based IPPR think tank response to Alex Evans' contention that real action on climate will only occur after a major global warming disaster. "There is simply no reason to believe that a climate shock big enough to bring about major changes in thinking will come along before we reach a tipping point (how would we know?)" they write. "Climate change is by its nature long-term and insidious, more like a frog in a warming pot than a sudden Anschluss."
The twenty-year effort to create a single global pollution framework to reduce carbon emissions is in a state of collapse. Meanwhile, a new climate policy consensus is emerging, one which prioritizes direct investment in technology innovation to make clean energy cheap. The new framework begins from the understanding that the root cause of the failure of the pollution paradigm was the technology and price gap between fossil fuels and their alternatives. But hard and important questions are being asked of the new investment-and-innovation paradigm. How is it different from just increasing subsidies for clean energy? How can we be sure it will reduce emissions? What role should carbon pricing play? Here Breakthrough Institute answers frequently asked questions of the climate technology paradigm and responds to challenges raised by Alex Evans on the left and Robert Michaels on the right, among others, who have taken aim at Breakthrough's and Bill Gates' proposals, respectively.
By Ted Nordhaus and Michael Shellenberger
The twenty-year effort to create a single global pollution framework to reduce carbon emissions is in a state of collapse. Europe's Emissions Trading Scheme (ETS) has not reduced emissions and is quickly fading as the central effort to decarbonize European economies. The UN process is becoming a forum for nations to compare and coordinate national policies and measures, not create or enforce a binding global treaty. And it is now clear that, if energy legislation passes the U.S. Senate, it will not create an economy-wide cap-and-trade system, nor will it increase the deployment of clean energy.
Meanwhile, a new climate policy consensus is emerging, one which prioritizes direct investment in technology innovation. This consensus begins with the recognition that the root cause of the failure of the pollution paradigm was the technology and price gap between fossil fuels and their alternatives. No nation -- not even the wealthiest in Europe -- is willing to price carbon enough to cover the difference. Until the technology gap is closed, little will be done to accelerate the transition to a low-carbon economy.
Think tanks on the left, center, and right -- from Brookings to Third Way to the American Enterprise Institute (AEI) to the Information Technology and Innovation Foundation (ITIF) to the Breakthrough Institute -- have put out a growing number of policy proposals and analyses reinforcing the need for direct investments to overcome the technology gap and make low-carbon power (renewables and nuclear, alike) much cheaper. In Britain, this technology-centered approach to climate has been championed by leading thinkers from Oxford's Steve Rayner, LSE's Gwyn Prins, East Anglia's Mike Hulme, (independently and in the recent Hartwell Paper, which we co-authored), as well as by think tanks such as the Institute for Public Policy Research (IPPR) on the left and Policy Exchange on the right. And recently, Bill Gates and executives from Xerox, General Electric, and other high-tech firms have begun to publicly and privately lobby President Obama and Congress for a tripling or more of U.S. energy R&D funding.
Even so, many continue to misunderstand the reasons for a technology-centered climate policy framework, and how it would work. Some, such as New York Times columnist Thomas Friedman, continue to imagine that carbon pricing will result in radical technological innovation, badly garbling the history of the digital revolution, which depended on direct government investment in things like R&D and military procurement -- not an analogue tax, or a cap on typewriters.
Others, led by America's leading environmental groups, staffed by pollution regulation attorneys experienced in dealing with technologically simpler problems like the ozone hole and acid rain, claim such an approach lacks the certainty of prominent cap and trade proposals which, ironically, would allow emissions to rise at business-as-usual rates as long as offsets are purchased. And a mix of environmentalists and libertarians, typified by Alex Evans of the UK Global Dashboard on the left and Robert Michaels of the Master Resource blog on the right, imagine this technology framework to be simply more subsidies for existing clean energy technologies. In fact, the goal of a climate energy technology framework must be to make clean energy cheaper in unsubsidized terms -- a radically different strategy than today's energy-subsidy or carbon-pricing frameworks.
Over the past three years we have written long and short articles laying out our views on these questions in Foreign Policy, the Harvard Law and Policy Review, the Democracy Journal, The New Republic, Slate, the American Prospect, and in a series of white papers on our web site. Others have made excellent contributions to creating the framework, and we would point to reports and analyses by Brookings, Third Way, ITIF, and IPPR.
Recognizing that this is a lot of material, and that some important new questions are being raised about a technology-centered program to reduce emissions, we offer here a set of questions -- including, we hope, hard ones -- about our proposal. We do so in the spirit of mutual understanding so that we can achieve genuine disagreement and agreement where it exists. Comments, criticisms, and further questions are welcome.
(Click on a topic below to expand...)
Why propose a new climate policy framework when we are starting to make progress with the Kyoto process of national emissions reductions targets and timetables?
Two decades of commitments, legally binding and otherwise, from nations around the world have had no discernable impact upon the trajectory of emissions or the pace of innovation. Among nations that ratified the Kyoto Protocol and made binding commitments to reduce emissions, there has been little evidence that such commitments have impacted national emissions levels. Emissions have gone up in some nations and down in others, but in almost every case, those trends have been predominately, if not wholly, driven by factors that have been almost entirely exogenous to the Kyoto commitments that those nations made.
But haven't emissions gone down in Europe?
For different reasons, UK emissions declined substantially in the early 1990's, before Kyoto was negotiated but after the 1990 emissions baseline that became the basis for the Accord. Excepting Britain and Germany, the remaining western European members of the EU saw their emissions rise 12 percent between 1990 and 2005. In the years since, EU emissions have risen and fallen with the region's economic fortunes, recording precipitous declines since the onset of the financial crisis in 2008. But those trends are consistent with similar declines in the United States and other developed economies that have not implemented (supposedly binding) caps. (See: "Scrap Kyoto")
But without legally binding emissions caps, how can we be certain that we will achieve the reductions in emissions that climate scientists say we must achieve to stabilize the climate?
Given this reality, cost containment measures such as those in wide use throughout Europe and proposed in current U.S. climate legislation functionally abrogate carbon caps. To date, carbon caps have had little impact on emissions because no nation that has implemented them has been willing to allow compliance costs to rise to levels that might compel the achievement of the reductions mandated by the caps.
Doesn't this just mean that we need to push harder for stricter caps and work to close loopholes in the future?
Why is it so expensive to transition to clean energy if we have, as Al Gore and many others have said, all the technology we need to reduce our emissions?
The result is that low carbon energy, when all is said and done, costs two to five times more than coal, the dominant source of power generation in the global economy. While mature low carbon energy technologies such as wind and nuclear can be cost competitive in certain very limited contexts, where fossil fuels are scarce and expensive and conditions are optimal for the alternative, such circumstances represent the exception, not the rule. They cannot be applied broadly to the global climate challenge.
Isn't there vast potential to reduce emissions cheaply through energy efficiency?
But didn't programs like the CFC phase out and the sulphur dioxide cap result in companies finding a range of ways to cheaply comply with those mandates?
The lessons from these experiences are not that regulatory measures will not ultimately be necessary to deal with climate change. It is rather that the success of such measures depends upon the availability of cheap and widely available technologies to either mitigate emissions associated with carbon based fuels or replace those energy sources entirely. Efforts to establish regulatory policies as the first, primary, and central step in the effort to address global warming put the pollution regulatory "cart" before the energy technology "horse." The result has been serial political and policy failure for 20 years.
Once we set a price for carbon, won't private firms have an incentive to invest in technology innovation to make clean energy technologies cheap?
But hasn't Europe's carbon price had an impact?
Are you denying that Europeans drive smaller cars because of higher fuel prices?
The run up in gasoline prices in the United States between 2005 and 2008 was equivalent to the imposition of a $400 per ton carbon price -- twenty times higher than the maximum allowable price in climate legislation currently proposed in the U.S. Senate and ten times higher than the maximum price achieved by the EU ETS since its inception. Yet the impact of a $400 per ton carbon price equivalent increase in gasoline prices in the United States was minimal, resulting in a very modest decline in vehicle miles traveled and a similarly modest shift in consumer preferences towards smaller, higher gas mileage cars.
But isn't that just because the higher prices were not long-term?
But don't the economic models show carbon pricing resulting in technology innovation?
So then are you against carbon pricing?
However, pricing carbon (through either selling pollution permits or a carbon tax) may be a good way to raise revenue for more direct and substantial public investments in the development of low cost, low carbon technologies, and a rising carbon price may send a forward price signal to some private sector actors, pulling low carbon technologies into the market when they are reasonably cost-competitive with fossil fuels.
What would a technology-based alternative for dealing with climate look like?
This approach is consistent with the history of both energy technology innovation and virtually all technology innovation over the last century or more. Nearly every low carbon technology we have today - wind, solar, nuclear, even high efficiency gas turbines - was developed and deployed with substantial and sustained support from governments. Private firms played an important role -- initially as contractors and later in response to various subsidies and incentives -- but in almost every case, governments have led the way with targeted public investments.
But if we choose to do this technology-based alternative, what obligation will developing countries have to act?
What are the historical precedents for this proposal?
Aren't you just proposing to subsidize clean energy rather than penalize dirty energy?
Rather than offering open ended subsidies, public technology investments would be better served to adopt a procurement model, where governments or public/private collaboratives serve as a demanding consumer for new clean energy technologies, constantly procuring at the leading edge of a range of new technologies through a competitive bidding process that incentivizes firms to improve the performance and drive down the costs of their technologies. The primary objective of this approach is to rapidly reduce the real, unsubsidized cost of clean energy technology, not simply deploy as much above cost clean energy power as possible.
How do we know that investments in better energy technologies will result in reduced emissions?
Even if we have better and cheaper clean energy technologies won't there still be major costs associated with replacing our existing carbon based infrastructure?
Even if you are right about the need to invest in technology, governments around the world are already running huge deficits. Where will all the money come from to finance major investments in developing and deploying clean energy technology?
By contrast, $30 to $50 billion annually in public investments to develop and deploy cheap clean energy technology constitutes one quarter or less of the cost of proposed cap and trade legislation over the next decade. In contrast to current congressional proposals, and in contrast to the EU ETS, a direct public investment program will actually deploy new clean energy technology while accelerating the pace of innovation.
Won't the losers in the transition to a clean energy economy fight your approach just as hard as they've fought efforts to regulate or price carbon?
But in the end, such efforts, like those at present, will almost certainly be contested. However, if we are going to have that fight, we are better off having it over making investments in a public good - clean energy technology that is affordable and abundant for all - than taxing or otherwise increasing the regulatory price of a commodity that almost every global citizen depends upon. And indeed, virtually every public in the world is substantially more supportive of investing in clean energy than taxing or otherwise increasing the regulatory costs of dirty energy. Such preferences cannot simply be written off as a preference for painless remedies rather than painful ones. Even when asked about support for gas or other energy taxes, voters consistently prefer taxes that are dedicated to investing in clean energy over those that are intended to shift behavior through penalizing consumption of dirty energy sources.
Aren't you just proposing to take the easy way out by counting on new technologies to save us rather than coming to terms with the fact that we are all going to have to sacrifice and live with less in order to deal with climate change?
But isn't that why we, in the developed world, need to lead the way by reducing our consumption?
No scenario for stabilizing, much less reducing, global carbon emissions is possible without the virtually complete decarbonization of the global energy supply and this will, in fact, require technology to "save" us.
But do we have time to wait for better technologies?
It is indeed ironic that many of those who insist that we don't have time to "wait" for technological innovation themselves suggest that serious action to address carbon emissions will have to wait until some set of, as yet, unspecified climate catastrophes motivate global publics and policymakers around the world to embrace costly action to address the issue.
Our choice is not, as proponents of staying the current course would suggest, between acting to cap (or price) carbon emissions, and delay. It is between continuing to demand impossible actions or investing intelligently to overcome the primary obstacle to progress -- the inadequacy of today's low carbon energy technologies. It is our hope that the world will soon make the rational choice.