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Energy Policy?
by Cullen Couch
Part I | Part II | Part III | Key Players
Facts, Politics, and Policy
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The possibility of soon developing a coherent national energy policy given the current political environment seems vanishingly small. To succeed, such a policy would have to navigate through and around special interests, the “NIMBYs,” and the hardened silos of partisan ideologies. Yet, as far as energy policy goes, this has been the case for decades. Every president since Richard Nixon has vowed to reduce the nation’s dependence on foreign oil. When Nixon promised it, we imported 36% of our oil. With every new administration, that number has gone up. Currently, we import 69%.
In their paper, “Cultural Cognition and Public Policy,” Professors Dan Kahan and Donald Braman of Yale Law School argue that empirical facts are often irrelevant in a policy debate. According to their research, we create factual beliefs based on our cultural orientations – the degree to which we identify ourselves as hierarchic or egalitarian, individualistic or communitarian – and not on empirical evidence. This theory may help explain why agreement about otherwise unrelated issues such as gun control or global warming tends to be found among people with similar orientations. The authors claim that “group polarization” generates homogenous views within the groups, and these cognitive constructs filter out any evidence that contradicts them.
This intriguing theory begs the question: how can we create sound public policy if we can’t agree on the underlying facts? The recent cap-and-trade bill that passed the House but stalled in the Senate shows what can happen. “Facts” were quickly subsumed within a larger political argument that almost guaranteed failure. Irving sums up the problem. “One of my criteria for energy policy is that it has to be science-based. I like to stick with the science. In theory, that helps us resolve these issues, but in practice, I’m not so sure.”
Further, regional economic realities tend to skew perspectives, for better or for worse, about the benefits of any given policy. “It’s very complicated to be able to apply a national policy and make it coherent when the natural resources and demand profiles are distributed unevenly across the country,” says Alvarez.
Climate Change
If policy planners must rely on the weight of science for information, then for their purposes global warming is a fact. A 2010 study conducted by the National Academy of Sciences shows that 97% of the 1,372 climate scientists polled agree with the Intergovernmental Panel on Climate Change position that, “[A]n increasing body of observations gives a collective picture of a warming world and other changes in the climate system.... There is new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities.” Though some scientists dispute the data, no accredited national or international scientific organization does.
The American public is largely unaware of this consensus. Forty-nine percent of Americans believe “many scientists have serious doubts” about the evidence of global warming (VCU Life Sciences Survey, May 2010). Little wonder, then, that climate scientists do not trust the media (only 1% thinks that broadcast or cable television news is “very reliable”). Interestingly, the same survey showed that 64% of Americans believed global warming is a fact (75% of whom believed it was caused by humans).
Even so, the few climate scientists dissenting from the IPCC position could very well be right. Global warming might not be caused chiefly by human activity. It is not impossible that it represents only temperature fluctuations over a very long period of time, or natural variations in climate. Moreover, there are real differences of opinion, even among those who agree on global warming, about its intensity and urgency. Some believe we have reached a tipping point. Others aren’t so sure.
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“Even if you accept that the earth is warming, that it’s predominantly due to human activity, and that that warming is likely to continue, there is still a lot of uncertainty about how rapidly that will continue and how serious the harms will be,” says professor Jon Cannon, the Blaine T. Phillips Distinguished Professor of Environmental Law and director of the Law School’s environmental and land use law program. “In a way, you’re managing risks for a future that’s not known. I think the appropriate response to that is to begin to shift away from fossil fuel in a way that doesn’t cause serious dislocations in the economy, say in the next 20-50 years, while adopting greener technologies. Making it a long-term proposition reduces some of the cost that you would otherwise incur by retiring existing facilities prematurely.”
It's never a bad idea to plan for the worst case scenario. Improving efficiencies and developing new technologies can reduce demand, dependence on politically unstable sources of foreign oil, and greenhouse gas (GHG) emissions. At the same time, it could strengthen national security, open up new investment opportunities, and clean up the environment.
“I understand that the people who don’t believe that climate change is a problem are citing some of the panels and email traffic from England as a reason why climate change is allegedly a hoax and we don’t need to worry about it,” says Habicht. “But I think the evidence is pretty overwhelming that carbon is a problem, and there are a number of very cost-effective ways technology can reduce carbon. One of my mentors, Bill Ruckelshaus [the first Administrator of the EPA in 1970], made a comment about people saying there’s too much scientific uncertainty about global warming. He said, ‘That’s funny, the more expensive the solutions are, the more scientific uncertainty there is.’ I think the perception that the solutions are going to be costly and painful is just a recipe for more delay. There are steps that can be taken which are not ‘bet the economy’ gambles and which will accelerate deployment of valuable alternatives.”
“Once you get into the debate about whether there is or there isn’t [climate change], you can argue about that for a good long time,” adds Alvarez. “It turns into an argument that just seems endless. But I think we’re largely past that. Then the question is, how do you deal with it, not only nationally but globally? Let’s start first with our own backyard.”
It appears that the American public generally agrees. Polls show that 71% believe the federal government should “regulate the release of greenhouse gases…in an effort to reduce global warming.” (ABC/Washington Post, June 2010). Given the choice, more Americans give priority to environmental concerns over economic growth (USA Today/Gallup, May 2010). Sixty-six percent believe global warming will have a “serious impact” either now or in the future (CBS/New York Times, May 2010).
“In the most extreme possibilities, we run the risk of cascading harms that would be very difficult to absorb and manage,” says Cannon. “That’s enough for me to say, well, we ought to be doing something.”
Going Forward
Carbon emissions from fossil fuels cause real damage to the environment and public health, but as a nation we have yet to put a price on those damages. How do we do that? A federal law would mandate a price per ton on carbon emissions from every fossil-fuel powered utility. The utility either pays the price for the emissions, or avoids it by reducing them. The immediate upside is cleaner energy. The downside is higher electricity rates, which over time should return to normal as competition with other sources increases.
If we don’t set a carbon price, there is virtually no chance to move forward on a comprehensive national energy policy. Setting a price would both acknowledge that carbon emissions are a problem and level the playing field for cleaner sources to compete. It is the linchpin of the issue, and where you will find the most disagreement.
There is also a question about our willingness to incur costs now for benefits that we can only realize decades later. “How capable are we as human beings of making present sacrifices to address uncertain future risks?” asks Cannon. “Looked at on a global scale, people feel a disjunction not only between present sacrifice and future gains, but also between what each of us can do as individuals and what would be required to make a real difference. Nation states might say the same thing.”
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As it is now, the coal, oil, and natural gas industries enjoy another enormous price advantage not commonly known: U.S. government subsidies. From 2002-2008, they received $70.2 billion in direct subsidies and tax breaks. Subsidies to encourage development in the carbon-free renewable industry totaled just $12.2 billion. “The subsidies for fossil fuel production represent a kind of a reverse price incentive built into the system,” says Cannon.
On the other hand, individual states impose additional, significant taxes on the oil and gas industry that they don’t on other energy resources. For example, in Alaska, the oil industry pays a production tax that, along with other forms of oil payments to the state, fund 90% of state government general revenue. “Renewables, such as hydro and tidal, pay nothing in state taxes,” says Keithley, “A fair comparison between the resources should look at the tax treatment at all levels, not just at one, and should take into account that at least some of the federal tax treatment is driven by a desire to stimulate investment in the development of US oil and gas resources.”
“But for the uncertainty about the future course of carbon regulation, in the absence of a carbon price today, a new coal unit would be more economical than new nuclear,” says Irving. “However, one does not have to make aggressive assumptions about carbon pricing before the economics favor nuclear over coal.”
If past is prologue, we may never get to a national consensus on energy policy. The asymmetry of geographical, political, and economic factors may well fracture any attempt to do so. But that doesn’t mean the situation is hopeless. On the contrary, those in the front lines, the utilities and the wind farm builders and the fuel cell researchers, see a growing market demand for clean and abundant energy. According to Habicht, “billions of dollars of investment money around the world are going into improving the performance of renewable energy and into issues like the smart grid and large-scale energy storage.”
For example, Habicht’s company looks to invest in “enabling technologies” that are key building blocks of the new energy market; energy storage, energy efficiency technologies, and production technologies. They also invest in dramatically more efficient motors, for example those used in large buildings to move air in HVAC systems. Remember all the “rejected energy” shown in the Livermore chart? “You can save a lot of energy and a lot of money by using more efficient motors, as well as more intelligent building and electrical load management systems,” says Habicht. “In fact, I think the best source of clean energy is using less energy. That means reducing rejected energy, while getting the same benefit out of your lights or motors or appliances.”
A “smart grid” could use readily available technologies, which include metering and sensing technologies, telecommunications and computing technologies, so that utilities can more precisely manage their distribution systems. It could also accommodate more renewable energy sources – especially in a more complicated demand side with the growing popularity of EVs – by using highly sophisticated computers, servers, and telecommunications technologies. Managing the power more effectively and monitoring our use on a minute-by-minute basis will increase efficiencies.
Further, in an interesting case of federalism at work, the states, seeing no leadership from the federal government, are taking the lead themselves in setting mandatory “renewable portfolio standards (RPS).” These standards require utilities to either produce a certain percentage of renewable energy themselves or buy it from those who can. This forces a market for clean energy and attracts businesses to the state to provide it. So far, 29 states plus the District of Columbia have set these standards.
For example, when considering a wind farm project, Alvarez says his company looks first at the states with the strongest support for RPS. “Massachusetts, for example, requires load-serving entities to take some portion of their load in the form of renewable energy. If they don’t, they would become obligated to make an alternative compliance payment – in effect a penalty. That’s why, in addition to every megawatt hour of electricity that we generate in New England, we also create a renewable energy credit that has a market value tradable separately from the electricity. We can sell that credit to load-serving entities that need to fulfill their own RPS obligations, which would allow them to avoid a penalty payment.”
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In other words, in spite of the national gridlock on energy policy, the market is moving where politicians fear to tread. The public sees the need. The states see the potential. The market sees the future.
Hydrogen cars are an excellent example of the market taking the long view. Right now, there are substantial barriers to commercial development of hydrogen cars. There is no distribution network for hydrogen fuel, no safe filling stations, gas meters, or fuel receptacles. It is a difficult gas to handle. Refill time is unacceptable to consumers. It can’t compete with electric or CNG. Nonetheless, Honda started developing the technology a decade ago. It now has a functioning (and quite attractive) hydrogen car, the FCX Clarity. It will be a long time, if ever, before the company realizes any profits from the venture. So why do it?
Baranowski recalls a deal he did several years ago representing a Columbus, Ohio franchisor and distributor of ice cream confections, Drumstick Company, that was being acquired by Nestlé SA, the international food conglomerate. The executives of the companies met in Geneva. Nestlé's chairman explained that it might take 50 years for the wisdom of the Drumstick acquisition to become apparent. Baranowski looks at hydrogen the same way. “Fifty years from now,” he says, “our fossil fuels may be depleted and solar and wind may not provide sufficient capacity to meet requirements. Developing hydrogen now insures that we have a foothold in the uncertain future.”
The same entrepreneurial spirit is driving the market to develop better renewables, more efficient motors and grids, and environmentally sensitive production and consumption. Certainly, it is imperative that the nation find a way out of its political stalemate over energy policy. But in the meantime, the market is moving forward.
Part I | Part II | Part III | Key Players
