Shortly before the new year, Vice President Biden issued a memo summarizing the federal government’s progress in promoting “clean energy,” primarily via the 2009 stimulus bill (the American Recovery and Reinvestment Act, or ARRA). The Dec. 15 memo highlights significant incentives provided for efficiency, renewable electricity, biofuels, plug-in hybrid-electric vehicles, carbon capture and storage, and other low-carbon technologies. It summarizes where things stood one year ago (e.g., in terms of generating capacity, number of homes with smart meters) and where things are expected to be in the next few years.
The memo notes that ARRA provides $80 billion for clean energy investments. In terms of impacts, Vice President Biden claims, for example, that ARRA and other policies put the United States on track to double by 2012 non-hydro renewable electricity generation capacity compared to the level at the beginning of 2009. The memo says the rate of home energy efficiency retrofits will increase by an order of magnitude from 2009 to 2012 (to one million per year). While there are currently no commercial-scale carbon capture and storage projects in operation, the memo projects that there will be five by 2015. There are also evaluations of vehicle fuel economy, biofuels, nuclear power, electric vehicles, smart grid, and clean energy manufacturing.
While the clean energy advances touted by the Vice President are undoubtedly positive developments, the key policy for significantly reducing U.S. greenhouse gas emissions—i.e., putting a price on carbon—is still being debated in Congress. The House passed a climate and energy bill that included a greenhouse gas cap-and-trade program in June, and the Senate continues deliberations on a similar bill.
In considering efforts to transition to a low-carbon future, it’s helpful to remember that climate change is a “tale of two market failures.” First, and most importantly, businesses and households do not face any price associated with emitting greenhouse gases despite the social costs (e.g., costs of damage to coastal communities from sea level rise, increase in costs due to reduction in water resources) associated with their contribution to dangerous climate change. Thus businesses and households lack a key financial incentive to invest in efficiency or lower-carbon energy sources. Second, while intellectual property protections help firms profit from their investments in new technology, the nature of innovation is such that the gains to society (i.e., to other businesses and consumers) from a single company’s investments in innovation generally exceed the returns to that company. Thus businesses tend to under-invest in innovation.
With respect to fostering innovation, a summary from Harvard’s Belfer Center of U.S. Department of Energy research, development, and demonstration (RD&D) funding over time illustrates that the $7.5 billion in energy-related RD&D funding in ARRA is more than half as much as DOE received, cumulatively, in the five years from FY2005 through FY2009.
We know that a combination of a market-based climate policy that puts a price on carbon (e.g., via a greenhouse gas cap-and-trade program) to “pull” a portfolio of low-carbon technologies into the market coupled with incentives for low-carbon technology research, development, demonstration, and deployment (RDD&D)—i.e., policies to “push” low-carbon technologies into the market—make reducing greenhouse gas emissions less costly overall than a reliance on only “push” or “pull” policies alone.
The efforts outlined in the Vice President’s progress report are providing a much needed “push” for clean energy—such as government funding and loan guarantees to leverage private-sector investment in commercial-scale demonstrations of carbon capture and storage. But, ultimately, the United States will not make the required significant, absolute reductions in emissions without the market “pull” created by an economy-wide carbon price.
Steve Caldwell is a Technology and Policy Fellow
In February 2009 Congress passed the American Recovery and Reinvestment Act (ARRA or the stimulus package) providing the largest single investment in clean energy in American history. About $84 billion of the $787 billion in stimulus funds targets energy, transportation, and climate investment in the form of grants, tax cuts, and loan guarantees. Given the magnitude of this investment and its anticipated role of laying the groundwork for American leadership in a global clean energy economy, it is beneficial to follow how these funds are spent.
We recently published the first installment of a brief on the spending of ARRA funds by the U.S. Department of Energy (DOE), the agency with jurisdiction over the majority of energy expenditures. The brief specifically examines how the funds have been appropriated, awarded, and spent as a way to track how quickly the money is moving out the door along with the impact of this spending on job creation. We plan to keep tabs on the use of ARRA funds over time and update this brief accordingly.
On the whole, ARRA money is moving at a slower pace than expected – as of November 13, 2009 only 3.9 percent of the DOE’s total appropriated ARRA funds had been spent. But ARRA is leveraging private investment and, as Vice President Biden noted in a recent memo to President Obama, “jumpstarting a major transformation of our energy system.” For example, with these funds and additional leveraged private investment, renewable energy generation is expected to double from 27.8 GW in January 2009 to 55.6 GW by 2012.1
ARRA funds will also lead to significant growth in the manufacturing capacity for clean energy technology, advanced vehicle and fuel technologies, components of a smarter electric grid, home weatherization, and carbon capture and storage technologies. New industry and funding for programs already in existence will create and save jobs in the clean energy sector. At the end of October 2009, the Bureau of Labor Statistics reported nearly 10,000 jobs created from the DOE’s use of Recovery Act funds. This number is expected to grow considerably as more of the ARRA money is committed to and spent by recipients (Biden’s memo predicts 253,000 jobs will be supported from new renewable generation and advanced energy manufacturing alone).
Stay tuned for updates as we continue to follow the spending progress and impacts of DOE ARRA funds.
Olivia Nix is the Innovative Solutions intern
This afternoon President Obama delivered an energizing speech to students and faculty of MIT on the need for the United States to draw on its “legacy of innovation” in transitioning to a clean energy future. We are engaged in a “peaceful competition” to develop the technologies that will drive the future global energy economy and he wants to see the U.S. emerge as the winner. The President further declared that in making the transition from fossil fuels to renewable energy, we can lead the world in “preventing the worst consequences of climate change."
After citing the ongoing efforts of his Administration on this front, including the $80 billion in the American Recovery and Reinvestment Act (a.k.a the “Stimulus Package”) for clean energy, he talked about what’s needed next – comprehensive legislation to transform our energy system. He noted that this should include sustainable use of biofuels, safe nuclear power, and more use of renewables like wind and solar technology, all while growing the U.S economy. And he applauded Senator Kerry – also in attendance for the speech – for his work with Senator Boxer on their legislation.