Chapter 9. What Government Can Do
This book’s surveys of renewable energy price trends, opportunities for renewable energy deployment, and challenges to that deployment, lead us to conclude that market mechanisms by themselves will be insufficient to drive the renewable energy transition at the speed required to outrun climate change and fossil fuel depletion. Government policy will be required to direct sufficient capital toward building renewable energy capacity, to manage the build-out of energy storage and necessary grid upgrades, to manage the evolution of industries (transportation, agriculture, manufacturing, mining) that currently rely on nonelectricity uses of fossil fuels, and to provide efficiency incentives and mandates to ease the burden of a likely decline in overall energy availability during the transition.
Current government policy, in the United States and globally, is simply not up to these tasks. To mention just one example, current research into renewable energy, energy storage, and energy transmission accounts for only about 1 percent of government research and development spending in the world’s wealthy industrial countries (fig. 9.1)., Far more is spent on weapons research. But clearly the problems of climate change and fossil fuel depletion constitute at least as great a threat to world peace and security as does military aggression (indeed, the Pentagon has described climate change as a “threat multiplier”). Without sufficient capital spending, that threat will become an almost certain source of unprecedented human misery and environmental disruption.
What is needed is a sense of the overall goals, challenges, and opportunities of the energy transition, and a phased approach that takes into account both the necessity and costs of the transition, while also distributing those costs in such a way that crucial sectors (such as agriculture) are not seriously compromised.
We see five primary areas in which better policies are needed; in most but not all cases, either pilot policies are in place in at least some countries or communities, or potentially useful policy frameworks have been suggested by other authors and organizations:
- Support for an overall switch from fossil fuels to renewable energy
- Support for research and development of ways to use renewables to power more industrial processes and transport
- Conservation of fossil fuels for essential purposes
- Support for energy conservation in general—efficiency and curtailment
- Better greenhouse gas (GHG) accounting
Support for an Overall Switch from Fossil Fuels to Renewable Energy
Considerable policy research has already been devoted to this goal, especially for the electricity sector, with four primary proposals to advance state and national renewable electricity targets gaining the most interest; some have seen limited practical implementation.
Feed-in tariffs (also known as standard-offer contracts) are discussed in chapter 3 of this book, where we noted Germany’s relative success with this strategy. Other nations, including Australia, Canada, France, India, Israel, Spain, the United Kingdom, and the United States have also used feed-in tariffs. As we have already pointed out, while prices of wind and solar electricity are falling, a rapid transition still requires subsidies. The key to success seems to be long-term commitment and continual adjustment of tariffs to reflect market conditions. There are two obvious pitfalls: too high a tariff—which encourages a flood of speculative money that in turn encourages the building of projects, some of which are ill sited or ill conceived; or too low a tariff—which fails to attract sufficient investment capital.
An even bigger pitfall of feed-in tariffs is improper design. Spain, for example, created an inflexible tariff tied to its tax system, rather than to rates that were adjusted annually or semiannually as in the German system (see chapter 3).
Renewable energy mandates (renewable portfolio standards, or RPSs) are requirements that a certain percentage of electricity be produced from renewable sources. These have been implemented in Australia, China, Europe, Japan, and the United States among other nations. Within the United States, twenty-nine states plus the District of Columbia, including California, Colorado, Kansas, Michigan, Nevada, New York, North Carolina, Ohio, and Texas, have all established RPS policies. One pitfall seems to be that real or imagined hikes in electricity prices attributable to the shift to wind and solar power can be used by interest groups to persuade lawmakers to abandon this approach. Thus West Virginia has recently removed its RPS, Ohio has frozen its target for two years, Kansas has made its targets voluntary (although this was after achieving its target five years ahead of schedule), and conservative legislators in North Carolina have twice (unsuccessfully) attempted to overturn its 12.5 percent target. Again, to succeed, this strategy must have long-term commitment from policy makers, who must recognize that electricity prices may eventually be affected and who must prepare their constituents for cost increases, both psychologically and through policies that reduce impacts on low-income households and particularly vulnerable industries. In fact, electricity price increases attributable to RPSs have so far been negligible (a detailed analysis from the National Renewable Energy Laboratory showed that “over the 2010–2012 period, average estimated incremental RPS compliance costs in the United States were equivalent to 0.9% of retail electricity rates”). Policy makers must provide incentives and mandates for utilities to build the infrastructure necessary for higher rates of renewable energy penetration in the grid, so that electricity prices do not more steeply increase as the transition proceeds to the point where renewable electricity represents roughly 40 percent or more of the overall mix.
Carbon taxes or cap-and-auction policies that dedicate at least some of their revenues toward renewables would generate investment capital to build renewable energy production capacity and could also be used for raising capital for nonelectricity segments of the renewable energy transition, as well as for energy efficiency and conservation. We have already discussed California’s cap-and-trade policy, which aims to funnel revenues toward statewide capital investments in renewable energy production capacity, energy conservation, public transportation, and energy research.
Carbon taxes, cap-and-trade, cap-and-auction, and cap-and-dividend policies have been widely discussed in the literature on climate change policy. The consensus in that literature seems to be that the renewable energy transition cannot proceed far or fast enough without at least one of these kinds of policies in place in all industrialized and fast-industrializing nations (though they would have differing implications for equity).
There are three questions that need resolution: Would a tax (or fee) approach be as effective as a simple cap? What should be the level of the emissions cap? And what should be done with the proceeds?
Some see carbon caps as preferable to fees or taxes. If properly set, properly adjusted annually, and properly enforced, caps would prevent carbon fuels from being extracted and burned, and would do so at a planned and regulated pace commensurate with the need for climate protection. Promoters of carbon taxes or fees aim to increase the price of carbon; they would then either use the revenues to fund the renewable energy transition or redistribute them to offset the rising cost of energy—which would promote equity. However, while putting a price on carbon may discourage extraction and consumption of fossil fuels, it does not definitively specify the quantities of carbon-based fuels that will in fact be burned (or not burned). If the fees or taxes are redistributed, since the wealthy would be paying proportionally more in taxes (because they consume more carbon fuels), the net result will be an increase in income to the poor.
Proponents of a carbon tax counter that there is a level of taxation which would actually reduce fossil fuel consumption because affordability has been cut significantly. That level has never been tested. However, if taxation raises the prices of everything (because everything has an energy component), then the poor would only increase material consumption if their income transfers were greater than the price increases.
With a carbon cap, companies would be paying more for fuels (for manufacturing and transport) and would raise the prices of their products to recoup their higher costs. People with lower incomes would thus have to pay more for their limited purchases; however, it is at least possible that the share of the carbon revenue which they received would initially more than compensate for the higher prices of goods, since high-carbon users (the rich) would be paying proportionally more in taxes. On a net basis, then, the poor might still tend to benefit.
A cap-and-share policy (i.e., a policy in which revenues from emissions-permit auctions are rebated to low-income persons) would ensure emissions reductions while promoting equity. If low-income families gain, their spending would rise—and since there are far more poor people than rich ones, aggregate spending would likely increase. But with carbon capped, that spending would have to go toward meeting human needs in low-carbon ways. Low-carbon enterprises would constitute the growing parts of the economy, and new employment would likely be generated. However, some of the capital raised from auctions might still be needed to fund much of the transition directly, in terms of capacity build-out, research and development, manufacturing process redesign, and grid upgrades.
Tradable energy quotas (TEQs), though little discussed outside the United Kingdom, represent another distinct emissions and energy trading scheme that deserves consideration. TEQs constitute an electronic energy rationing system designed to be implemented at the national scale. Every adult would be given an equal free entitlement of TEQ units each week, while other energy users (government and industry) would bid for their units at a weekly auction. Anyone using less than their entitlement of units could sell the surplus; anyone needing more could buy them. All trading would take place at a single national price, which would rise and fall in line with demand. Buying and selling would take place electronically.
When buying carbon-based energy, such as gasoline, units corresponding to the amount of energy purchased would be deducted from the individual’s TEQ account, in addition to the monetary payment. The total number of units available in the country would be set out in a TEQ budget, with the size of the budget declining each year. Since the national TEQ price would be determined by national demand, it would be transparently in everyone’s interest to help reduce energy demand, encouraging a national sense of common purpose.
TEQs could be revenue neutral, or yield a financial surplus to be invested in the energy transition. In either case, the net effect would be to incentivize an overall reduction in carbon-based energy usage, thus incentivizing noncarbon energy sources.
In addition to these four policy mechanisms, nations, regions, and local governments are increasingly adopting 100 percent renewable energy targets to accelerate the transition and make it more efficient. According to research by the Renewables 100 Policy Institute, more than a hundred government entities worldwide have committed to, achieved, or surpassed a 100 percent renewable energy target in at least one sector (though virtually all of these focus just on electricity).
Support for Research and Development of Ways to Use Renewables to Power More Industrial Processes and Transport
Carbon taxes, cap-and-auction policies, or tradable energy quotas could be used in part to support research and development for the expansion of renewable energy into industrial processes and transportation. However, more money could likely be freed up for this purpose, and more quickly, simply by redirecting existing research and development funding. There would be grumbling from military contractors, which are the primary current beneficiaries of government research grants; but military-related research into renewable energy is already on the increase, and at least some of that research is likely to benefit society as a whole. Government regulations and mandates could also be used to encourage key industries to undertake such research—for example, by requiring cement producers to reduce carbon emissions from their activities by a certain percentage each year.
In the United States, much transport policy is crafted at the state, county, and even municipal levels. This may create complications for a national shift away from road building and toward rail-based transport options. However, it also opens opportunities: in the absence of forward-thinking national policy, states and communities can change priorities on their own. For example, the state of California has often led the nation in automobile emissions (and other product) standards, with those higher standards quickly being adopted by the rest of the country simply because manufacturers do not want to make products to differing standards.
Conservation of Fossil Fuels for Essential Purposes
As discussed in chapter 6, society’s remaining economically viable fossil fuels will be crucially important to the energy transition, since we will need to use them to fuel the building of our renewable future even as we phase them out to avert catastrophic climate change. Very little policy thinking has so far addressed this conundrum. However, even a moment’s thought suggests that any solution would have to entail altering the current purely market-based allocation scheme for fossil fuels. Perhaps industries involved in the direct manufacturing of renewable energy technologies could be partially or entirely shielded from carbon taxes or other policy devices intended to discourage fossil fuel consumption. However, in order to compensate, other fossil fuel users would have to ratchet down their consumption further and faster than would otherwise be the case. We will develop this discussion further in chapter 11.
Support for Energy Conservation in General—Efficiency and Curtailment
Some of the policies already surveyed (carbon taxes, TEQs) would incentivize reduction in energy usage. However, there are many other policies that can be pursued at all levels of government toward this goal.
At the federal level, funding for research and development could help in increasing the efficiency of products and processes throughout the industrial system, in every building, and in every appliance. Government could also simply mandate efficiency improvements (as the United States has recently done with regard to automobile fuel efficiency). Research on higher efficiency standards actually suggests they increase innovation overall and that prices are lower than expected. Trade policies must shift from favoring globalization toward import substitution, using subsidies and tariffs to promote local production for local consumption wherever practical, so as to reduce reliance on transport fuels. And agricultural policy must shift away from support for fossil fuel–intensive farming toward smaller-scale, more ecologically oriented production, promoting local food systems and soil conservation.
At the state and local level, governments will probably have the greatest impact through policies and investments that impact land use and transportation, two deeply connected issues that together determine how much energy will be needed to move people and goods.
For land use, local leaders can use development programs, zoning codes, and building codes to reduce communities’ need for energy outright. Mixed-use nodal neighborhoods make it easier for people to walk and bike to meet their daily needs. Multifamily housing saves energy because it is easier to heat a large, single building than multiple small buildings—and it creates the density necessary for economically viable mixed-use and public transit. Building codes can include simple requirements like better insulation and daylighting to further reduce energy needs, or more stringent requirements that get closer to zero-energy and even net-energy-positive buildings. In addition, “cradle-to-cradle” or “circular economy” principles can be adopted into regulations to discourage waste and maximize recycling and reuse.
For transportation, it is well within the power of local leaders to stop building roads (which facilitate the expansion of the most energy-intensive of our transport options) and to instead invest more in energy efficient modes of transportation like public transit, bicycling, and walking. Typically, municipal leaders need citizen encouragement in such efforts. Portland, Oregon, pioneered just such an approach for American cities when it reappropriated federal highway funds to build the country’s first major urban light rail line in the 1980s, an act initiated by citizen activists. Decades later, thanks to a mix of activism, business community support, and state and local government policymaking, Portland is now famous for its people-centered transportation infrastructure—and its consistently declining per capita energy use and GHG emissions reflect this.
Better Greenhouse Gas Accounting
Without reliable information about how and where GHG emissions are produced, it will be difficult to make effective policies to reduce those emissions. Unfortunately, current national GHG emissions accounting methods tend to be somewhat misleading.
Traditional production-based accounting measures emissions at production sources, and thus significantly underestimates the GHGs emitted in international trade. For example, when China burns coal to manufacture smart phones destined for the United States, the emissions are attributed entirely to China. This method needs to be supplemented with consumption-based accounting, which accounts for GHG emissions embodied in manufactured goods purchased by end users., Consumption-based GHG accounting yields a fairer and more accurate view of the world in which wealthier countries are responsible for a greater share of GHG emissions.
International aviation and shipping are the only GHG-emitting sectors not covered by the international accounting (this remains true following the Paris COP21 agreement). GHG emissions in these sectors, which together amount to more than 6 percent of total global emissions, do not show up on the emissions accounts of any nation.,
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Beyond the realm of legislation and regulation, policy makers must recognize and accept their necessary role in helping reshape public attitudes about energy. Climate change and the renewable energy transition should not merely constitute one small subset of a blinding variety of media obsessions ranging from local murders to the affairs of pop stars. Instead, the energy transition needs to become the organizing context within which we see and understand everything else that is happening in the world. It needs to be the next great global project, akin to mobilization efforts in the United States for World War II—when Americans were asked to conserve, recycle, and grow their own food.
We all must come to share the common understanding that climate change and our response to it constitute a wartime level of emergency, and that we all must cooperate toward a common goal. This shift in mass awareness is unlikely to occur unless and until opinion leaders and policy makers themselves fully understand what is at stake. And that will require pressure from citizens and nongovernmental organizations—as well as the business sector, which is profoundly vulnerable to climate disruption.