Post-Partisan Power?

A new report, Post-Partisan Power, puts forth several interesting ideas for how the United States can accelerate technological progress to advance U.S. energy security and global climate protection. The authors are Steven F. Hayward of the American Enterprise Institute (AEI), Mark Muro of the Brookings Institution, and Ted Nordhaus and Michael Shellenberger of the Breakthrough Institute. The report has created a buzz, in part because of the “man bites dog” nature of the story – Brookings and AEI agree on something! And they are saying “post-partisan” out loud in these hyper-partisan times.

The authors recommend a number of initiatives that ought to be no-brainers – invest more in energy science and education, overhaul the energy innovation system by increasing funding for the new Advanced Research Projects Agency-Energy (ARPA-E) and developing regional energy innovation centers, reform energy subsidies, use military procurement and competitive deployment to drive innovation and price declines, and pay for all this through a very small carbon tax or electricity fee. The major critique of the report, best articulated by Harvard economist Rob Stavins, is that these recommended steps are necessary but not sufficient – i.e., it is all very well for the government to invest in these technologies, but we also need to create a market for them through a strong carbon price or serious greenhouse gas reduction requirements. 

The authors have responded that they didn’t mean to imply that their recommendations include all we need to solve our energy and climate problems. However, their subtitle, “How a limited and direct approach to energy innovation can deliver clean, cheap energy, economic productivity and national prosperity,” makes it sound an awful lot like they did. And their opening critique of “both sides of the debate” on climate and energy is dismissive of pricing in general and cap and trade in particular – noting, for example, cap and trade’s defeat in the Senate but not its victory in the House, and saying pricing has not succeeded in reducing emissions in Europe, when in fact it has. But let’s set that aside for the moment. 

The more intriguing question this report raises for me is why the energy and climate debate is so stuck and why even the modest proposals described in “Post-Partisan Power” face an uphill battle. 

The report’s authors lament our irrational energy subsidies and dysfunctional federal support system for energy innovation, and I agree substantively with their critique and their proposed fixes. But this irrationality and dysfunctionality have persisted for a long time. Each energy source has a powerful constituency for federal subsidies and tax breaks. And for each DOE lab in the current national network that does most of our federal energy research, powerful regional interests protect the status quo. 

Similarly, policy analysts have made an airtight case for decades that pricing policies are both effective and cost-effective at reducing emissions, but for the most part politicians and the public have resisted such policies. We seem to prefer our regulatory costs to be high and hidden rather than low and transparent.

What is going on? I’m not sure, but I can think of at least two partial answers. The first is our political system’s focus on the size of government rather than its efficacy. The “great debate” in this election is whether the government should be bigger or smaller, not whether government is effectively doing whatever tasks it is assigned. The key critique of cap and trade was that it was a tax and that it looked like too much government, when the debate should have been about its efficacy in reducing emissions and minimizing costs. We measure success or failure of federal action with respect to a particular energy source by the size of the budget or tax breaks devoted to it, not whether such action is effectively driving innovation or bringing down technology costs. Hayward et al. suggest we fix this through better program design, but that will not be easy. It requires a transformation of our nation’s political thinking at a very deep level. 

The second answer is specific to the energy system. It is an inconvenient truth that fossil fuels have some really attractive characteristics as energy sources. They are abundant, seemingly cheap (if one doesn’t take into account their environmental or energy security impacts, and of course the market price does not do so), and “energy-dense” (meaning they can produce a lot of energy per unit of volume and mass). They have also been used for a long time, and their use has co-evolved with extensive fuel distribution infrastructure and fuel-using equipment. Thus, shifting away from these fuels requires displacing a suite of interdependent incumbent technologies. 

This problem is really different, in kind and in scale, from any the U.S. government or the U.S. economy has wrestled with before. It is not like computer innovation, where a new set of technologies created new markets for new services; or airplanes, in which military procurement dominated an emerging market. To move away from the energy system we have, which meets our private needs very nicely, to one that may have lower social costs but higher private ones (at least for some transitional period), is going to be very difficult. Hayward et al. hope that we can eat our cake and have it, too, by finding new technologies that have both lower social costs and lower private costs. But substantially increasing government investment won’t guarantee this outcome – certainly not by itself. Rather the United States must make climate protection and national security a priority, and develop and implement a conscious, ambitious, and comprehensive national strategy with full public support. This is a daunting challenge.

Judi Greenwald is Vice President for Innovative Solutions

CARB’s Economic Analysis Helps Make the Case to Reject Proposition 23

Last Thursday, the California Air Resources Board (CARB) published details on the proposed greenhouse gas trading program to be implemented under state law AB 32. AB 32, as our blog readers know, is under threat from Proposition 23 – which would forestall (perhaps indefinitely) meaningful action to reduce greenhouse gases in California. The analyses done by CARB in association with the development of the proposed program bolster the case for rejecting Prop 23.

These CARB analyses show that the trading program under AB 32 will “shift investment and growth within the overall economy toward those sectors driven by the production of cleaner and more-efficient technologies.” The importance of this targeted growth should not be understated – by moving toward energy technologies that are both home-grown and energy efficient, we reduce our economic exposure to the price volatility of global energy markets. Since the world is using more and more of what are ultimately finite quantities of fossil energy, protecting ourselves by transitioning the economy toward energy systems that are not subject to global supply and demand imbalances is important to protecting our future economic growth.

While transitioning to new and different systems for energy production and use will necessarily result in some temporary economic dislocation, the market mechanisms included in CARB’s regulatory program minimize these impacts. Taken directly from the CARB economic analysis appendix:  “Overall, staff finds no significant adverse impacts on California business or consumers as a whole as a result of the proposed regulation.”

With climate change legislation stalled on Capitol Hill in Washington, D.C., for the foreseeable future, maintaining the critical environmental legislation of AB 32 is extremely important for advancing the nation’s climate policy. Even absent action by other states, California is the world’s 8th largest economy and a significant contributor to global greenhouse gas emissions. Action taken through policy in California is a huge step forward in addressing the global climate crisis.

Much of the rest of the world is waiting for the United States to take a leadership role on the issue of global climate change. With political gridlock in D.C., the best chance for the nation to make significant progress on this issue starts in California. AB 32 is the start of California’s transition to a 21st century economy of clean, green, homegrown energy – and represents an opportunity for the state, and the nation, to retake a leadership position in what will be some of the most important industries of the coming decades. 

Russell Meyer is the Senior Fellow for Economics and Policy

Some Heavy-Duty Good News

At a time when political gridlock in Washington has blocked climate legislation, EPA and NHTSA have jointly come forward with a sensible proposal that will substantially reduce oil consumption and greenhouse gas (GHG) pollution from heavy-duty trucks. EPA and NHTSA’s proposed new rules build on their recent success in finalizing GHG and fuel efficiency standards for cars and light-duty trucks. Once again, the two agencies collaborated with industry to make sure their standards accomplish environmental and energy security goals in a practical manner.

The transportation sector is responsible for 27 percent of our nation’s GHG emissions. Within this sector, heavy-duty vehicles are the second largest source of emissions (after light-duty vehicles), accounting for 20 percent of the sector’s total. The new proposal covering heavy-duty vehicles (long-haul trucks, large pick-ups and vans, school and transit buses, and utility trucks) manufactured from 2014 through 2018 is estimated to reduce emissions by 7-20 percent from these vehicles (depending on the category of truck) from current levels, achieving an overall reduction of 250 million metric tons of carbon dioxide over the life of the vehicles sold during this five-year period. As a result, emissions in 2030 from this fast growing subsector will be 9 percent below what they would have been in the business as usual case. The proposed rule is also estimated to reduce oil consumption by 500 million barrels over this same period. 

Cost and Benefits

To achieve the proposed standards, truck manufacturers will need to modify their vehicles drawing from a range of existing technologies including improvements in aerodynamic designs, lower rolling resistant tires, advanced transmissions, and reduced idling. The agencies report that the cost of meeting the standard for many trucks will be recouped in less than 2 years in the form of fuel savings. The regulatory impact analysis accompanying the proposed rule looks at both the costs and benefits of meeting the proposed standards. It shows the following:

Estimated Lifetime Discounted Costs and Benefits for 2014-2018 Model Year Heavy-Duty Vehicles

3 percent discount rate$ billions
Costs$7.7
Benefits$49
Net Benefits$41


Source: Table I-4 of the proposed regulations.

The bottom line is clear – with a net benefit to society of $41 billion, the proposed rule is a worthwhile investment in reducing both our reliance on foreign oil and our emissions of greenhouse gases.  

Steve Seidel is Vice President for Policy Analysis

Prop 23's Regional Repercussions

This post also appeared today in National Journal's Energy & Environment Experts blog.

As others have pointed out in the discussion of California’s Proposition 23, which would suspend the landmark climate law (AB32), passage would have wide-ranging implications for both the state itself and the national debate on comprehensive climate and energy policy in the U.S.  These concerns for both California- and national-level climate action are valid – by creating a policy environment of extreme uncertainty, Prop 23 threatens to freeze the currently expanding investment in clean technology in the state.  It is also arguably the new “battleground” on comprehensive climate legislation in the U.S., given the current state of affairs in the U.S. Congress. 

But there’s an intermediate level of climate action that also is at stake with passage of Prop 23.  Success for the fledgling cap-and-trade portion of the Western Climate Initiative (WCI) hinges on California continuing to be a leader in the development and implementation of the program.  WCI states account for nearly 15% of U.S. greenhouse gas emissions and WCI would be the first emissions-trading scheme in the U.S. to cap emissions from economy-wide sources.  While it may take some time for all WCI states to adopt cap-and-trade, all environmental programs have to start somewhere. And California’s leadership – not to mention the large quantity of emissions the state will add to the new market – is critical to the most comprehensive (in terms of emissions coverage), ambitious climate action initiative in the U.S.  Perhaps this is something the backers of Prop 23 are acutely aware of?

While we’re on the topic of threats to this singularly unique climate law, let’s not forget Prop 23’s much less well-known cousin, Prop 26.  This initiative seeks to tighten how the state constitution defines taxes and regulatory fees, and require a two-thirds supermajority vote in the state Legislature to enact new taxes and many fees.  Perhaps seemingly harmless, lawyers from UCLA this week argued that Prop 26 is a threat to the state's ability to assess fees on polluters for the external costs they impose on the public and will affect a number of existing laws, including the state’s landmark climate law (as well as a green chemistry initiative, two laws blocking chemical products in landfills, and rules on lead).  It’s ironic that Prop 23 could be defeated, while Prop 26, backed with multimillion-dollar contributions from the California Chamber of Commerce, Chevron Corporation, and Philip Morris USA Inc., might slide through and have the same effect on AB32, albeit via different means.  Passage of either proposition would be a setback to California’s ability (and thus, the WCI’s ability) to move forward on climate.

Eileen Claussen is President

No Props for Props (23 & 26)

I will be the first to admit that I don’t really understand the California election process. Governors are recalled and propositions seem to proliferate at every election cycle.  What I do understand is that these propositions can have dramatic consequences—after all, elections do matter.  Most folks who are reading our blog have likely heard of Prop 23, which would effectively stop the implementation of California’s landmark climate change law, AB32.  Environmental groups, clean energy entrepreneurs and big names such as Bill Gates and James Cameron have poured large amounts of attention and $25 million into the “No on 23” campaign, even as refiners Valero and Tesoro—and the now infamous Koch Brothers—fund the Yes campaign.  Luckily the opponents have been getting the upper hand recently, with polls saying just over 50% of likely voters plan to vote against the prop—including both gubernatorial candidates.