I believe the progress in Germany in both wind and solar has surprised those "scientists" who "assumed" conditional results.

I believe the progress in Germany in both wind and solar has surprised those "scientists" who "assumed" conditional results.

While Prof. Laird correctly points out that my recent paper concludes that billions of dollars in potential revenues from carbon auctions should not be spent on Federal R&D, my paper was certainly not advocating that existing R&D programs should be eliminated. The paper, Carbon Caps With Universal Dividends: Equitable, Ethical & Politically Effective Climate Policy, was narrowly focused on the arguments on why carbon auctions revenues should be returned to people as a universal, per capita dividend.

I welcome the discussions about the effectiveness of federal R&D and appreciate Laird's acknowledgement that the track record of such expenditures has been lackluster in some cases in the past. I certainly carry less optimism than Prof. Laird that we can "do it right today". Since my policy brief was released, I have also had a good exchange on the topic of federal renewable energy R&D with Bill Becker (also out in Denver), who heads up the Presidential Climate Action Project. I still believe that carbon auction revenues should not be used for funding federal energy R&D. But, if arguments can be made that R&D expansion is desirable (some support a tripling of federal energy R&D), there are enormous amounts of federal money and incentives in the system now being spent wastefully on established industries (coal, nuclear, oil). It's those sources of revenue that should be tapped, not the revenue from carbon auctions.

There is a place for the federal government to conduct basic scientific research. However, based on one ILSR staffer's experience over many years on a joint USDA/DOE R&D technical review committee where he repeatedly asked for and never received answers to questions on how effective past federal energy R&D work had been we were left with a distinct knowledge gap. And we see a trend in R&D going from widely available basic research to applied research that, since the 1980s or 1990s, has become proprietary, ending the knowledge transfer that once occurred more easily in federally funded R&D.

On the issue of tax incentives vs. mandates my paper states, "The tax incentives for wind energy and biofuels have been useful, but not instrumental. Arguably, mandates without incentives would have led to much the same result in terms of installed capacity. On the other hand, incentives without the mandates would not." Prof. Laird misreads our position. Mandates AND incentives are behind renewable energy development (and energy conservation for that matter). We think that mandates are more effective, but there's no question that incentives, when high enough, have worked. This is especially true with respect to ethanol development from 1980-2005, before the recent Federal mandates kicked in. Of course, the federal mandate will increase ethanol dramatically more than during the period with only the incentives - from about 5 billion to 36 billion gallons.

I believe that Prof. Laird mischaracterizes the German feed-in law as something that exists outside of a law or regulation. The German feed-in is a policy mandate that requires utilities to purchase renewable energy at a pre-determined pricing structure. Prof. Laird and others reading this post might also be interested in our recent policy brief on feed in tariffs which we see as perhaps a better tool than even RPS mandates to boost renewable energy development. See Minnesota Feed-In Tariff Could Lower Cost, Boost Renewables and Expand Local Ownership

There's no question that if we throw money at the Department of Energy, SOME of it will be spent in a worthwhile fashion. The question for us, in the context of auctioning off carbon allowances, is how to allocate those revenues most wisely. We argue that returning them in equal proportions to individuals would both make concrete our position about who owns the biosphere, but would also build political support that otherwise would see carbon auctions as a regressive carbon tax.

John Bailey, ILSR Research Associate
http://www.ilsr.org/

John Bailey and I agree about some of these points. To clarify where we disagree, we need to separate out some issues that might get run together.

First, the German feed-in tariff is a subsidy for renewables, and a generous one at that. Mr. Bailey is correct that it does not exist independently of regulations. The law requires that the utilities that run the German grid connect up all renewable energy generators and pay them a hefty premium for their electricity, more than 7 euro cents per kwh for wind and more than 50 euro cents per kwh for photovoltaics, subsidy levels that US renewable energy producers can only dream of. The law needs the mandates because it requires the utilities to pay the subsidies, so they impose no cost on the government’s treasury. However, the law does not mandate or require that anyone in Germany install so much as one wind turbine or one solar panel. It simply says that renewable energy developers will get paid handsomely if they do. It’s a subsidy, which uses regulations to extract the money from businesses instead of providing it from the government’s coffers. The Germans, I might add, have no issues about calling it a subsidy.

Second, I guess we just disagree about the efficacy of federally-funded R&D. I would be the last one to say it doesn’t deserve criticism, but I stand by my simple historical observation: all the dramatic technological changes of the last 70 or so years (and going back farther if one includes agriculture) have involved massive federal R&D investments, and not just in basic research. I can’t think of any exceptions. Why should energy be different? Businesses will be central to developing clean energy, but relying on the market alone is fruitless.

Third, Mr. Bailey is right that his paper is more narrowly focused on protecting the revenue from carbon auctions for broadly-based redistribution. If I want many billions for energy R&D (and I do), I should get it elsewhere and keep my grubby hands off the carbon auction money. At one level, fair enough. The advocates of carbon auctions are trying to solve a problem that’s both moral and political. The moral problem is that any policy that raises the price of carbon acts like a sales tax on energy, which is regressive. The Europeans don’t have any qualms about doing this, but they have much lower levels of inequality than the United States and a much more generous welfare state to help out those at the bottom. In fairness to those in the United States who simply advocate a tax on energy, it’s also true that market prices of energy are going up much more dramatically than any tax is likely to do. Still, American environmentalists should think twice about solutions that impose yet more burdens on the poor.

So I respect the fact that Mr. Bailey and his colleagues are trying to eliminate that regressive problem. And by making the system look a lot like Social Security, he hopes that the carbon auction will have broad political support. Personally, I’m skeptical that one can enact such a system, but who knows? Also, while Americans do respond to price when consuming energy, they don’t respond much unless the price goes way up. And when they do respond, it will be first to energy efficiency, not renewables. Which brings me back to my point about federal R&D and subsidies; we’ll need them if we want a revolution in clean energy. Mr. Bailey doesn’t need to trash them to make a case for an (in effect) equitable carbon tax and doing so ignores quite a bit of history. There are other problems to discuss about carbon auctions and Sky Trusts, but those are conversations for another day.