October 22, 2012
A New Climate Paradigm
Gas-Driven Carbon Reductions
graph credit: EIA, July 2012
U.S. emissions have plummeted 7.7 percent since 2006. Aside from the recession, the clear reason is the switch from coal to cheaper and cleaner natural gas, which emits 40 percent less carbon dioxide on average than coal.
"The use of natural gas to generate electricity, notes David Leonhardt in the New York Times, "has jumped 25 percent since 2008, while prices have fallen more than 80 percent."
Where did all this cheap gas come from? A concerted, public-private effort dating back to the mid-1970s to cheaply extract gas from shale.
There is a clear lesson for those concerned about global warming: push technological solutions that can reduce greenhouse gas emissions.
Although government officials make mistakes when choosing among nascent technologies, one success can outweigh many failures. Washington-financed research has made possible semiconductors, radar, the Internet, the radio, the jet engine and many medical advances, including penicillin. The two countries that have made the most progress in reducing carbon emissions, France and Sweden, have done so largely by supporting nuclear and hydropower, notes Michael Shellenberger, president of the Breakthrough Institute in Oakland, Calif.
Breakthrough Institute has since 2007 made the case that a public-private technological push on clean energy sources was the key to reducing emissions, and that carbon pricing is less important. The shale gas revolution shows that a rapid and significant decline in emissions can occur without cap and trade or a carbon price. Europe has had both, but neither have resulted in any measurable emissions reductions.
"Fast, Clean & Cheap" :: Breakthrough's 2008 Harvard Law and Policy Journal article that lays out our technology-driven climate strategy.
To deal with global warming, we will need an entirely new energy infrastructure. Creating a new energy infrastructure is more comparable to the creation of the railroads, the interstate highway system, personal computers, the Internet, and the space program than it is to installing catalytic converters and scrubbers, or phasing out ozone-depleting chemicals. The latter involved mere technical fixes, not wholesale technological revolutions.
Environmentalists have been so focused on making clean energy relatively cheaper (by imposing regulations that make dirty energy expensive) that they overlook the possibility of making clean energy absolutely cheaper through major investments in technology innovation and infrastructure.
How We Made Clean Energy Cheaper :: Our April, 2012 analysis of the implications of our report, "Beyond Boom and Bust," jointly authored with scholars from Brookings and WRI.
In the U.S., taxpayers will have spent $150 billion between 2009 and 2014, three times more than we did between 2002 and 2007, according to a comprehensive new report, Beyond Boom and Bust, coauthored by Breakthrough Institute with scholars from World Resources Institute and the Brookings Institution.
The U.S. wasn't alone. China increased its clean tech spending to $80 billion per year. Europe has had high levels of investment in clean energy since before the recession. And rather than crowding out, these public investments attracted a huge amount of private investment -- $774 billion between 2008 and 2011, up from $320 billion between 2004 - 2007.
The two of us have been critical of how some of the green stimulus money was spent. Big investments to weatherize homes ended up creating few jobs and didn't have much impact on the nation's energy demand. Patchwork and overlapping subsidies and regulations allowed some rent-seeking firms to double-dip. Too much was spent on deployment and too little (less than 20 percent) was spent on energy R&D, which at under $5 billion a year is grossly underfunded compared to NIH's $30 billion and DOD's $80 billion R&D budgets.
But as blunt as many of the renewables subsidies were, they still helped cause an astounding 75 percent decline in the price of solar panels, and a 27 percent decline in the price of wind turbines, from 2008-2012. By contrast, from 2002 to 2008, the price of both solar panels and wind turbines was flat...
Breakthrough Institute's Shale Gas Investigation :: A summary of our research into what caused the shale gas revolution.
The history behind the shale gas boom remained virtually unknown until late 2011, when researchers at the Breakthrough Institute conducted an extensive investigation revealing the role that federal agencies like the Department of Energy and the National Laboratories played in supporting gas industry experimentation with shale fracking.
Featured in the Washington Post and the President's 2012 State of the Union, this Breakthrough investigation enunciates - again - the crucial role that the federal government has always played in technological innovation...
Why Cap and Trade is Not Needed to Reduce Emissions :: Our February 2012 analysis of why the U.S. is reducing its carbon emissions far faster than Europe published in Yale360.
But the shale gas revolution, and its rather significant impact on the U.S. carbon emissions outlook, offers a stark rebuke to what has been the dominant view among policy analysts and environmental advocates as to what it would take in order to begin to bend down the trajectory of U.S. emissions, namely a price on carbon and a binding cap on emissions. The existence of a better and cheaper substitute is today succeeding in reducing U.S. emissions where efforts to raise the cost of fossil fuels through carbon caps or pricing -- and thereby drive the transition to renewable energy technologies -- have failed....
The Creative Destruction of Climate Economics A Breakthrough Journal article describing why government-led efforts to make shale gas and renewables cheap challenge the orthodoxies of neo-classical economists, in this case, EDF's Gernot Wagner.
In the 70 years that have passed since Joseph Schumpeter coined the term "creative destruction," economists have struggled awkwardly with how to think about growth and innovation. Born of the low-growth agricultural economies of 18th Century Europe, the dismal science to this day remains focused on the question of how to most efficiently distribute scarce resources, not on how to create new ones -- this despite two centuries of rapid economic growth driven by disruptive technologies, from the steam engine to electricity to the Internet.
There are some important, if qualified, exceptions. Sixty years ago, Nobelist Robert Solow and colleagues calculated that more than 80 percent of long-term growth derives from technological change. But neither Solow nor most other economists offered much explanation beyond that. Technological change was, in the words of one of Solow's contemporaries, "manna from heaven."
Climate economics until recently was similarly oriented. Economists mostly treated global warming as a challenge of distributing scarce resources (e.g., the right to pollute), not of creating new ones (e.g., cheap zero carbon energy sources). Climate models treated technological innovation as a given, not as a dependent variable.
That's starting to change. Over the last few years, economists have modeled ways to accelerate the innovation of zero carbon power sources. The boldest of these entries to date comes from one of the discipline's rising stars, MIT's Daron Acemoglu, along with Philippe Aghion, Leonardo Bursztyn and David Hemous, in a paper published last February in American Economic Review. The paper argues that conventional climate models have overstated the importance of carbon pricing and understated the importance of public investment to encourage technological innovation.
The Economist's Ryan Avent praised the paper, noting, "economics is clearly moving beyond the carbon-tax-alone position on climate change, which is a good thing." In fact, Acemoglu and his colleagues went further than Avent suggested. "Optimal policy," they found, "relies less on a carbon tax, and even more so on a direct encouragement of clean energy technologies."
This technological turn within the economics profession comes at a time of three big events in the energy sector.
First, more than thirty years of government funding for unconventional gas research, demonstration, and tax credits have contributed to a glut of cheap natural gas, making everything from solar to wind to nuclear uncompetitive, at least in the near-term, while also driving America's shift from coal to gas.
Second, the tripling of public and private sector investment in clean tech over the last five years has resulted in the price of solar panels declining by 75 percent and wind turbines by 25 percent, after no price declines in the prior five year period.
Third, carbon pricing, which many analysts and policy makers believed would be the central mechanism through which nations reduced emissions, has had no measurable impact. If Europe's Emissions Trading Scheme (ETS) has had any impact on the continent's emissions, it has been too small to measure with any certainty against falling energy consumption during the recession and large direct subsidies for renewables. Today, the ETS is being used to justify Europe's reversion to coal.
All of this has sent those who believe carbon pricing should be the highest climate policy priority scrambling....
National Decarbonization Analysis :: Which nations have reduced their emissions most rapidly? Sweden and France. They did so not through a carbon price or cap and trade but rather technological innovation.
Sweden and France each achieved rapid rates of decarbonization of their economies via state-led transformations of their energy supplies. Following the oil shocks of the 1970s, Sweden and France each directed state-owned utilities to fully displace oil from the electricity sector, principally by scaling up new nuclear power programs. A lack of indigenous coal resources and fresh memories of conflict with coal-exporting Germany in World War II also contributed to France's push to scale-up nuclear power to displace coal as well as oil from the nation's power generation mix...