Energy & Technology

Global Climate Change and Coal's Future

Global Climate Change and Coal's Future

Remarks by Eileen Claussen
President, Pew Center on Global Climate Change

Spring Coal Forum 2004 - American Coal Council

May 18, 2004

It is a pleasure to be here in Dallas.  And I want to thank the American Coal Council for inviting me to address this forum. 

I thought I would open my remarks today with some commentary on the upcoming FOX movie about climate change—it is entitled “The Day After Tomorrow.”  It is not often, after all, that I get to talk about the movies in my speeches.  And I suppose that’s because there are not a lot of movies on the topic of climate change—of course, I am not counting “Some Like It Hot.”

In case you haven’t already heard, “The Day After Tomorrow” comes out Memorial Day weekend.  It is a movie that tries to show the consequences of climate change by letting loose tornadoes in Los Angeles, dropping grapefruit-sized hail on Tokyo, and subjecting New York City to a one-day shift from sweltering-to-freezing temperatures.

The only thing I can say is it’s a dream scenario for the people at The Weather Channel. 

Actually, the reason I bring this up is because we are bound to be hearing a great deal about the issue of climate change over the next several weeks.  This is a major motion picture with a major marketing push behind it. 

And, while I know of no one in the scientific community who believes climate change will unfold in the way it is portrayed in the film, I also know this: If this movie sounds far-fetched, it is frankly less of a distortion—much less—than the argument that climate change is a bunch of nonsense.  It is not.  Climate change is a very real problem with very real consequences for our way of life, our economy and our ability to ensure that future generations inherit a world not appreciably different from our own. 

I strongly believe it is time for some straight talk about the problem of climate change and what it means for you  - the coal industry.   So while my remarks here today are also relevant to the oil and gas industry, I believe coal to be in a more precarious position, and I believe that for 2 reasons:  1) I think coal is an easier target politically and 2) oil and gas are already involved in the policy process.    So despite the current outlook for coal in the United States, I am here to say that a robust future for coal is not a sure thing, particularly if we do not find environmentally acceptable and cost-effective ways to use it. 

So let’s look at some facts. 

Here in this country, as all of you know very well, coal provides 52 percent of all electricity, more than double the amount of any other fuel source and five times more than gas, oil or hydro-electric power.  Coal is the most abundant energy source today, it is dispersed throughout the world, and it is available at a relatively low cost.  Worldwide coal consumption, according to the U.S. Energy Information Administration, is expected to grow by more than 40 percent between 2001 and 2025, with China and India accounting for three-fourths of that increase. 

Given these facts, a scenario in which we meet the world’s various energy challenges without coal seems to me highly unlikely. 

At the same time, however, I cannot imagine—or, rather, I fear to imagine—what will happen if over the next 50 years we do not get serious about reducing worldwide emissions of carbon dioxide and other greenhouse gases that we know contribute to climate change. 

Coal alone is responsible for 37 percent of CO2 emissions in the United States.  Thirty-seven percent.  Worldwide, the EIA projects that coal will continue as the second largest source of carbon dioxide emissions after petroleum, accounting for 34 percent of the total in 2025. 

Coal’s dominant role in the global energy mix, together with its responsibility for a large share of CO2 emissions, suggests it is high time to figure out how to continue using coal in a way that results in the least amount of harm to the global climate. 

I am not going to tell you that we can address this problem with no costs.  Our goal must be to ensure that the costs themselves do not become a barrier to action.  I believe we can manage those costs in a way that enables continued economic growth and, equally important, in a way that causes the least amount of harm to the environment.

And finally, we must acknowledge the very real costs of not acting to address the problem of climate change.  I will talk more about that later. 

And so today I want to lay out for you how important it is for this industry—your industry—to become a part of the solution to climate change.  I also want to talk about your role in helping to shape the policies and in developing the technologies that will allow us to reduce greenhouse gas emissions from coal generation and other sources. 

But before that, I need to address the question of why I am here and why we are having this discussion in the first place.  And the answer is because the threat of climate change, as I have already noted, is very real.  If you still have any doubts about this, then I refer you to the findings of a special, well-balanced panel put together by the National Academy of Sciences at the request of President George W. Bush. The panel’s conclusion: the planet is warming and human activities are largely to blame.  And, of course, the human activity that is most responsible is the burning of fossil fuels.

Let's get one other thing out of the way  -- the Kyoto Protocol.  I am not here to argue the merits of the Protocol.  And I'm certainly not here to argue for ratification of Kyoto.  Because I think it's pretty clear that, at least as far as the United States is concerned, the Kyoto Protocol is a dead issue.  So, let's agree on that, and let's move beyond Kyoto, and talk about what really needs to happen.

This is what we know. The 1990s were the hottest decade of the last millennium.  The last five years were among the seven hottest on record. Yes, the earth's temperature has always fluctuated, but ordinarily these shifts occur over the course of centuries or millennia, not decades.

Now I know there are skeptics on this issue - there might even be a few here today, so let me take a minute to talk about some of the more common misconceptions I hear.

A common one is to point to the satellites circling our planet overhead and to note that these precision instruments show no warming of our atmosphere.  Global warming, some skeptics say, is therefore just an artifact of urbanization or some other miscalculation here on the ground. 

All I can say about these claims is that they are dead wrong.  As early as 2000, the National Academy of Sciences concluded that the warming observed on the ground was real, despite what the satellites might tell us.  What’s more, since that time estimates of warming from satellites have progressively increased.  Just this month, in fact, a new study in the journal Nature took a fresh look at the satellite data and found that the so-called “missing warming” had been found, bringing the satellite estimates more in line with temperatures observed on the ground.        

Warming by itself, of course, is not proof of global warming.  Climate conditions vary naturally, as we all know, and I am sure you have heard arguments that such natural variability, whether caused by volcanoes or the sun, can account for the climate change we’ve seen in recent decades.  But, when scientists actually take a look at the relative importance of natural vs. human influences on the climate, they consistently come to the same conclusion.  And that is this: observed climate change, particularly that of the past 30 years, is outside the bounds of natural variability.  Atmospheric concentrations of carbon dioxide are more than 30 percent higher now than they were just a century ago.  Despite what you may hear, this increase in carbon dioxide is undeniably human in origin, and it is the only way to explain the recent trends in the global climate. 

Scientists project that over the next century, the average global temperature will rise between two and ten degrees Fahrenheit. A ten-degree increase would be the largest swing in global temperature since the end of the last ice age 12,000 years ago.  And the potential consequences of even gradual warming are cause enough for great concern.

What will those consequences be?  We can expect increased flooding and increased drought.  Extended heat waves, more powerful storms, and other extreme weather events will become more common.  Rising sea level will inundate portions of Florida and Louisiana, while increased storm surges will threaten communities all along our nation’s coastline, including the Texas coast.

Looking beyond our borders, we can see even broader, more catastrophic effects.  Imagine, for example, what will happen in a nation such as Bangladesh, where a one-meter rise in sea level would inundate 17 percent of the country.  

In addition to the obvious threat to human life and natural systems, climate change poses an enormous threat to the U.S. and world economies.  Extreme weather, rising sea level and the other consequences of climate change will result in substantial economic losses. 

We cannot allow the argument that it will cost too much to act against climate change to prevail in the face of the potentially devastating costs of allowing climate change to proceed unchecked.

Furthermore, the longer we wait to address this problem, the worse off we will be.  The Pew Center in 2001 held a workshop with leading scientists, economists and other analysts to discuss the optimal timing of efforts to address climate change.  They each came at it from a different perspective, but the overwhelming consensus was that to be most effective, action against climate change has to start right now. 

Among the reasons these experts offered for acting sooner rather than later was that current atmospheric concentrations of greenhouse gases are the highest in more than 400,000 years.  This is an unprecedented situation in human history, and there is a real potential that the resulting damages will not be incremental or linear, but sudden and potentially catastrophic.  Acting now is the only rational choice. 

But what can we do?  The Pew Center on Global Climate Change was established in 1998 in an effort to help answer this very question.  We are non-profit, non-partisan and independent.  Our mission is to provide credible information, straight answers and innovative solutions in the effort to address global climate change.  We consider ourselves a center of level-headed research, analysis and collaboration.   We are also a center in another sense–a much-needed centrist presence on an issue where the discussion too often devolves into battling extremes where the first casualty is the truth.

The Pew Center also is the convenor of the Business Environmental Leadership Council.   The group’s 38 members collectively employ 2.5 million employees and have combined revenues of $855 billion.  These companies include mostly Fortune 500 firms that are committed to economically viable climate solutions.  And I am pleased to say that they include firms that mine coal and firms that burn it—some of whom are represented here today.  As members of the Business Environmental Leadership Council, all of these companies are working to reduce their emissions and to educate policy makers, other corporate leaders and the public about how to address climate change while sustaining economic growth. 

And, if their work with the Pew Center proves anything, it is this:  Objecting to the overwhelming scientific consensus about climate change is no longer an acceptable strategy for industry to pursue. 

We need to think about what we can realistically achieve in this country and around the world and begin down a path to protecting the climate.  And that means making a real commitment to the full basket of technologies that can help to reduce the adverse environmental effects of coal generation.  The most promising of these technologies, of course, are: carbon capture and storage; and coal gasification, or IGCC.

Carbon capture and storage, or CCS, holds out the exciting prospect for all of us that we can continue using proven reserves of coal even in a carbon-constrained world.  In only the last three decades, CCS has emerged as one of the most promising options we have for significantly reducing atmospheric emissions of greenhouse gases.  Today, 1 million tons of CO2 are stored annually in the Sleipner Project in the North Sea, and several more commercial projects are in various stages of advanced planning around the world.  Between off-shore, saltwater-filled sandstone formations, depleted oil and gas reservoirs, and other potential storage locations, scientists say we have the capacity to store decades worth of CO2 at today’s emission rates.  

Of course, it will still take a great deal more effort before CCS is ready for prime time.  In a paper prepared for a recent Pew Center workshop held in conjunction with the National Commission on Energy Policy, Sally Benson of the Lawrence Berkeley National Laboratory identified several barriers to the implementation of carbon capture and storage, or CCS.  They include:

  • The high costs and quote-unquote “energy penalties” of post-combustion CCS.
  • The high capital costs of gasification, as well as a lack of experience with the technology in the utility sector.
  • Limited experience with large-scale geologic storage.
  • Uncertainty about public acceptance of CO2 storage in geologic formations.
  • A lack of legal and regulatory frameworks to support widespread application of CCS.
  • And, last but not least, a lack of financial resources to support projects of a sufficient scale to evaluate the viability of CCS. 

Yet another technology that could potentially help to reduce the climate impact of coal generation is IGCC.   Of course, IGCC’s principal benefit from a short-term environmental perspective is a significant reduction in criteria air pollutant emissions  and in solid waste.  But, over the long haul, IGCC has great potential to reduce CO2 emissions as well, both because, compared to pulverized coal combustion, it could result in significant improvements in efficiency, because it can be much more easily combined with CCS, and because it enables hydrogen production from coal. 

But, as with CCS, IGCC still has a ways to go before it can deliver on its enormous promise.  As of today, there are only two real IGCC plants in operation in the United States, but neither is operating fully on coal.  Yes, the Bush administration has made a big splash with its announcement of the $1 billion FutureGEN project—which, as you know, would build the world’s first integrated sequestration and hydrogen production research power plant.  But no specific plans have yet been announced.

The bottom line: these technologies—both CCS and IGCC—are nowhere near prime time.  Right now, to stretch the analogy further, they are far enough from prime time to be on the air around 3 a.m. with a bunch of annoying infomercials.  And they won’t get any closer to prime time without substantial investment in research and development, as well as a major policy commitment to these technologies. 

The potential rewards are great.  If we make the necessary commitment to CCS and IGCC, these technologies could make an important contribution to the United States’ efforts to control greenhouse gas emissions in the decades ahead.  And the potential for coal to become a source of hydrogen for transportation could revolutionize the industry and our energy future.

But we need to make a commitment. 

Investing in the development of these technologies, in fact, may be the only way for coal to have a long-term future in the U.S. energy mix.  There will be a time in the not-too-distant future when the United States and the world begin to understand the very real threat posed to our economy and our way of life by climate change. 

When that happens, those industries that are perceived as part of the problem and not part of the solution are going to have a difficult time.  Allow me to put it another way: if current trends continue, there is a strong possibility that, at some point, policymakers and the public are going to see the need for drastic reductions in our emissions of carbon dioxide and other greenhouse gases.  The coal industry—because of its responsibility for such a large share of those emissions—may find itself the focus of intense scrutiny and finger-pointing.  And it will need to demonstrate that it is making steady and significant progress in reducing its emissions—or else face draconian policy measures.

The coal industry, of course, cannot tackle this challenge alone. Government, too, must become a part of the solution, and this is not just a matter of technology policy; there is a need for a broader climate policy.  I mean a policy that sets a national goal for greenhouse gas emissions from ALL important sectors - including transportation, utilities and manufacturing - and then provides companies and industries with the flexibility to meet that goal as cost-effectively as possible.  This is the approach taken in the Lieberman-McCain Climate Stewardship Act.

The need for a broader climate policy was the key conclusion of a recent Pew Center study that looked at three future energy scenarios for the United States.  Even in the most optimistic scenario where we develop a range of climate-friendly technologies such as CCS and IGCC, the study projected that we will achieve no net reduction in U.S. carbon emissions without a broader policy aimed at capping and reducing those emissions.

So the challenge before us is clear: we need to craft a wide-ranging set of policies and strategies to reduce humanity’s impact on the global climate.  And coal needs to be proactively and positively engaged—much more so than has been the case thus far.

I am pleased to report that there are elected leaders at the state level and in Congress who understand the importance of government action.  In Congress, of course, last year we saw the Climate Stewardship Act introduced by Senators Joseph Lieberman and John McCain.  This measure, which would establish modest but binding targets for reducing U.S. greenhouse gas emissions, attracted the support of 43 senators—a respectable number and an indication of growing support for U.S. action on this issue.  A companion measure to the Senate bill was introduced in the House of Representatives earlier this year.

Policymakers, particularly at the state level are moving beyond debate to real action on this issue.  Among the examples:

  • Thirteen states, including Texas, now require utilities to generate a specified share of their power from renewable sources.  
  • New York and nine other mid-Atlantic and northeastern states are discussing a regional “cap-and-trade” initiative aimed at reducing carbon dioxide emissions from power plants.  
  • And, last September, the governors of three Pacific states—California, Oregon, and Washington—announced that they will be working together to develop policies to reduce emissions from all sources. 

So the fact is, we have a lot of people in government at the state and federal levels who are beginning to look seriously at this issue and who are trying to figure out how best to respond.  So the coal industry needs to be at the table now, because the policy discussion has begun.  

But understand - getting to the table is not just a matter of showing up and saying, “Let’s talk.”  To earn a seat at the table, coal is going to have to demonstrate that it is committed to real and serious action on this issue. And as you are probably aware, some of your competitors from a climate change perspective - the gas, oil and renewable industries are already there.

The benefits of active involvement by industry in environmental policy became clear to me during negotiations on the Montreal Protocol. 

An important reason for the success of that agreement, I believe, is that the companies that produced and used ozone-depleting chemicals—and that were developing substitutes for them—were very much engaged in the process of finding solutions.  As a result, there was a factual basis and an honesty about what we could achieve, how we could achieve it, and when. And there was an acceptance on the part of industry, particularly U.S. companies, that the depletion of the ozone layer was an important problem and that multilateral action was needed. 

In the same way, industry involvement was an important part of the process that developed the Acid Rain Program created under the Clean Air Act Amendments of 1990.  And, once again, those with a seat at the table, by and large, came out with a policy they could live with.  Those who were not at the table were not as happy with the outcome. 

It is a basic principle of democratic governance: the more you get involved in the process and in shaping solutions, the more likely it will be that those solutions are agreeable to you.  Or, as the Chinese proverb puts it, “Tell me, I forget.  Show me, I remember.  Involve me, I understand.”  For those of you who think there is no possible configuration that would allow the coal industry, government and environmental advocates to sit around one table—I am here to tell you that I for one am willing to make the seating arrangements work.  Because we need them to work.
Whether the issue is public-private partnerships, incentives for technology development, or the level and timing of reductions in emissions, coal has a chance to shape the right solutions. 

What are the right solutions?  A lot of it has to do with technology—and, more specifically, with the policies needed to push and pull solutions such as CCS and IGCC to market.  (Let me say here that I don’t want to leave the impression that these are the only technologies we need to look at because there are others, such as coalbed methane, that show enormous promise as well.) 

I will say it one more time: coal’s place in the U.S. and global energy mix in the decades to come will depend largely on the industry’s ability, in concert with government, to develop the technologies that will allow us to achieve dramatic reductions in carbon emissions from coal generation.  Without those technologies, coal loses out when the United States and the world finally appreciate the need for serious action to address this very serious problem. 

In closing, I want to note that the promotional materials for the film, “The Day After Tomorrow,” ask the question: “Where will you be?”  It is my sincere hope that, whether you go and see the movie or not, this industry will be on the side of solutions to this very urgent problem. 

I honestly believe you don’t have much of a choice.  After all, a mine is a terrible thing to waste. 

Thank you very much. 

The 10-50 Solution: A Decade-by-Decade Approach to Climate Change

The 10-50 Solution: A Decade-by-Decade Approach to Climate Change

Remarks by Eileen Claussen
President, Pew Center on Global Climate Change

EnvironDesign8 Conference

April 22, 2004


Thank you very much.  It is a pleasure to be in Minneapolis.  I know this may date me, but as I was on my way here to the home of the old Mary Tyler Moore show, I was reminded of an exchange between Mary and her boss, Lou Grant. 

Lou Grant says, “You know, Mary, you’ve got spunk.”
“Well, thank you, Mr. Grant,” says Mary.
“And you know what?” says Lou. “I HATE spunk.”

In all seriousness, I honestly believe that everyone at this conference has spunk.  And, unlike Lou Grant, I am a big fan of it.  The reason you have spunk is that you are the leaders of the sustainability movement in America.  And I am honored to be with such a distinguished group of environmental problem-solvers to celebrate Earth Day—or, as the Bush administration calls it, Thursday, April 22nd.

On the occasion of the 34th anniversary of Earth Day, I believe it is important to acknowledge how far we’ve come in that time.  In 1970, after all, we had a lot of people driving around in monster vehicles powered by gas-guzzling V-8 engines.  Today, by contrast, we have, well, a lot of people driving around in monster vehicles powered by gas-guzzling V-8 engines.   The more things change, the more they stay the same. 

Seriously, we have made significant progress on these issues since the 1970s—but, obviously, not nearly enough.  And today we have a choice.

We can fall over ourselves seeking short-term gains for our businesses and society—potentially at great expense to our future.  Or, we can think ahead—there’s a novel idea—and invest in strategies, processes and ideas that will help to ensure that our businesses—and, indeed, our life as we know it—are still around 10, 20, or 50 years down the line.

In attending this conference, I know that all of you have made the second choice.  And I congratulate you for your commitment to environmental problem-solving—which I hope will be the number-one growth industry of the 21st century.

Today, I would like to talk with you about the issue of climate change.  No surprise there.  And, understanding that this group is looking at a wide range of environmental and sustainability topics, I want to start with a brief overview of what we know about climate change and what we are (and are not) doing in response.  I will conclude my remarks by suggesting to you a new approach for addressing this enormous problem—an approach that couples a long-term vision of progress with a solid understanding of the interim steps that will help us achieve that vision. 

But first a description of the problem itself.  Global temperatures increased approximately 1ºF over the twentieth century, and additional warming of 2.5º to 10º F is projected over the century to come.  What is causing this warming?  The driving force, although not the only force, is human emissions of greenhouse gases, which grew globally by approximately 10 percent during the 1990s. 

In the same vein as the standard line, “It’s not just the heat, it’s the humidity,” climate change is about much more than rising temperatures.  It is also about increases in sea level, changes in precipitation, including more frequent floods and droughts, an increase in extreme weather events, as well as other effects.  As if that’s not enough, substantial increases in global mean temperature could set off large-scale changes to the earth’s systems such as a shutdown of the Gulf Stream or a melting of the West Antarctic ice sheet.  The thresholds are uncertain and it may take centuries for these things to happen, but it is possible that warming in the 21st century could trigger these types of events—events that, once started, will be extremely difficult, if not impossible, to reverse.

What are we doing to address this problem?   At the global level, 121 countries have now ratified an agreement that would for the first time establish binding limits on worldwide emissions of greenhouse gases. I am talking, of course, about the Kyoto Protocol.

Over the last several years, there has been a lot of discussion of this treaty in political circles—much of it of a harshly critical nature—and I think it is important to remember what Kyoto is and what it is not. Most importantly, we must remember that Kyoto was never intended as the be-all and end-all solution to the problem of climate change.  Rather, it was intended as a first step, a way to commit the nations of the world to real action to reduce their emissions of greenhouse gases.  Right now, Kyoto’s targets take us only to 2012—just eight years away—when, in fact, we are going to have to work at this issue for decades to come.

The other thing to remember about Kyoto is that it is not only Russia’s fault that the treaty is right now in diplomatic limbo.  As you may know, Kyoto cannot enter into force until it is ratified by countries responsible for 55 percent of global greenhouse gas emissions.  And, right now, Russia’s signature is needed to reach the 55-percent level.
 
In all the talk about whether or not Russia will ratify and all the outrage that will surely surface should they decide not to, it is useful to remember that, among other big emitters, the United States and Australia have already opted out.   So there is plenty of blame to go around.

Even though it remains in limbo, and even though it may never enter into force as it currently stands, the Kyoto Protocol was and remains an historic achievement—as well as a powerful instrument for bringing the countries of the world together around a common understanding of the problem and of our shared role in addressing it.  It is because of Kyoto, after all, that we are finally seeing some nations get serious about reducing their emissions.  The European Union, for example, has adopted a carbon dioxide emission trading program.  And Prime Minister Tony Blair has committed Great Britain to a 60-percent cut in greenhouse gas emissions by 2050--the first instance of a world leader taking a long-term view on how to address this problem.

So that’s the global story.  Here in the United States, we have a different story.  At the federal level, we have seen no real action on this issue from either the Bush or the Clinton administrations (although Congress did engage in a serious debate about the climate issue last year).  At the same time, state governments and large corporations in this country are, in many instances, taking it upon themselves to shape solutions.

Let’s start in Washington.  A lot has been made of the Bush administration’s ill-mannered rejection of the Kyoto Protocol way back in 2001.  But the rejection itself wasn’t really all that shocking.  This was a new administration with its own ideas about how to tackle the problems of the world.  Rather, what was truly shocking was that the White House offered nothing in the way of an alternative global solution—and, equally important, no real plan for reducing the United States’ contribution to the problem.

Indeed, the White House and its congressional allies were none too friendly toward a plan put forward last year by Senators John McCain and Joe Lieberman that would for the first time establish modest but binding targets for reducing U.S. greenhouse gas emissions.  However, despite the opposition of the Bush administration and congressional leaders, the McCain-Lieberman Climate Stewardship Act attracted a very respectable 43 votes in the Senate, showing strong and growing bipartisan support for mandatory action against climate change in the United States.  (A companion measure was introduced in the House of Representatives just last month.) 

Still, for real action on this issue in the United States, we need to look to the state capitals and corporate boardrooms.

First the states.  In 2002, the Pew Center released a report entitled Greenhouse and Statehouse: The Evolving State Government Role in Climate Change.  In it, we surveyed state activity on this topic and found that a variety of measures that have proven controversial at the federal level--such as renewable portfolio standards, emission targets, and mandatory reporting of emissions--have indeed been implemented at the state level, often with little dissent.

The state initiatives are an important development not only because they can help pave the way for federal action but also because of the simple fact that U.S. states are large emitters of greenhouse gases.  Texas, for example, emits more greenhouse gases than France, the United Kingdom, or Canada.  Ohio’s emissions exceed those of Turkey and Taiwan, and emissions in Illinois exceed those from The Netherlands.  Clearly, if we are intent on scrutinizing—and, hopefully, celebrating—what is happening in these and other nations to address the problem of climate change, we also must take account of the actions of individual U.S. states with comparable levels of emissions.

The Pew Center’s report makes clear that states across America have initiated programs that are achieving real reductions in their emissions.

· For example, 13 states, including Texas, now require utilities to generate a specified share of their power from renewable sources. 

· Two states, Wisconsin and New Jersey, have created mandatory reporting programs for large emitters of greenhouse gases.
 
· Massachusetts has established a multi-pollutant cap that requires six older power plants to reduce their CO2 emissions.

· And, in California, state lawmakers have gone beyond target-setting and reporting and are working to establish direct controls on carbon emissions from cars and SUVs.

What’s more, we now are seeing groups of states begin to discuss climate solutions on a regional basis. Thus you have the agreement among New York and nine other mid-Atlantic and northeastern states to discuss a regional “cap-and-trade” initiative aimed at reducing carbon dioxide emissions from power plants.  And, last September, the governors of three Pacific states—California, Oregon, and Washington—announced that they will be working together to develop policies to reduce emissions from all sources.

The second place in America, in addition to the state capitals, where real action is happening on the climate issue is in corporate boardrooms.  At the Pew Center, we work with a group of leading companies that are committed to economically viable climate solutions.  The 38 members of our Business Environmental Leadership Council together employ nearly 2.5 million people and have combined revenues of $855 billion.  And here’s just a sampling of some of the things they are doing to reduce their emissions:

· Alcoa, for example, is developing a new technology for smelting aluminum that, if successful, will allow the company to reduce its greenhouse gas emissions to half their 1990 levels over the next nine years.
 
· United Technologies, or UTC, has reduced overall greenhouse gas emissions by 15 percent since 1997. In addition, the company has exceeded its goal of reducing energy consumption as a percentage of sales by 25 percent from 1997 levels.

· And, of course, I want to mention DuPont, which made a voluntary pledge to reduce its global emissions of greenhouse gases by 65 percent by the year 2010.  In 2002, DuPont announced that it had achieved this target eight years ahead of schedule.

· Another company that has met its target ahead of schedule is BP, which in 2002 announced that it had reduced its global greenhouse emissions by 9 million metric tons in just four years.

All of these are important developments, and they show how increasing numbers of leading companies see a clear business interest both in reducing their emissions and in helping to shape a climate-friendly future.

But the truth of the matter is that these companies are basically freelancing—as are the states that I have mentioned.  In the absence of a broader national strategy to address this problem, corporate executives and state officials are taking it upon themselves to act.  We should all applaud that and encourage them to do even more.  However, the global nature of the climate issue demands much broader action and a much broader strategy to bring about revolutionary change in the way we power our economy. 

Consider this: in order to stabilize the global climate, global emissions must eventually fall to well below their 1990 levels.  Depending upon whom you talk to, the figure ranges from 50 to 95 percent!  And this would have to be achieved by the end of the century.  And as I mentioned earlier, the UK already has a plan in place to reduce its emissions by 60 percent below 1990 levels by 2050.   Where is the U.S.?  As of 2000, we were 13.6 percent above 1990 levels, and we have no plan to reduce our emissions at all.

Clearly, individual states and a handful of companies cannot do this alone. 

So how do we move forward?  How do we create the impetus for broad, across-the-board reductions in emissions of greenhouse gases?  At the Pew Center, we recently developed something we are calling the “10-50 Solution.”  And, in case you were wondering, it is not a miracle household cleaner.  Rather, it is a new way of thinking about the problem of climate change—and how to solve it. 

By 10-50, we mean that we should be thinking ahead about where we want to be on this issue in 50 years (that’s the “50” part), and then identify the policies and strategies we can start pursuing in the next ten years and the decades to come so we can achieve our long-range goal. (That’s the “10” part.).  In this, I am reminded of Antoine de Saint-Exupery’s advice that, “As for the future, your task is not to foresee, but to enable it.”

Here is what we know.  First, we know that we need a low-carbon economy by mid-century.   Second, we know that it will take a new industrial revolution to get there, and that low-carbon energy technologies will play a critical role in that revolution.  And, third, we know that all signs indicate that we cannot and will not achieve a low-carbon economy if we continue on a “business-as-usual” path. 

I am not here to say exactly what the alternative, low-carbon path will look like or exactly where it will take us.  No one can say that.  Rather, I want to point out some of the issues or guidelines we need to be thinking about as we begin to chart that path and get going. 

I believe we need to be thinking about four major issues as we map our path to a low-carbon future.  The first of these is technology development—in other words, how to spark an energy technology revolution.

The 1990s saw the peak of an unprecedented technology boom in computer, information, and telecommunication technologies.  But we did not see this unprecedented technological change spread into the energy sector.  Despite more than a few optimistic predictions to the contrary, the energy sector continues on a conventional-technology trajectory – without many signs of substantial change. 

One reason for this is that there are fundamental market and policy forces that keep an energy technology revolution from happening.  Developing the technology to replace the existing and entrenched energy system will require massive investment.  But businesses continue to receive mixed signals from policy-makers about whether or not we are serious about getting on with the challenge.  So there is not sufficient incentive to place big bets on the development and diffusion of low-carbon energy technologies.

What’s more, the federal government spends even less than the private sector on energy-related RD&D, which is particularly disappointing when you consider the importance of energy to our economy and our national security—not to mention the implications of our energy use for the environment.   While there is some support for some breakthrough technology, most of the investment remains attached to carbon-intensive energy technologies.

The second issue we need to be thinking about as we look ahead to a low-carbon future has to do with what happens after we develop the technologies we need.  In other words, how do we ensure that new, climate-friendly technologies can enter the marketplace and compete?

Many people who concede that government has a role in fostering energy R&D simply stop there.  Once the technology is developed, they say, consumers will simply go out and buy it.  In fact, experience tells us differently. 

The fact that R&D alone will not get technologies into the market became clear to us through some of our work over the last few years.  This past year, we finished a report that looked at historical U.S. technology and innovation policies to see what lessons could be learned for addressing climate change.  One of the key insights from this report is that past government policies that go beyond R&D -- to promote downstream adoption of technologies and learning by doing -- have greatly influenced technological change.   This was true in the past, and is likely to be true in the future.  The bottom line is that we must have specific policies both to push and to pull these technologies into the market. 

You’ll notice that I said these technologies, which brings me to the third issue we need to pay attention to: There is no technological silver bullet solution to climate change. 

This problem is just too big for any single solution.  At a workshop we sponsored with the National Commission on Energy Policy last month on the 10-50 solution, we convened a group of experts and business leaders to look specifically at five technologies that are sure to play a prominent role in reducing the carbon intensity of our economy.  These are: energy efficiency technologies; hydrogen; carbon sequestration/coal gasification; advanced nuclear technologies; and renewables.  These five technologies are obviously very important, but I want to be clear today, as I was during our March workshop, that any future portfolio of low-carbon fuels and energy technologies will surely be broader than them.  For example, important fuels and groups of technologies—from coalbed methane to biofuels, ocean wave power, geothermal energy, nanotechnology, and biotechnology—may all have important roles to play in a future low-carbon energy mix.

So we have all of these technologies, and the fact remains that not one of them is likely to be deployed in the marketplace on the scale and in the time frame needed to address climate change without an explicit and unprecedented set of policies from government.  Our shared challenge will be to develop policies that are broad enough and neutral enough to provide incentives for a high level of innovation across the relevant energy, materials, and information technology industries.  At the same time, we need these policies to be targeted and specific enough to give promising technologies a start down the road toward significant deployment--and to do so without dampening the competitive ingenuity that is a driver of the most innovative economy in the world: ours. 

This brings me to the fourth and final issue we need to be thinking about as we try to respond in a decisive and effective way to the challenge of climate change.  Just as there is no technology silver bullet, there is no policy silver bullet for transitioning to a low-carbon future.  According to some people, all we need is a strong technology R&D policy; in other words, forget about adopting a mitigation policy.  Still others say a mitigation policy is all we need – and that even a small price signal will do the trick now and forever, amen. 

At the Pew Center, we think we need both a strong R&D and a strong mitigation policy, as well as some policies that we may not even know about yet.

The Pew Center has always been a strong advocate of an economy-wide cap-and-trade policy—in other words, a policy that sets targets for greenhouse gas emissions and allows companies the flexibility to trade emission credits in order to achieve their targets.  We still believe that a cap-and-trade system is an essential step in the “10-50” strategy. 

But we also believe that cap-and-trade by itself will not bring about the technological revolution that is necessary.  An aggressive RD&D program, government standards and codes, public infrastructure investments, public/private partnerships and government procurement all probably have some role to play.   What we need to do is refine what this portfolio of options should look like, and what the timing of each of the components should be.

So those are the four things we need to be thinking about: how to develop climate-friendly technologies; how to market them; how to ensure that we are looking broadly at the many technologies that can help while paying close attention to the most promising technologies; and how to arrive at a broad set of policies that will put this country on a track to real reductions in emissions.

In closing, let me say that it is clear from all of the work that the Pew Center is doing on this issue that we need vision.  We need spunk.  We need people like those of you at this conference to help us move the discussion of climate change away from the divisive debate over environmental vs. economic tradeoffs.  Instead, we need to focus on the concrete steps we can take—both in this decade and in the decades to come—to get a handle on this enormous problem.  Each of us has a role we can play:

· If you are a manufacturer, do you have a goal and a plan for reducing your emissions and energy use and, ultimately, adopting low-carbon sources of energy?

· If you are a real estate developer or architect, what are you doing to develop the prototype homes and office buildings of 2015 or 2025—structures that achieve new levels of energy efficiency and embrace climate-friendly technologies?

· If you are an engineer, to what extent are you engineering new processes and products that will deliver significant energy savings in the decades to come?  Are you engineering the systems that will help us deliver on the promise of new low-carbon energy technologies?

· And, last but not least, if you are a government official, what policies can you put forward that will help your community or your state couple a long-term vision with short-term action to address this issue?

And don’t let me forget one other important category of people: citizens.  In this year of presidential and congressional elections, as well as elections at the state and local levels, all of us, as citizens, need to be engaged on this issue. 

Recent history shows us that our government, whether it is in Democratic or Republican hands, has a very hard time dealing with the issue of climate change in an effective way.  There are a lot of interests lined up on the side of doing nothing.  But the number of people at this conference, and all the great work that you are doing to solve environmental problems, suggests to me that our side can be just as strong—and stronger.

Thank you very much.

10-50 Solution Workshop

Promoted in Energy Efficiency section: 
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The Pew Center on Global Climate Change and the National Commission on Energy Policy (NCEP) sponsored a workshop entitled “The 10-50 Solution: Technologies and Policies for a Low-Carbon Future.” The goal of this workshop was to articulate a long-term vision for a low-carbon economy within 50 years and to discuss the technologies, industrial processes and policies needed in the short and medium term to achieve it.

The 10-50 Solution: Technologies and Policies for a Low-Carbon Future

A workshop sponsored by the Pew Center on Global Climate Change and the National Commission on Energy Policy

March 25-26, 2004
The St. Regis Hotel, Washington, DC

On March 25-26th, the Pew Center on Global Climate Change and the National Commission on Energy Policy (NCEP) sponsored a workshop entitled “The 10-50 Solution: Technologies and Policies for a Low-Carbon Future.” The goal of this workshop was to articulate a long-term vision for a low-carbon economy within 50 years and to discuss the technologies, industrial processes and policies needed in the short and medium term to achieve it. Over 100 policy-makers, business leaders, NGO representatives, and leading experts participated in the event. 

In preparation for the workshop, the Pew Center and NCEP commissioned background papers on technological advances in five key areas (efficiency, hydrogen, carbon sequestration/coal gasification, advanced nuclear technologies, and renewables) and on policies designed to promote these and other low-carbon  technologies in the marketplace.  Workshop presentations and final proceedings, including a summary of common themes and policies identified during the workshop, and workshop background papers are now available. 

U.S. Technology and Innovation Policies

In Brief, Number 7
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Technological innovation on a global scale will be needed to mitigate global climate change. To significantly reduce emissions of carbon dioxide (CO2) and other greenhouse gases (GHGs), three types of technological innovations are needed: (1) more efficient technologies that use less energy to deliver valuable services such as electricity and transportation; (2) technologies to expand the use of alternate energy sources with lower or zero GHG emissions, such as renewable energy (e.g., wind and solar); and (3) technologies to capture and sequester the CO2 from fossil fuels before (or after) it enters the atmosphere, such as disposal in geologic formations. Technological change will be instrumental in reducing costs, widening applicability, and improving reliability in these three categories, and will be required to reduce emissions of the non-CO2 GHGs as well.

The most effective way to bring about these innovations is through a combination of technology policy incentives that encourage climate-friendly technologies, and environmental policies such as a cap-and-trade program that limits GHG emissions. Lessons learned from the United States’ rich experience with technology and innovation policies can be applied to GHG-reduction efforts, and include the following:

  • A balanced policy portfolio must support not only research and development (R&D), but also promote diffusion of knowledge and deployment of new technologies: R&D, by itself, is not enough.
  • Support for education and training should supplement research funding.
  • Policies that do not directly promote technological innovation (i.e., “non-technology policies”) still provide critical signposts for prospective innovators by indicating technological directions likely to be favored by future markets.
  • Policy-makers should channel funds for technology development and diffusion through multiple agencies and programs, because competition contributes to policy success.
  • Public-private partnerships can foster helpful, ongoing collaborations.
  • Effective programs require insulation from short-term political pressures.
  • Regulatory and marketplace certainty help create favorable conditions for firms to invest in new climate-friendly technologies.
  • Policy-makers must be prepared to tolerate some “failures” (i.e., investments that do not pay off), and learn from them as private sector entrepreneurs do.
  • In light of the inherent uncertainty in innovation, government policies should generally support a suite of options rather than a specific technology or design.

Introduction

Government policies will be critical to the development and adoption of a portfolio of new technologies needed to abate global climate change. Widespread adoption of these new technologies—for electric power generation, transportation, industry, and consumer products—is required in any major effort to reduce the greenhouse gas (GHG) emissions that contribute to climate change. However, technological change on an economy-wide scale cannot happen overnight. Well-crafted government policies in both the short and long term will be instrumental in encouraging more rapid development, deployment, and diffusion of climate change mitigation technologies,1 and will be essential complements to environmental policies that set limits on GHG emissions—such as a GHG cap-and-trade program. Implementing these policies in the near term is essential for creating an environment in which technological innovation can thrive and contribute to GHG reductions. The United States—a global leader in innovation—is well placed to lead such technological change and hence enjoy benefits in terms of global competitiveness in new energy and other GHG mitigation technologies.

Private firms tend to under-invest in technology development, making government policy for technological innovation necessary. This under-investment occurs because environmental externalities (such as climate change) are undervalued. In addition, firms that invest in technology innovation cannot retain all of the benefits of their expenditures because the knowledge that they gain “spills over” to competing firms. As a result, although most innovations come from private firms, government policies of many types influence the rate and direction of technological change.

Global research and development (R&D) funding trends indicate that both governments and private firms are under-investing in energy technology R&D. In the United States, federal government energy technology R&D budgets declined 74 percent between 1980 and 1996 (from $5 billion to $1.3 billion), and were accompanied by declines in private sector investments.2 Similar funding declines have occurred throughout the industrialized world.3  Because the United States is a global leader in R&D, the nation’s under-investment in energy technology R&D has particularly disturbing implications for global efforts to address climate change. The research, development, and diffusion of new technologies necessary to address climate change will require coordination between the public and private sectors, and across nations.

This brief summarizes the role of technological change in GHG mitigation strategies, provides a taxonomy of technology policies, and gleans lessons learned from U.S. technology and innovation policies. It concludes with policy insights for spurring technological innovation in the effort to address climate change.

The Role of Technological Change in GHG Control Strategies

Climate change is one of the most far-reaching and formidable environmental challenges facing the world. The earth is undoubtedly warming, largely as a result of GHG emissions from human activities including industrial processes, fossil fuel combustion, and changes in land use, such as deforestation. Continuation of historical emission trends will result in additional warming over the 21st century, with current projections of a global increase of 2.5°F (1.4°C) to 10.4°F (5.8°C) by 2100, and warming in the United States expected to be even higher. Potential consequences of this warming include sea-level rise and increases in the severity or frequency (or both) of extreme weather events, including heat waves, floods, and droughts. The risks of these and other consequences are sufficient to justify action to significantly reduce GHG emissions.

In the United States, energy consumption is the dominant source of GHG emissions. Carbon dioxide (CO2) accounts for approximately 84 percent of total GHG emissions. Although other GHGs4 have a more powerful effect on global warming per molecule, CO2 enters the atmosphere in far greater quantities because it is produced whenever fossil fuels are burned.5 To significantly reduce these emissions, three types of technological innovations are needed: (1) increased energy efficiency for technologies that deliver valuable services like electricity and transportation; (2) technologies to expand the use of alternate energy sources with lower or zero GHG emissions; and (3) technologies to capture and sequester CO2 from fossil fuel combustion before (or after) it enters the atmosphere. Technological change will be instrumental in reducing costs, widening applicability, and improving reliability in efforts to reduce emissions of CO2 and non-CO2 gases alike.

Stabilizing atmospheric concentrations of CO2 and other GHGs at a “safe” level, the international goal under the United Nations Framework Convention on Climate Change,6 would have profound implications for industrial and industrializing economies alike. Human activity now adds around 8 billion metric tons of GHGs to the earth’s atmosphere each year, a total that is growing approximately 4 percent annually.7 A widely discussed goal of stabilizing atmospheric CO2 at twice the pre-industrial level by 2100 (i.e., at 550 parts per million, 65 percent higher than today’s concentration) implies worldwide CO2 reductions on the order of 60 to 80 percent below projected “business as usual” levels for the remainder of the 21st century. Substantial reductions in U.S. CO2 emissions would require that the United States replace or retrofit hundreds of electric power plants and substantially improve the efficiency of tens of millions of vehicles. In addition, appliances, furnaces, building systems, and factory equipment numbering in the hundreds of millions might also need to be modified or replaced.

Technological change on this scale cannot happen immediately. Many of the technologies needed do not yet exist commercially or require further development to reduce costs or improve reliability. Technology policies, such as those outlined in the next section, can help spur technological change.

A Taxonomy of Technology Policies

Technological change is a complex process with multiple stages and feedbacks. These stages include “invention” and “innovation,” which are distinct activities. Invention refers to the process of discovery that leads to scientific or technological advance, perhaps in the form of a demonstration or prototype. Innovation refers to the translation of the invention into a commercial product or process. “Adoption,” or “diffusion,” occurs when these products and processes are actually used.

Although many types of policies affect invention and innovation, no universally accepted nomenclature or taxonomy summarizes or describes them. Economists often use the term “technology policy” to describe the diverse collection of measures that somehow affect technological development, and these are the focus of this brief. Taxonomies of technology policies seldom include regulatory policies, such as environmental regulations and antitrust enforcement, which have in the past catalyzed innovation and adoption and are discussed in a subsequent section of this brief.

Different policies influence outcomes at different stages of technology development. Table 1 on pages 4–5 lists fifteen common technology policy tools grouped into three broad categories, with comments on the strengths and weaknesses of each. The first category is direct government funding for R&D. The second category is a collection of policies that directly or indirectly support commercialization and adoption, or indirectly support development. The final group includes policies that foster technology diffusion through information and learning.

Lessons Learned from U.S. Technology and Innovation Policies

Although the United States has never had a coherent set of technology policies, government actions have profoundly influenced the rate and direction of technological change. Federal policies affecting technological change began with the codification of the patent system in the U.S. Constitution. Federal land grants supported the U.S. system of publicly financed colleges and universities, which became major players in R&D and innovation. In addition, government procurement during World War I transformed an infant aircraft industry that had produced only a few hundred planes; by the war’s end, U.S. firms had manufactured some 14,000 planes, learning a great deal in the process. Government-spurred innovation accelerated in the post-World War II period. Despite the heterogeneity in federal policies—or perhaps because of it, given the high levels of uncertainty that characterize innovation—government actions have been remarkably effective. Lessons learned from this rich experience are supported by a large body of literature in economics and other fields concerning innovation, and include the following:

  • Technological change is a complex process involving invention, innovation, adoption, learning, and diffusion of technology into the marketplace. The process is highly iterative, and different policies influence outcomes at different stages. For example, the U.S. government spurred diffusion of know-how in microelectronics through policies including antitrust and defense procurement. In response to a federal government antitrust suit, AT&T released technical information about the transistor (which it invented), licensed the relevant patents at nominal rates to all comers, and refrained from producing transistors for outside sale. Texas Instruments then introduced the first commercially successful transistor, and the Department of Defense (DoD) and its contractors began to design the new devices into radar, sonar, missile guidance, and communications systems, stimulating further learning and cost reductions. In addition, DoD procurement contracts stipulating that the chips be available from at least two suppliers led to the sharing of design and process know-how, which encouraged new market entrants and accelerated inter-firm technology flows.
  • Gains from new technologies are realized only with widespread adoption, a process that takes considerable time and resources and typically depends on a lengthy sequence of incremental improvements that enhance performance and reduce costs. For example, several decades of significant government and private sector R&D investments occurred before gas turbines derived from military jet engines improved in efficiency and reliability to the point that they were cost-effective for electric power generation. Today, gas turbines are the leading technology for new, high-efficiency power plants with low GHG emissions.
  • Technological learning is the essential step that paces adoption and diffusion. “Learning-by-doing” contributes to reductions in production costs, and adopters of new technology contribute to ongoing innovation through “learning-by-using.” Widespread adoption, in turn, accelerates the incremental improvements from learning by users and producers, further fueling adoption and diffusion. For example, an entirely new class of products emerged as Intel (and soon, other firms) designed successive families of microprocessors, based in large part on feedback from users. When Intel began work on its 386 processor family, the lead technical and marketing specialist spent six months simply visiting customers to understand the features they valued most highly.
  • Technological innovation is a highly uncertain process. Because pathways of development cannot be predicted, government policies should support a portfolio of options, rather than a particular technology or design. The unforeseen explosive diffusion of the Internet during the 1990s is illustrative. Both the Internet’s technologies and many of the formal and informal governance mechanisms that evolved to coordinate its standards and infrastructure sprang from DoD-sponsored networking research and trials.

In addition to these insights gained regarding the innovation process, lessons learned from U.S. experience with technology policies over the past several decades include the following:

  • Federal investments contribute to innovation not only through R&D but also through “downstream” adoption and learning. For example, in the early years of computing, defense agencies made indispensable contributions to a technological infrastructure that propelled the industry’s rise to global dominance.
  • Public-private R&D partnerships have become politically popular because they leverage government funds and promote inter-firm collaboration. Partnerships may have particular advantages in fostering vertical collaborations, such as those between suppliers and consumers of energy.
  • Adoption of innovations that originate outside a firm or industry often requires substantial internal investments in R&D and human resources. Smaller firms may be less able to absorb innovations without government assistance.
  • Just as competition in markets helps resolve uncertainties and improves economic performance, competition within government can improve performance in fostering innovation. The messy and often duplicative structure of U.S. R&D support and related policies creates diversity and pluralism, fostering innovation by encouraging the exploration of many technological alternatives.
  • Because processes of innovation and adoption are lengthy and convoluted, effective policies and programs require sustained political support. Reliable political constituencies have been essential for the development of new technologies in defense and for research in the biomedical sciences. By contrast, technology policies for addressing climate change face a discordant political environment.

Regulatory Policies and Technological Innovation

In addition to the technology policies discussed above, environmental and other regulatory policies can strongly influence the process of technological change. Regulatory policies create an overall incentive and framework for innovation by mandating pollution reductions. Such policies have influenced the development and deployment of many technologies over the past 30-plus years. For example, environmental regulations drove innovations in automobile engines and electric power plants that have contributed to widespread improvements in air quality. Regulatory policies will likewise be required to stabilize atmospheric GHG concentrations because technology policies, while important, cannot by themselves achieve the GHG reductions necessary to mitigate climate change. Rather, technology policies should be part of a comprehensive approach that includes “non-technology policies,” such as a GHG emissions cap-and-trade program.

Environmental policies respond to market failures that leave economic actors with little incentive to reduce activities that have adverse effects on society as a whole, such as releasing harmful substances into the atmosphere or water. The design of these regulations plays an important role in the extent and quality of innovation. Poorly designed environmental regulations can significantly inhibit innovation, and the overall timing and stringency of regulations can determine the extent to which innovation occurs or is used. Moreover, environmental policies must provide regulatory certainty—that is, they must reassure investors that additional future regulations will not impair the value of near-term investments made to comply with the original environmental policy. To foster the greatest innovation, environmental regulations should be designed to provide incentives to firms to both prevent and reduce pollution, such as by:

  • Reducing use of polluting technologies;
  • Selecting cleaner processes when installing new technologies or capital equipment;
  • Continually striving to improve the environmental performance of existing processes or technologies; and
  • Placing control technologies on existing plants to reduce emissions.

Regulations can be designed to assist innovation by promoting the greatest breadth of pollution reduction alternatives at the lowest possible cost. Many past environmental policies have relied heavily on “command-and-control” regulations that compel polluters to reduce their emissions to specified levels. Greenhouse gas emissions, however, are more suitably controlled through market-based approaches—such as emissions fees, pollution charges, or emissions cap-and-trade programs—because GHGs are emitted across all economic sectors around the world, and mix uniformly in the atmosphere. Thus it matters little precisely where the emission reductions take place, so long as they are real and verifiable. Traditional rate-based or technology-based standards, for example, would create little incentive for ongoing improvements in operational techniques to address climate change. The more recent turn toward “market-based” approaches for addressing climate change has created better incentives for continuous pollution reduction and technological innovation by giving firms greater flexibility and permitting compliance with regulations at lower cost.

Patterns of capital investment by businesses also can have a major impact on the success and cost-effectiveness of climate change policies.8 Capital stock, such as electricity generation plants, factories, and transportation infrastructure, is expensive and firms are often reluctant to retire old facilities and equipment. Certain policies can stimulate more rapid turnover of existing capital stock. These include putting in place early and consistent incentives that would assist in the retirement of old, inefficient capital stock; making certain that policies do not discourage capital retirement; and pursuing policies that shape long-term patterns of capital investment. In addition, even a modest carbon price could stimulate investment in new capital equipment. Likewise, uncertainty is likely to impede investment in new capital stock until the rules with respect to climate policy and other future environmental regulations are clarified.

U.S. energy and transportation policies also have influenced technology innovation and adoption. U.S. energy policy has often incorporated familiar tools of technology policy, such as tax credits for adoption of renewable energy technologies. Although the United States has long avoided energy pricing policies and fuel taxes to encourage energy efficiency, a substantial boost in gasoline taxes would likely be a powerful stimulus for innovation in automotive technologies.9 Fuel economy for cars and trucks could be increased by 25 to 33 percent over the next 10 to 15 years using market-ready technology at a net savings, if fuel savings are taken into account. However, since fuel economy is undervalued in the marketplace, policies such as mandatory GHG standards and public information are needed to pull technological improvements into the market.10 Because the goals of U.S. energy policy and the most effective methods to achieve them remain politically controversial, future choices—e.g., to encourage conservation or encourage fossil fuel production—could either support or undermine the goal of achieving GHG reductions.11

Policy Guidance for Climate-Related Technology and Innovation Policies

Greenhouse gas emission reductions will require a broad portfolio of policies to foster technology innovation and adoption by stakeholders ranging from multinational corporations to households. The policy portfolio should combine technology policies as discussed in this brief with other policies to induce innovation and deployment.12

A climate change policy response must account for uncertainties in the pace and cost of innovation. Technological evolution is always accompanied by unknowns concerning the levels of performance that can ultimately be achieved, the technological attributes that will prove most attractive to adopters, and the costs of these technologies. Technical design and development are fluid, open-ended activities with multiple choices and tradeoffs and often-ambiguous selection criteria. Uncertainties can be resolved only through learning processes. These processes are often slow and piecemeal, studded with lessons from both successes and failures. Technology-oriented policies and non-technology policies alike must function in such settings. Additional lessons for climate change policy include the following:

  • Because the benefits of technological innovation come only with widespread adoption, and because adoption and learning are mutually reinforcing processes, the policy portfolio should support diffusion of knowledge and deployment of new technologies as well as research and discovery. In short, R&D alone is not enough.
  • Because private investments respond primarily to near-term market incentives, public investments are necessary to build a technological infrastructure able to support innovation over the long term. A key ingredient of such infrastructure is a vibrant community of technologists and entrepreneurs working in settings in which knowledge and information flow freely. Government financial support for education and training, as well as for research, enhances such infrastructure. Intellectual property rights are important, but excessively strong intellectual property regulations may weaken such infrastructure.
  • Competition among firms contributes to effective selection of innovations, and competition among academic research groups contributes to discovery. Similarly, competition among government agencies and government laboratories contributes to policy success. Competition exposes ineffectual bureaucracies, out-of-touch government laboratories, poor policy choices, and project-level mistakes. It encourages diversity by opening alternatives for exploration by technology creators and technology users alike. For these reasons, policy-makers should channel new funds for R&D through multiple agencies and allocate funds to industry and other researchers on a competitive basis.
  • Because there can be no learning without some failures, policy-makers cannot expect every government investment to pay off. They must be prepared to tolerate mistakes, and to learn from them, just as entrepreneurs in the private sector do. In addition, policy-makers must be willing to accept a balanced portfolio that provides sufficient and sustained funding for both short- and long-term R&D. This means avoiding the temptation to pick “winners and losers” too early in the development phase of new technologies. Nonetheless, tolerance for error is no excuse for sloppy management or ill-conceived policies and programs.

Conclusions

Much technological innovation will be needed to mitigate global climate change. The most effective way to bring about these innovations is through a combination of technology policy incentives that accelerate the deployment of climate-friendly technologies and help create new markets for these products and processes, and environmental policies such as a GHG cap-and-trade program that sets limits on GHG emissions. Implementing these policies in the near term is imperative. A well-balanced portfolio of government policies that stimulates innovation, incentivizes adoption, and avoids picking winners is the best path forward to meet the challenges of global climate change.

 


1 Alic, John A., David C. Mowery, and Edward S. Rubin. U.S. Technology and Innovation Policies: Lessons for Climate Change. Pew Center on Global Climate Change. Arlington, VA. November 2003. This brief draws heavily from this report.

2 As calculated using constant U.S. 1996 dollars in Margolis, Robert M. and Daniel M. Kammen. “Evidence of under-investment in energy R&D in the United States and the impact of federal policy.” Energy Policy 27: 575-584. 1999.

3 Ibid.

4 The principal GHGs are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and a range of industrial gases including hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

5 From an environmental and economic standpoint, effective climate strategies should address CO2 as well as non-CO2 GHGs, and control of non-CO2 gases could be especially important and cost-effective in the near term. See Reilly, John M., Henry D. Jacoby, and Ronald G. Prinn. Multi-gas Contributors to Global Climate Change: Climate Impacts and Mitigation Costs of Non-CO2 Gases. Pew Center on Global Climate Change. Arlington, VA. February 2003.

6 United Nations Framework Convention on Climate Change (1992), to which the United States is a signatory.

7 Intergovernmental Panel on Climate Change. Climate Change 2001: Synthesis Report. Cambridge, UK: Cambridge University Press. 2001. This report includes a range of energy and emissions scenarios for the next century.

8 For a more complete discussion of capital cycles and their implications for climate change policy, see Lempert, Robert J., Steven W. Popper, and Susan A. Resetar. Capital Cycles and the Timing of Climate Change Policy. Pew Center on Global Climate Change. Arlington, VA. October 2002.

9 For more information, see Greene, David L. and Andreas Shafer. Reducing Greenhouse Gas Emissions from U.S. Transportation. Pew Center on Global Climate Change. Arlington, VA. May 2003.

10 Ibid.

11 For a more complete discussion of the role of energy policy in addressing climate change, see Smith, Douglas W., Robert R. Nordhaus, and Thomas C. Roberts, et al. Designing a Climate-friendly Energy Policy: Options for the Near Term. Pew Center on Global Climate Change. Arlington, VA. July 2002.

12 See The U.S. Domestic Response to Climate Change: Key Elements of a Prospective Program. In Brief, Number 1. Pew Center on Global Climate Change. Arlington, VA.

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A Climate Policy Framework: Balancing Policy and Politics

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"A Climate Policy Framework: Balancing Policy and Politics"
Proceedings from the joint Aspen Institute/Pew Center Conference,
March 2004

A diverse group of business, government, and environmental leaders, brought together by the Aspen Institute and the Pew Center, recommends a framework for a mandatory greenhouse gas reduction program for the United States. The group started with the premise that, if mandatory action is taken, climate policies should be environmentally effective, economical and fair. After a three-day dialogue, the participants reached consensus on a policy framework that is both effective and politically feasible.

 

Press Release

Dowload the report (PDF format)

Attendee List (PDF format)

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U.S. Technology and Innovation Policies: Lessons for Climate Change

US Technology  Innovation Policies

U.S. Technology and Innovation Policies: Lessons for Climate Change

Prepared for the Pew Center on Global Climate Change
November 2003

By:
John A. Alic, Consultant
David C. Mowery, University of California, Berkeley
Edward S. Rubin, Carnegie Mellon University

Press Release

Download Entire Report (pdf)

Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

New technologies for electric power generation, transportation, industry, and consumer products are expected to play a major role in efforts to reduce the greenhouse gas (GHG) emissions that contribute to global climate change.   Yet technological change on this scale cannot happen overnight.  Government policies will be instrumental in encouraging more rapid development and adoption of technology.  In the United States—long a leader in innovation—well-crafted policies that encourage the development, deployment, and diffusion of new technologies will be essential complements to other GHG-reduction policies.                     

The Pew Center commissioned this report to examine U.S. experience with technology and innovation policies—both successes and failures—and to draw lessons for future applications, including efforts to address climate change.   The authors found that because innovation is a complex, iterative process, different policy tools can be employed as catalysts at various phases (e.g., invention, adoption, diffusion). They also discuss the roles that intellectual property protection and regulatory policies play in driving innovation, and examine programs such as the Defense Advanced Research Project Agency (an innovative force in information technology), as well as public-private collaborations such as the Partnership for a New Generation of Vehicles, to glean lessons for climate change policy.  The insights revealed are clear: 

  • A balanced policy portfolio must support not only R&D, but also promote diffusion of knowledge and deployment of new technologies: R&D, by itself, is not enough.
     
  • Support for education and training should supplement research funding.
     
  • “Non-technology policies” provide critical signposts for prospective innovators by indicating technological directions likely to be favored by future markets.
     
  • Policy-makers should channel funds for technology development and diffusion through multiple agencies and programs, because competition contributes to policy success.
     
  • Public-private partnerships can foster helpful, ongoing collaborations.
     
  • Effective programs require insulation from short-term political pressures.
     
  • Policy-makers must be prepared to tolerate some “failures” (i.e., investments that do not pay off), and learn from them as private sector entrepreneurs do.
     
  • In light of the inherent uncertainty in innovation processes, government policies should generally support a suite of options rather than a specific technology or design.

Technology policies, while important, cannot by themselves achieve the GHG reductions necessary to mitigate climate change.  Rather, they should be part of a comprehensive approach that includes “non-technology policies,” such as a GHG cap and-trade program.  The authors and the Pew Center thank Bob Friedman, Ken Flamm, David Hart, and Ev Ehrlich for commenting on previous report drafts.

Executive Summary

Large-scale reductions in the greenhouse gases (GHGs) that contribute to global climate change can only be achieved through widespread development and adoption of new technologies. In the United States, energy consumption is the dominant source of GHG emissions. Most of these emissions consist of carbon dioxide (CO2), which accounts for approximately 84 percent of total GHG emissions. Although other GHGs, such as methane (CH4), have a more powerful effect on global warming per unit of release, CO2 enters the atmosphere in far greater quantities because it is produced whenever fossil fuels are burned. Thus the technological innovations needed to reduce GHG emissions and eventually stabilize GHG concentrations in the atmosphere are those that can, at reasonable cost: (1) improve the efficiency of energy conversion and utilization so as to reduce the demand for energy; (2) replace high-carbon fossil fuels such as coal and petroleum with lower-carbon or zero-carbon alternatives, such as natural gas, nuclear, and renewable energy (e.g., wind and solar); (3) capture and sequester the CO2 from fossil fuels before (or after) it enters the atmosphere; and (4) reduce emissions of GHGs other than CO2 that have significant impacts on global warming.
 

Although innovation cannot be planned or programmed, and most innovations come from private firms, government policies of many types influence the rate and direction of technological change. This report identifies technology policy tools that have fostered innovation in the past (see summary table below) and draws lessons for GHG abatement. It also briefly discusses other measures such as environmental regulations that would serve to induce innovation.

A Summary of Technology Policy Tools

 

Direct Government Funding of Research and Development (R&D)

  • R&D contracts with private firms (fully-funded or cost-shared).
  • R&D contracts and grants with universities.
  • Intramural R&D conducted in government laboratories.
  • R&D contracts with industry-led consortia or collaborations among two or more of the actors above.

Direct or Indirect Support for Commercialization and Production; Indirect Support for Development

  • Patent protection.
  • R&D tax credits.
  • Tax credits or production subsidies for firms bringing new technologies to market.
  • Tax credits or rebates for purchasers of new technologies.
  • Government procurement.
  • Demonstration projects.

Support for Learning and Diffusion of Knowledge and Technology

  • Education and training (technicians, engineers, and scientists; business decision-makers; consumers).
  • Codification and diffusion of technical knowledge (screening, interpretation, and validation of R&D results; support for databases).
  • Technical standard-setting.*
  • Technology and/or industrial extension services.
  • Publicity, persuasion, and consumer information (including awards, media campaigns, etc.). 

* Refers only to standards intended to ensure commonality (e.g., driving cycles for comparing automobile fuel economy), or compatibility (e.g., connectors for charging electric vehicle batteries), not to regulatory standards.


The key lessons of this analysis are supported by a large body of literature in economics and other fields concerning the innovation process, and include the following:

  • Technological innovation is a complex process involving invention, development, adoption, learning, and diffusion of technology into the marketplace. The process is highly iterative, and different policies influence outcomes at different stages.
     
  • Gains from new technologies are realized only with widespread adoption, a process that takes considerable time and typically depends on a lengthy sequence of incremental improvements that enhance performance and reduce costs. For example, several decades passed before gas turbines derived from military jet engines improved in efficiency and reliability to the point that they were cost-effective for electric power generation. Today, gas turbines are the leading technology for new, high-efficiency power plants with low GHG emissions.
     
  • Technological learning is the essential step that paces adoption and diffusion. “Learning-by-doing” contributes to reductions in production costs. Adopters of new technology contribute to ongoing innovation through “learning-by-using.” Widespread adoption accelerates the incremental improvements from learning by both users and producers, further speeding adoption and diffusion.
     
  • Technological innovation is a highly uncertain process. Because pathways of development cannot be predicted, government policies should support a portfolio of options, rather than a particular technology or design.

Government policies influence technological change at all stages in the innovation process. Lessons learned from U.S. experience with technology policies over the past several decades include the following:

  • Federal investments contribute to innovation not only through R&D but also through “downstream” adoption and learning. Government procurement of jet engines, for example, accelerated the development of gas turbines by providing a (military) market that allowed users and producers to gain experience and learn by using. Likewise, in the early years of computing, defense agencies made indispensable contributions to a technological infrastructure that propelled the industry’s rise to global dominance.
     
  • Public-private R&D partnerships have become politically popular because they leverage government funds and promote inter-firm collaboration. Partnerships may have particular advantages in fostering vertical collaborations, such as those between suppliers and consumers of energy.
     
  • Adoption of innovations that originate outside a firm or industry often requires substantial internal investments in R&D and human resources. Smaller firms may be less able to absorb innovations without government assistance.
     
  • Just as competition in markets helps resolve uncertainties and improves economic performance, competition within government can improve performance in fostering innovation. The messy and often duplicative structure of U.S. R&D support and related policies creates diversity and pluralism, fostering innovation by encouraging the exploration of many technological alternatives.
     
  • Because processes of innovation and adoption are lengthy and convoluted, effective policies and programs require insulation from short-term political pressures.Reliable political constituencies have been essential for the development of new technologies in defense, for research in the biomedical sciences, and for agricultural and manufacturing extension. By contrast, technology policies for addressing climate change face a discordant political environment.

Technology policies alone cannot adequately respond to global climate change. They must be complemented by regulatory and/or energy pricing policies that create incentives for innovation and adoption of improved or alternative technologies. Such “non-technology policies” induce technological change, with powerful and pervasive effects. Environmental regulations and energy efficiency standards have fostered innovations that altered the design of many U.S. power plants and all passenger cars over the past several decades. The technological response to climate change will depend critically on environmental and energy policies as well as technology policies. Because climate change is an issue with time horizons of decades to centuries, learning-by-doing and learning-by-using have special salience. Both technology policies and regulatory policies should leave “space” for continuing technological improvements based on future learning. Climate change policy must accommodate uncertainties, not only regarding the course and impacts of climate change itself, but also in the outcomes of innovation.

Conclusions

Greenhouse gas emission reductions will require a broad portfolio of policies to foster technology development and adoption by actors ranging from households to multinational corporations. The policy portfolio should combine technology policies as discussed in this report with other policies to induce innovation and deployment.

A climate change policy package must account for uncertainties in the pace and cost of innovation. Technological evolution is always accompanied by unknowns concerning the levels of performance that can ultimately be achieved, the technological attributes that will prove most attractive to adopters, and the costs of these technologies. Technical design and development are fluid, open-ended activities with multiple choices and tradeoffs and often-ambiguous selection or evaluative criteria. Uncertainties, part and parcel of innovation, can be resolved only through learning processes. These processes are often slow and piecemeal, studded with lessons from both successes and failures. Technology-oriented policies and non-technology policies alike must function in such settings.

Further lessons for climate change policy include the following:

  • Because the benefits of technological innovation come only with widespread adoption, and because adoption and learning are mutually reinforcing processes, the policy portfolio should support diffusion of knowledge and deployment of new technologies as well as research and discovery. In short, R&D alone is not enough.
     
  • Because private investments respond primarily to near-term market incentives, public investments are necessary to build a technological infrastructure able to support innovation over the long term. A key ingredient of such infrastructures is a vibrant community of technologists and entrepreneurs working in settings in which knowledge and information flow freely. Government financial support for education and training, as well as for research, enhances such infrastructures. Excessively strong intellectual property rights may weaken such infrastructures.
     
  • Competition among firms contributes to effective selection of innovations, and competition among academic research groups contributes to discovery. Similarly, competition among government agencies and government laboratories contributes to policy success. Competition exposes ineffectual bureaucracies, out-of-touch government laboratories, poor policy choices, and project-level mistakes. It encourages diversity by opening alternatives for exploration by technology creators and technology users alike. For these reasons, policy-makers should channel new funds for R&D through multiple agencies and allocate funds to industry and other researchers on a competitive basis.
     
  • Because there can be no learning without some failures, policy-makers cannot expect every government investment to pay off. They must be prepared to tolerate mistakes, and to learn from them, just as entrepreneurs in the private sector do. Needless to say, tolerance for error is no excuse for sloppy management or ill-conceived policies and programs.

To encourage innovation in response to climate change, the federal government should support the development of an environment that nourishes creativity and learning in science, technology, and commercial applications. Well-designed technology policies support the free flow of information, which promotes the evaluation of new ideas and the acceptance and diffusion of the best new technologies. Much innovation will be needed if GHG emissions are to be reduced to the levels needed to stabilize atmospheric concentrations of heat-trapping gases. Government policies will set the underlying conditions for (and constraints on) innovation. The effectiveness of climate change policies will be judged by the innovation that follows. Well-crafted policies can help nourish an energy technology revolution over the next half century as astonishing as the information technology revolution of the last half century.

About the Authors

JOHN A. ALICConsultant

John Alic writes and consults on policy issues related to technology, science, and the economy. As a staff member at the congressional Office of Technology Assessment from 1979 to 1995, he directed projects that include U.S. Industrial Competitiveness: A Comparison of Steel, Electronics, and Automobiles (1981) and Commercializing High-Temperature Superconductivity (1988). His consulting has included work for government agencies, the National Academy of Engineering, and the H. John Heinz III Center for Science, Economics, and the Environment project on “Technology Policies for Reducing Greenhouse Gas Emissions.” Alic is co-author of Beyond Spinoff: Military and Commercial Technologies in a Changing World (1992) and New Rules for a New Economy: Employment and Opportunity in Postindustrial America, a Century Foundation book published in 1998. A graduate of Cornell, Stanford, and the University of Maryland, he has taught at several universities and is currently completing a book manuscript with the working title, Trillions for Technology: Innovation and the U.S. Military.


DAVID C. MOWERY, University of California, Berkeley

David Mowery is Milton W. Terrill Professor of Business at the Walter A. Haas School of Business at the University of California, Berkeley, a Research Associate of the National Bureau of Economic Research, and during the 2003-04 academic year, the Bower Fellow at the Harvard Business School.  He received his undergraduate and Ph.D. degrees in economics from Stanford University and was a postdoctoral fellow at the Harvard Business School.  Dr. Mowery taught at Carnegie Mellon University, served as the Study Director for the Panel on Technology and Employment of the National Academy of Sciences, and served in the Office of the United States Trade Representative as a Council on Foreign Relations International Affairs Fellow.  He has been a member of a number of National Research Council panels, including those on the Competitive Status of the U.S. Civil Aviation Industry, on the Causes and Consequences of the Internationalization of U.S. Manufacturing, on the Federal Role in Civilian Technology Development, on U.S. Strategies for the Children's Vaccine Initiative, on Applications of Biotechnology to Contraceptive Research and Development, on New Approaches to Breast Cancer Detection and Diagnosis.  His research deals with the economics of technological innovation and with the effects of public policies on innovation; he has testified before Congressional committees and served as an adviser for the Organization for Economic Cooperation and Development, various federal agencies and industrial firms.  Dr. Mowery has published numerous academic papers and has written or edited a number of books, including ‘Ivory Tower’ and Industrial Innovation:  University-Industry Technology Transfer Before and After the Bayh-Dole ActPaths of Innovation:  Technological Change in 20th-Century America; The International Computer Software Industry:  A Comparative Study of Industry Evolution and Structure; U.S. Industry in 2000; The Sources of Industrial Leadership; Science and Technology Policy in Interdependent Economies;  Technology and the Pursuit of Economic Growth; Technology and Employment:  Innovation and Growth in the U.S. EconomyThe Impact of Technological Change on Employment and Economic Growth;Technology and the Wealth of Nations; and International Collaborative Ventures in U.S. Manufacturing.  His academic awards include the Raymond Vernon Prize from the Association for Public Policy Analysis and Management, the Economic History Association's Fritz Redlich Prize, the Business History Review's Newcomen Prize, and the Cheit Outstanding Teaching Award.


EDWARD S. RUBIN, Carnegie Mellon University

Dr. Rubin is the Alumni Professor of Environmental Engineering and Science at Carnegie Mellon University.  He holds joint appointments in the departments of Engineering and Public Policy and Mechanical Engineering, and is also Director of CMU's Center for Energy and Environmental Studies.  He obtained his Bachelor's degree in mechanical engineering at the City College of New York, and his Masters and Ph.D. at Stanford University. Over the past 32 years, he has directed research on a wide range of technology-policy issues related to energy and the environment, especially focused on coal-based systems.  He has served on various technical and advisory boards to the U.S. Department of Energy, the U.S. Environmental Protection Agency, and the National Academies, and is currently a member of the National Research Council's Board on Energy and Environmental Systems (BEES), and its committee assessing DOE's Vision 21 program.  He is the author of over 200 technical papers and reports dealing with advanced energy technologies, environmental control systems and environmental policy, as well as a recent textbook on Engineering and the Environment. In addition, he has served as a consultant to a variety of public and private organizations in the U.S. and abroad concerned with energy use and environmental protection.

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U.S. Energy Scenarios for the 21st Century

Energy Scenarios Report Cover

U.S. Energy Scenarios for the 21st Century

Prepared for the Pew Center on Global Climate Change
July 2003

By:
Irving Mintzer, Global Business Network
J. Amber Leonard, Global Business Network
Peter Schwartz, Global Business Network

Press Release

Download Entire Report (pdf)

Download Appendices
Appendix B: Technology Assessments (pdf)
Appendix C: Detailed Model Output (pdf)
Appendix D: AMIGA Model Abstract and Documentation (pdf)

Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

The question of how U.S. energy supply and use—which account for over 80 percent of U.S. greenhouse gas emissions—will evolve over the next several decades is critical to developing sound U.S. climate policy. To answer this question, the Pew Center convened two workshops, including members of its Business Environmental Leadership Council and independent experts, to envision and analyze future energy scenarios for the United States, and to assess the implications of these scenarios for U.S. carbon emissions. The scenarios are:

  • Awash in Oil and Gas, in which oil and gas are cheap, abundant, and reliably available;
     
  • Technology Triumphs, in which the commercialization of climate-friendly energy technologies is accelerated through a combination of state policy, technological breakthroughs, public and private investment, and consumer interest; and
     
  • Turbulent World, in which supply disruptions and energy security concerns lead to aggressive federal energy policy promoting domestic, low-risk resources. 

Climate policy was deliberately excluded from these "base case" scenarios. 

Carbon emissions increase under all these scenarios. This points to the need for a mandatory carbon policy under a broad range of energy futures. Carbon emissions increased much more under Awash in Oil and Gas than in the other two scenarios. This draws attention to the importance of climate-friendly energy technologies and climate-friendly energy policies in moving us toward a low-carbon future. 

When a hypothetical mandatory climate policy was imposed on all three scenarios, it was most difficult to achieve under Awash in Oil and Gas, of medium difficulty in Turbulent World, and easiest in Technology Triumphs. This range of difficulty is due to fundamental differences in the base case scenarios. But the unmistakable conclusion is that under all scenarios, a mandatory carbon policy is necessary. 

In the course of the analysis, the Pew Center and the Global Business Network also developed technology assessments revealing that a number of emerging technologies—such as carbon capture and geological sequestration, distributed generation, hybrid-electric vehicles, and hydrogen fuel cells—have the potential to yield multiple economic, environmental, and energy security benefits.

This report explores what might happen to U.S. energy supply and use in the future; the Pew Center plans to turn next to an exploration of what ought to happen. We will use these scenarios to test policy and technology options and identify those that are robust across a broad range of plausible futures. We hope that readers will join us in developing a shared national vision of policies, strategies, and investments that will reduce U.S. greenhouse gas emissions and promote U.S. energy security while maintaining economic growth. 

The Pew Center would like to thank Amory Lovins of the Rocky Mountain Institute and William Chandler of Batelle Memorial Institute for their helpful comments on a previous draft of this report, Skip Laitner for his advice on and review of the modeling analysis, and the Energy Foundation for its generous support of this project.

Executive Summary

This study presents a set of scenarios describing three divergent paths for U.S. energy supply and use from 2000 through 2035. The scenarios presented here are not predictions; taken together however, these potential futures can be used to help identify key technologies, important energy policy decisions, and strategic investment choices that can enhance energy security, environmental protection, and economic development over a range of possible futures. To envision these scenarios and to draw policy-relevant conclusions from them, the Pew Center on Global Climate Change, working with the Global Business Network, convened two workshops with experts from the corporate, academic, and NGO sectors. The Pew Center also commissioned a set of technology assessments and joined with the Global Business Network to analyze the scenarios. 

The trajectory of future U.S. economic growth, energy use, and carbon emissions will be a product of dynamic interactions among a complex set of driving forces, including technological advances, international events, energy and environmental policy, private investment, and consumer behavior. The interactions among these forces and their interplay with other social, economic, environmental, and cultural forces that stimulate change are not completely understood today. However, if the past thirty years are useful as a guide, it is likely that major surprises will occur between now and 2035.

The scenarios developed in this study reflect divergent trends in all of these driving forces. In brief, the three base case scenarios are:

  • Awash in Oil and Gas, a scenario in which abundant supplies of oil and natural gas remain available to U.S. consumers at low prices. Energy consumption rises considerably, and conventional technologies dominate the energy sector. In this low energy price scenario, there are few incentives to improve energy efficiency and little concern for energy issues. Carbon emissions rise 50 percent above the year 2000 level by 2035; 
     
  • Technology Triumphs, a scenario in which an array of driving forces converge to accelerate the successful commercialization in the U.S. market of many technologies that improve energy efficiency and produce lower carbon emissions, and in which U.S. companies play a key role in the subsequent development of an international market for these technologies. Despite sustained economic growth and an increase in energy consumption, carbon emissions rise 15 percent above the year 2000 level by 2035; and
     
  • Turbulent World, a scenario in which U.S. energy markets are repeatedly buffeted by developments both at home and abroad, with unsettling effects on energy prices and mounting threats to U.S. energy security. High energy prices and uncertainty about energy supplies slow economic growth, and the country moves from one technological “solution” to another, finding serious flaws with each, until finally settling on a program to accelerate the commercialization of hydrogen and fuel cells. Despite slower economic growth in Turbulent World, carbon emissions rise 20 percent above the year 2000 level by 2035.

Climate change policy was deliberately excluded from these three base case scenarios; rather, the participants in the scenario development process formulated a hypothetical climate policy overlay. The policy overlay postulated a freeze of U.S. carbon dioxide (CO2) emissions in 2010 and subsequent 2 percent per year decreases from 2010 to 2025, followed by 3 percent per year decreases to 2035. Like the base case scenarios, the policy overlay is neither a prediction nor a recommendation. To achieve the targeted emissions reductions trajectory and create the policy overlay cases, the same portfolio of primarily market-oriented policies and programs was imposed on each base case scenario. 

Carbon dioxide emissions reductions achieved in other countries, carbon sequestration in plants and soils, and reductions in emissions of other greenhouse gases were beyond the scope of this analysis. Other analyses indicate that to minimize the cost of emissions reductions for the energy and energy-intensive industries, it is important to have flexibility in offsetting energy-related CO2 emissions through international emissions trading, non-CO2 greenhouse gas reductions, and carbon sequestration. 

When the postulated policy overlay is applied to each of the base case scenarios, it modifies the pattern of energy technology development. For example, in the base case of theTurbulent World scenario, concerns about energy security stimulate a major national commitment to expanding production of hydrogen from coal and to accelerating the development of hydrogen fuel cells, both for transportation and in stationary power applications. In the policy overlay case for the Turbulent World scenario, the carbon constraint combines with growing public and private concerns about the security of energy facilities to stimulate demand for distributed generation (DG) and for combined heat and power (CHP) systems.

In the Technology Triumphs base case, new technologies already contribute to a slowing in the growth of carbon emissions. In the policy overlay case for Technology Triumphs,the carbon emissions limit forces faster reductions in oil demand, especially in the transportation sector, compared to the Technology Triumphs base case, resulting in accelerated market penetration by hybrid gasoline-electric and diesel-electric vehicles. Imposition of the carbon constraint in the policy overlay case expedites efforts to lower the barriers that typically hold back distributed generation, end-use efficiency improvements, and renewable energy technologies from large-scale commercialization in the United States.

In Awash in Oil and Gas, imposing carbon policies is more complex and more challenging. The base case scenario, built around cheap and abundant resources of oil and gas, includes little private investment in the technologies that improve end-use efficiency or reduce carbon emissions. Thus, meeting the carbon emissions target of the policy overlay introduces tremendous tension into this scenario. Major federal programs are needed to mandate carbon reductions and educate individual and industrial consumers about the climate consequences of their energy use. Yet cheap fuel encourages consumers to drive inefficient vehicles and stimulates air travel. Facing an exceedingly tight constraint on emissions and with little time to upgrade capital stock, public and private decision-makers move aggressively (but late in the scenario period) to develop carbon capture and geological sequestration technology so as to keep combustion-derived carbon dioxide out of the atmosphere.

Taken together, this scenario analysis revealed three important conclusions: 

(1) Climate change policy is needed to stem future emissions growth, regardless of which path the U.S. energy future ultimately takes. In the absence of policies designed to reduce U.S. carbon emissions, these emissions increase over the next three decades in all of the base case scenarios, even those with optimistic assumptions about the future cost and performance of energy technologies.

(2) Policy and investment decisions today, especially those that support key technologies, will have a significant impact on the difficulty of reducing energy-related carbon emissions tomorrow. Early and sustained investment, engineering success, and consumer acceptance of innovative low-carbon and efficiency-improving technologies make the task of reducing emissions easier, as do energy security policies that reduce oil import dependence. Low fossil fuel prices make the task harder by encouraging high-carbon and energy-inefficient investments. Other scenario conditions, such as external events, play a major role as well. 

3) A portfolio of policies combining technology performance targets, market incentives, and price-oriented measures can help the United States meet complementary energy security, climate protection, and economic objectives. Targeted policies can stimulate investment, accelerate the turnover of capital stock, and encourage emissions reductions. Emissions allowance trading, along with informational and other programs designed to address market imperfections, can lower the barriers to commercialization of efficiency-improving measures and new low-emissions technologies. However, policies designed to reduce carbon emissions can entail significant costs for the energy and energy-intensive sectors of the economy. Flexible program design, as well as successful development of major new technologies, can help to reduce these costs.

These principal conclusions are discussed below.

Absent a climate policy, U.S. carbon emissions will continue to increase

In the absence of a mandatory carbon cap, none of the base case scenarios examined in this study achieves a reduction in U.S. carbon dioxide emissions by 2035 relative to current levels. This is true even in the scenario with the most optimistic assumptions about the future cost and performance of energy technologies. Although the future is unlikely to unfold in precisely the manner described by any one of these scenarios, without climate policy U.S. carbon dioxide emissions in 2035 are unlikely to be less than the 1,800 to 2,400 million metric tons of carbon represented in the three base case scenarios. Thus, slowing the buildup of greenhouse gases in the atmosphere will require significant, systematic, and sustained policy intervention in the United States.

In the base case scenarios, while U.S. population grows steadily, GDP increases significantly and pushes the rate of growth in aggregate energy demand beyond the rate of improvement in energy efficiency.1 Total primary energy demand grows at an average annual rate that varies from 0.5 percent per year in the Turbulent World scenario to approximately 1.2 percent per year in Awash in Oil and Gas. These annual increases in primary energy use lead to energy consumption levels in 2035 ranging across the three base case scenarios from approximately 120 to 150 Quads (quadrillion British thermal units), up from 100 Quads in 2000.2 

During the same period, U.S. carbon emissions increase from approximately 1560 million metric tons of carbon (MMTC) emitted as carbon dioxide3 in the year 2000, reaching 1800 to 2360 MMTC in 2035. This is equivalent to an increase in annual CO2 emissions of 15 to 50 percent above the 2000 level, and largely parallels the increase in primary energy use. Despite declining carbon intensity of the U.S. economy at an average annual rate of 1.8 to 2.6 percent, carbon emissions rise in all base cases. In the three policy overlay cases, which include mandatory carbon constraints, the carbon intensity of the U.S. economy declines more rapidly than in the base case scenarios, at an average annual rate of 3.6 to 4.2 percent, and by 2035 annual CO2 emissions fall to almost 40 percent below the year 2000 level. 

Choices made today will determine the difficulty of reducing carbon emissions 

Many climate policy analyses create one base case and then overlay various policy options; this scenario planning exercise takes three different base cases and analyzes the effect of imposing the same policy overlay on each of them. Because the conditions of each base case scenario are different, achieving carbon reductions through the policy overlay is not equally difficult for all three scenarios. Aggregate costs to the economy of meeting the carbon emissions constraint differ by more than a factor of two among the scenarios; they are lowest in Technology Triumphs and highest in Awash in Oil and Gas.

The conditions of each scenario influence energy consumption and investment in that scenario, which in turn affect the level of carbon emissions. Each scenario illustrates a unique pattern of public policies, technological choices, and external events that affect prices, investment, consumption, and economic growth. Implementing climate policies modifies the energy mix, the pattern of technological development, and the composition and level of economic activity. For example, low oil and gas prices stimulate high levels of energy consumption and produce high levels of carbon emissions; low prices also discourage investment in energy efficiency-improving measures and carbon emissions-reducing technologies. Thus, the consumption and investment patterns in a scenario can lead to high carbon emissions and put the United States in a poor position to develop future technological solutions. Base case conditions that discourage energy consumption and favor investment in technological advances better position society to reduce carbon emissions.

More specifically, in Technology Triumphs, early and consistent investment in clean and energy-efficient technologies strengthens the economy and leaves the United States better positioned to reduce GHG emissions in the future. By contrast, in Awash in Oil and Gas much more aggressive and stringent policies are required to achieve the targets of the policy overlay because the economy starts from a high emissions trajectory. In addition, although the overall level of economic activity increases substantially in Awash in Oil and Gas, this scenario’s growing reliance on imported oil significantly increases the likelihood that events in politically unstable regions of the world could lead to spikes in oil prices or temporary disruptions of supply. 

A smart investment path today provides a greater capacity to respond to unexpected developments affecting future energy demand and supply. The scenario analysis identified several technologies as critical to the successful evolution of U.S. energy markets, enabling those markets to respond more effectively to uncertain future conditions.

The most important technologies include fuel cells, energy efficiency, CHP, renewable energy, DG, high-efficiency natural gas combined cycle power plants, hybrid electric vehicles, hydrogen production technologies, geological carbon sequestration, and integrated gasification combined cycle (IGCC) coal plants. Many of the electric power technologies are modular, allowing improved matching of supply and demand over relatively short time intervals. Modular technologies may improve the speed with which the energy sector can respond to changes, help to control risk, and maintain profitability in the U.S. energy sector.

Several technologies prove to be wise investments across the scenarios; others play key roles only under certain conditions. Natural gas consumption along with investment in energy efficiency measures, renewable energy technologies, and distributed generation increase in each scenario, both with and without climate policy. In all three policy overlay cases, hybrid-electric vehicles offer multiple benefits and emerge as a key near- or mid-term bridge to a hydrogen economy, and hydrogen makes an important contribution in the out-years. Hydrogen offers the possibility of numerous production pathways, using a variety of feedstocks. It is derived primarily from coal in Turbulent World, from natural gas inAwash in Oil and Gas, and from a variety of sources in Technology Triumphs. Distributed generation increases in each scenario, but to an extent and for reasons that vary by scenario. In the Turbulent World base case, investment in IGCC strengthens the role of coal in the U.S. energy sector. This early investment facilitates the commercialization of IGCC coupled with geological sequestration of CO2, which enables coal to maintain a major role in Turbulent World with Policy, even in a carbon-constrained future. Bio-fuels and nuclear power play modest roles across the scenarios, both with and without climate policy. 

A balanced portfolio of policies can help achieve multiple objectives

A balanced portfolio of market-oriented policies and performance standards—one that includes a carbon cap-and-trade program, incentives for technology development, strategies that remove barriers to new technologies, and efficiency standards—can help to achieve several objectives concurrently. These objectives include economic growth, energy security, and climate protection. These goals are often complementary: programs implemented for one of these reasons often contribute to the achievement of the other objectives as well. For example, in the Turbulent World base case, tough fuel economy standards designed to address energy security have the secondary effect of reducing GHG emissions. In Turbulent World with Policy, the carbon constraint incidentally but significantly reduces oil imports. 

Many key technologies achieve multiple objectives. For example, distributed generation has energy security, environmental, and economic benefits. In both the Turbulent Worldbase and policy cases, DG’s increased market penetration is driven, in part, by its ability to reduce security risks for energy facilities. Many analysts believe that the small, often modular facilities used to provide distributed generation are less likely to be targets for terrorists than would be, for example, large, centralized nuclear power complexes or liquefied natural gas facilities. In Technology Triumphs with and without climate policy, engineering advances, state policy leadership, and sustained interest among private investors converge, contributing to nationwide efforts aimed at breaking the barriers to commercialization for “disruptive” new energy technologies. In Awash in Oil and Gas, the drivers include electric grid congestion caused by rapid electricity demand growth as well as interest in power quality4 for specialized industrial applications and new consumer gadgets. In each of the policy overlay cases, relative to the respective base case, the efficiency benefits as well as the low-carbon characteristics of some DG and renewable energy technologies accelerate their penetration. Several of the most important energy efficiency and low-carbon technologies are cost-competitive today in specific applications. These include many energy efficiency measures in the buildings and transportation sectors, wind power plants, CHP, and combined-cycle turbines. Other important technologies are not yet cost-competitive in the U.S. energy market, including carbon capture and geological sequestration, photovoltaic power systems, and fuel cell vehicles. Full-scale commercialization of these critical technologies requires public policy to sustain investment in technology and market development.

Commercialization and market penetration of key technologies in the policy overlay cases are facilitated by various policies, strategies, and investments. Federal and state initiatives include renewable portfolio standards, fuel economy and air quality requirements, national electric grid interconnection standards, and aggressive R&D investment in hydrogen and fuel cell technologies. Private investment in emerging energy technologies also plays a critical role in all scenarios. This is especially true in the case of a major transition to use of hydrogen as a fuel, which requires sustained and coordinated investment in hydrogen production, transportation, and distribution infrastructure, as well as in fuel cell vehicles. Rapid commercialization of renewable and distributed electric generation also depends on new investment, but is greatly facilitated by removing institutional barriers to their use and by recognizing the full value contributed by these technologies to the operation of integrated electric grids. Because the time lag from technological breakthrough to commercialization is long, it is essential to initiate these investments early on and sustain them over time. 

The hypothetical policy overlay emphasizes “barrier busting” policies and programs to remove institutional obstacles and lower the barriers to commercialization of new technologies. For example, expenditures on informational and educational programs can increase awareness of emerging technological opportunities and increase the ability of U.S. society to respond to unexpected changes in energy markets. Institutional reforms, such as uniform electric grid interconnection standards, facilitate the market penetration of disruptive technologies such as distributed generation and building-integrated photovoltaic power systems. By putting investment in energy-efficiency measures and carbon emissions-reducing technologies on a more equal footing with conventional energy supply technologies, such programs and policies help to ensure fair competition and increase the likelihood that investment moves toward the technologies that have the best long-run return for U.S. society.

In sum, this scenario exercise suggests that in the absence of a mandatory climate policy, U.S. carbon emissions will continue to increase. Policy is needed to encourage investment in climate-friendly technologies and to pull these technologies into the marketplace. Policy and investment choices made today will determine the difficulty of reducing carbon emissions in the future. A smart investment path today provides a greater capacity to respond to surprises tomorrow. A portfolio of technology performance standards and market-oriented policies can stimulate investment, accelerate capital stock turnover, reduce carbon emissions, and enhance energy security across a wide range of possible energy futures.

Conclusions

This study presents a set of scenarios describing three divergent paths for the United States from 2000 through 2035. Many different patterns of energy supply and use could emerge in the future. The scenarios presented here reveal important conclusions about the role of technology in determining future U.S. energy supply, energy demand, and carbon emissions. These scenarios are not predictions; taken together however, they can be used to help identify key technologies, important energy policy decisions, and strategic investment choices that can increase the likelihood of achieving U.S. energy security, environmental protection, and economic development goals across a range of possible futures. Taking these lessons into account can help decision-makers plan for the future, despite uncertainty about how the future will unfold.

This exercise takes three different base case scenarios and analyzes the implications of imposing the same portfolio of policies on each of them. This approach allows conclusions to be drawn about the relative difficulty of implementing a carbon-constraint policy under quite different conditions. External events and other driving forces vary widely among the scenarios, as do policy and investment decisions and the consequent paths of technology development. Some conditions, such as low fossil fuel prices, increase the difficulty of implementing a carbon constraint. In contrast, actions such as early and sustained investment in emerging energy technologies facilitate both domestic economic development and carbon emissions reductions. Taken together, the three policy overlay cases show that a portfolio of market-oriented policies and standards can lead to substantial reductions in U.S. CO2 emissions by 2035, without major negative impacts on the overall level of U.S. economic activity. However, implementation of such policies could have significant costs for the energy and energy-intensive sectors of the economy.

Without a mandatory carbon constraint, the absolute level of emissions rises in each base case scenario, despite the fact that the carbon intensity of the economy declines considerably. In the Pew Center scenarios without a carbon emissions policy, CO2 emissions in 2035 range from 1800 to 2400 MMTC, an increase of 15 to 50 percent over the U.S. year 2000 level. This result points to the need to develop climate change policy in order to stem these increases.

The scenario analysis identified several technologies as critical to the U.S. energy future in a carbon-constrained world. These technologies are beneficial across scenarios, though the relative importance of a particular technology may vary among the scenarios. Most of these technologies would have a place even in a world without a carbon constraint, as they assist the United States in achieving its policy objectives—including environmental and energy security goals—while growing the economy.

Natural gas is one of the most important contributors to the decline of the carbon intensity of the energy sector in both the base and policy overlay cases. The market for natural gas expands in all scenarios, with and without the policy overlays. Substituting natural gas for coal results in approximately half the carbon emissions per unit of energy supplied. Increased use of natural gas also has energy security benefits for the United States.

Energy efficiency improvements also play a key role in reducing carbon emissions. In response to the carbon constraint, the fuel economy of cars and light trucks dramatically improves in the policy cases, significantly reducing oil imports. In each of the scenarios, combined heat and power technology improves the efficiency of electric generation. When the carbon policy overlay is imposed, performance standards for electrical devices and for gas- and oil-fired equipment lead to improved energy efficiency in the residential, commercial, and industrial sectors.

Renewable energy and distributed generation technologies contribute to the reduction of carbon emissions in each of the scenarios and their policy overlay cases. While both renewable energy technologies and DG grow in the base case scenarios, they experience more substantial increases following the implementation of the policy overlay, which aids their commercialization by promoting investment and by breaking barriers to entry in U.S. energy markets.

Nuclear power plays a significant role in each of the scenarios and their associated policy cases. Nuclear power production remains close to the year 2000 level in each scenario, with and without the policy overlays. In the absence of nuclear power, carbon emissions would be significantly higher in 2035.

Geological sequestration emerges as a key technology in the policy overlay cases, allowing continued reliance on fossil fuels even in the face of a carbon constraint. Sequestration is particularly important in Turbulent World with Policy, a scenario in which hydrogen is produced primarily from coal. Geological sequestration allows hydrogen to be produced from fossil fuels without releasing carbon emissions, facilitating the transition to a hydrogen economy.

Hybrid-electric vehicles play an important role in the transportation sector for all cases, except the Awash in Oil base case, and act as a bridge technology for fuel cells in mobile applications. Toward the end of the scenario period, hydrogen and fuel cells become significant in Technology Triumphs with Policy and Turbulent World with Policy. As improvements in energy efficiency slow, the technology for hydrogen and fuel cells matures in these scenarios, accounting for an increasing share of economy-wide carbon reductions.

Many of these critical technologies, however, are not commercially viable in 2003. Public and private investment in these emerging energy technologies plays a key role in their successful commercialization in the Pew Center scenarios. Public policies at the state and federal level are necessary to lower barriers to commercialization of these technologies and to stimulate sustained investment during the course of these scenarios. Included among the policies that promote commercialization of these technologies are a carbon emissions allowance cap-and-trade program for some sectors and a set of equipment-efficiency credit trading programs, as well as renewable portfolio standards, fuel economy and air quality requirements, and electric power grid interconnection standards.

One key insight that emerged is that policy is necessary to address climate change. A second is that there are technologies—with supporting policies and investments—that could address climate change, accelerate capital stock turnover, and enhance the nation's energy security, no matter which direction the future takes. Finally, the scenarios indicate that energy policy and investment decisions made today affect the difficulty of implementing a climate policy tomorrow. If U.S. decision-makers can implement the necessary policies and encourage appropriate investments during the next thirty years, the United States could be better positioned to achieve its complementary economic, energy security, and environmental goals.

About the Authors

Author Bios

Peter Schwartz, Global Business Network

Peter Schwartz is cofounder and chairman of Global Business Network, a Monitor Group company. He is an internationally renowned futurist and business strategist. A specialist in scenario planning, Mr. Schwartz works with corporations and institutions to create alternative perspectives of the future and develop robust strategies for a changing and uncertain world. His current research and scenario work encompasses energy resources and the environment, technology, financial services, telecommunications, media and entertainment, aerospace, national security, and the Asia-Pacific region. Mr. Schwartz is also a venture partner of Alta Partners, a partner of The Monitor Group, and serves on the advisory boards of numerous organizations and companies ranging from The Highlands Group to the University of Southern California’s Institute for Creative Technologies.

From 1982 to 1986, Mr. Schwartz headed scenario planning for the Royal Dutch/Shell Group of Companies in London. His team conducted comprehensive analyses of the global business and political environment and worked with senior management to create successful strategies. Prior to joining Royal Dutch/Shell, Mr. Schwartz directed the Strategic Environment Center at SRI International. The Center researched the business milieu, lifestyles, and consumer values, and conducted scenario planning for corporate and government clients.

Mr. Schwartz is the author/co-author of several works including Inevitable Surprises, The Art of the Long View, The Long Boom, When Good Companies Do Bad Things, and China’s Futures. He publishes and lectures widely and served as a script consultant on the films "Minority Report," "Deep Impact," "Sneakers," and "War Games." Mr. Schwartz holds a B.S. in Aeronautical Engineering and Astronautics from Rensselaer Polytechnic Institute.

 

Irving M. Mintzer, Global Business Network

Dr. Irving M. Mintzer is a member of Global Business Network, Executive Editor of Global Change Magazine, and a Senior Associate of the Pacific Institute for Studies in Development, Environment and Security. Since 1983, Dr. Mintzer has been an active participant in the international debate on national energy strategies and on policy options to reduce the risks of rapid climate change. During the last decade, he has testified on energy policy and climate issues before the U.S. Congress, the British Parliament, the German Bundestag, the Italian Parliament, and the European Parliament. He has been a Senior Special Fellow with the United Nations Institute for Training and Research (Geneva, Switzerland) and a visiting scientist with the Swedish Academy of Sciences, the Soviet Academy of Sciences, and the Hungarian Academy of Sciences. In 1995-96, he was a lead author of Working Group 3 (Economics and Policy Responses) of the Intergovernmental Panel on Climate Change (IPCC) and was co-author of the IPCC Synthesis Panel Report. From 1997 to 2000, Dr. Mintzer taught courses on multilateral negotiations at the Johns Hopkins School of Advanced International Studies in Washington, DC.

Dr. Mintzer is the author of numerous articles in scientific journals and other periodicals. He is co-editor with J.A. Leonard of Confronting Climate Change: Risks, Implications, and Responses and Negotiating Climate Change: The Inside Story of the Rio Convention. Dr. Mintzer holds a Ph.D. in Energy and Resources and a Masters in Business Administration from the University of California, Berkeley.

J. Amber Leonard, Global Business Network

J. Amber Leonard works with Global Business Network and is Senior Associate at the Pacific Institute for Studies in Development, Environment, and Security. She is the Managing Editor of Global Change Magazine and is the Pacific Institute’s Project Director for the New Initiative for a North-South Dialogue on Climate Change, organizing an ongoing series of regional meetings in developing and industrialized countries.

Ms. Leonard has participated in the international negotiations on climate change since 1992. In addition, she has been invited to participate as an expert on climate change at meetings in Bonn, Germany; Rio de Janeiro and Sao Paulo, Brazil; Beijing, China; Dakar, Senegal; and Abidjan, Ivory Coast, among others. Ms. Leonard has also co-convened a series of roundtables for U.S. business leaders focused on the Clean Development Mechanism and the climate negotiations. Prior to joining Global Business Network, Ms. Leonard was a senior editor and project director for the Stockholm Environment Institute (Stockholm, Sweden). She is co-editor with Dr. Irving Mintzer of two books on climate change, Confronting Climate Change: Risks, Implications and Responses and Negotiating Climate Change: The Inside Story of the Rio Convention. Ms. Leonard holds a Masters Degree in Business Administration with a concentration in International Business from Cal State University, San Francisco, and a B.A. from the University of California, Berkeley

 

Irving Mintzer
J. Amber Leonard
Peter Schwartz
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Climate-Friendly Energy Policy: Options For The Near Term


In Brief, Number 5

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The majority of U.S. greenhouse gas (GHG) emissions—84 percent—are in the form of carbon dioxide (CO2), resulting almost entirely from the combustion of fossil fuels. As a result, energy policies that reduce fossil fuel use will reduce GHG emissions. Fossil fuel use can be reduced by: (1) deploying technologies that increase energy efficiency (e.g., more efficient power plants, cars, and appliances) and (2) employing non-fossil fueled energy sources (e.g., solar, wind, geothermal, biomass, hydroelectric, nuclear energy, or renewables-based hydrogen). CO2 emissions also can be reduced by shifting from high-carbon to lower-carbon fuels (e.g., shifting from coal to natural gas in the electricity sector), and by employing carbon capture and sequestration technologies.

A “climate-friendly” energy policy can advance climate objectives while serving energy policy goals. However, a climate-friendly energy policy is not a substitute for climate policy. More significant GHG emissions reductions would be necessary in order to address climate change than can be justified solely on the basis of traditional energy policy objectives. The energy policy options outlined in this brief represent sensible and important first steps in U.S. efforts to reduce GHG emissions.

 

Introduction

Energy use and climate change are inextricably linked. The majority of U.S. greenhouse gas (GHG) emissions—84 percent—are in the form of carbon dioxide (CO2), resulting almost entirely from the combustion of fossil fuels.1  Choices made today in the current national energy policy debate will directly impact U.S. greenhouse gas emissions far into the future. Decision-makers face the challenge of crafting policies that allow the United States to meet its energy needs while acting responsibly to reduce GHG emissions.

Often, these objectives are thought of as competing goals—that energy policy and energy security issues are in conflict with environmental objectives and vice versa. In reality, there is a substantial convergence between the goals of energy policy and climate policy, and many feasible and beneficial policies from supply and security perspectives can also reduce future U.S. greenhouse gas emissions. This brief considers near-term energy policies that can be adopted in the context of the energy policy debate, short of adopting a GHG reduction program now, to best position the United States to reduce GHG emissions and to implement future climate change policies. These options make up a “climate-friendly energy policy.” This brief is drawn from a Pew Center report: Designing a Climate-friendly Energy Policy: Options for the Near Term.2

It is important to note that a climate-friendly energy policy is not a substitute for a mandatory climate policy. More significant GHG emissions reductions would be necessary in order to address climate change than can be justified solely on the basis of traditional energy policy objectives. A previous Pew Center policy brief outlines potential programs aimed specifically at GHG abatement,3  and Pew Center reports discuss options for designing a mandatory U.S. GHG reduction program4  and reducing GHG emissions from U.S. transportation.5

The Link Between Energy and Climate

Because the vast majority of GHG emissions are in the form of CO2 resulting from fossil fuel combustion, energy policies that reduce fossil fuel use will reduce GHG emissions.6  Fossil fuel use can be reduced by: (1) deploying technologies that increase energy efficiency (e.g., more efficient power plants, cars, and appliances) and (2) employing non-fossil fueled energy sources (e.g., solar, wind, geothermal, biomass7, hydroelectric, nuclear energy, or renewables-based hydrogen). CO2 emissions also can be reduced by shifting from high-carbon to lower-carbon fuels (e.g., shifting from coal to natural gas in the electricity production sector), and by employing carbon capture and sequestration technologies. Conversely, energy policies that increase fossil fuel consumption, discourage or miss opportunities for efficiency improvements, and expand reliance on high-carbon fuels will increase CO2 emissions and thereby exacerbate climate change.

Given this close relationship between energy use and GHG emissions, near-term energy policy choices have significant future implications for climate change. Climate-friendly energy policies fall into one of three general categories—policies that: 

(1) Reduce GHG emissions now;

(2) Promote technology advancement or infrastructure development that will reduce the costs of achieving GHG emissions reductions in the future; and

(3) Minimize the amount of new capital investment in assets that would be substantially devalued (or “stranded”) if a GHG program were implemented.

Energy Policy Context

A discrete and unified U.S. energy policy does not exist. Rather, policies affecting energy production and use in the United States have many sources and take a multitude of forms. For example, while this brief focuses primarily on federal energy policies, state and local governments also play a key role in regulating energy-related activities. In addition, while there are federal policies aimed directly at achieving energy objectives, there are also federal policies aimed at achieving other objectives—ranging from environmental protection to easing traffic congestion—that have indirect but nevertheless substantial impacts on energy production and use. Finally, even those policies aimed squarely at achieving energy-related objectives are shaped by other policy concerns, such as labor and foreign policy issues. Energy policy, in short, operates in multiple dimensions.

Historically, most major shifts in U.S. energy policy have been triggered by interruptions, and subsequent price increases, in crude oil supply. Such events occurred in 1973 (Arab oil embargo), 1979–80 (triggered by the Iranian revolution), and 1990 (associated with the Persian Gulf War). The policy prescriptions for reducing supply vulnerability have included increasing U.S. production of conventional and alternative fuels, emphasizing market forces, reducing demand through efficiency measures, establishing and maintaining the strategic petroleum reserve (SPR),8  and maintaining international arrangements under the International Energy Program (IEP) to coordinate petroleum stock drawdowns. Over the years, the United States has reduced its vulnerability to a physical interruption of crude oil supplies but economic vulnerability remains. U.S. oil imports continue to grow, and the OPEC countries continue to be the source of significant oil imports, leaving the transportation sector in particular—and the economy in general—exposed to supply and price risk.

Today’s energy policy debate confronts a mixture of old and new issues. The United States remains vulnerable to concerted action by oil-producing nations to curtail production and increase prices. Conflicts in Central Asia and the Middle East have brought fuel supply concerns again to the fore. Moreover, the events of September 11, 2001, have given rise to a new energy policy priority: Securing domestic energy facilities from terrorist attack. In addition, sharply increased rates of U.S. economic growth in the late 1990s exposed energy supply shortages, as well as transportation and transmission bottlenecks. The deregulation of the electric power industry in some states has created regulatory idiosyncrasies that have sharply increased prices of electricity in some regions.9  Furthermore, current U.S. energy policy is much more market-oriented, less focused on cost-based price regulation, and more focused on environmental regulation than it was in the 1970s.

Current U.S. Energy Picture

The United States supplies about three-quarters of its energy needs from domestic sources. The nation has ample sources of coal and, indeed, is a modest coal exporter. The United States also supplies about 84 percent of its own natural gas; imports, mostly from Canada, account for about 16 percent of U.S. natural gas consumption.10 Oil presents a very different picture, however. The United States imported about 55 percent of the petroleum it consumed in 2001, and imports are projected to increase.11

The United States consumes a tremendous amount of energy each year, at considerable expense. In 2001, it consumed about 97 quadrillion British Thermal Units (or “quads”) of energy, at a cost of nearly $700 billion.12 Figure 1 indicates end uses of energy by sector, with the primary energy13 used for electricity generation allocated to each sector in proportion to its electricity consumption.

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The bulk of U.S. primary energy comes from fossil fuels. Fossil fuels provided 86 percent of U.S. primary energy in 2001.14 (See Figure 2.) Non-fossil sources provided the remaining 14 percent, of which nuclear energy represented approximately 8 percent and renewable energy resources accounted for approximately 6 percent (about 40 percent of the renewable energy is hydropower). The amount of energy provided by nuclear sources is expected to increase slightly over the next few decades, but DOE does not anticipate any new nuclear facilities being built in the United States during that period.15 Hydropower output is expected to be static. Other renewable sources (biomass, wood, municipal solid waste, ethanol, geothermal, wind, and solar) now supply only 3.4 percent of total U.S. energy consumption and only 2.1 percent of total U.S. electricity generation.16 DOE projects slow growth for non-hydro renewables because of the relatively lower costs of fossil fuels for electricity generation, and because less capital-intensive natural gas technologies have an advantage in competitive electricity markets over coal and baseload renewables for new capacity.17

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Current Greenhouse Gas Emissions Picture

Greenhouse gas emissions from U.S. energy use and production are primarily CO2 emissions from the combustion of fossil fuels in the electricity generation, buildings, industrial processes, and transportation sectors.18 (See Figure 3.) CO2 from fossil fuel combustion accounts for 82 percent of total U.S. GHG emissions.19  Figure 4 shows U.S. CO2 emissions broken down by fuel source. 

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One way to view the broad relationship between energy use and CO2 missions is to examine shifts in two indices: energy intensity (measured by energy used per dollar of gross domestic product (GDP) created) and carbon intensity (measured by CO2 emissions per dollar of GDP created). The first value indicates the economy’s overall energy efficiency, while the second is a function of the fuel mix and generation technologies used to meet the nation’s energy needs. With regard to fuel mix, it is important to understand that different types of fossil fuels have different levels of carbon content. (See Figure 5.) Both energy intensity and carbon intensity are influenced by energy policy choices.

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As the U.S. economy has grown, CO2 emissions have increased, although at a slower rate than conventional measures of economic output. During the 1990s, the divergence between CO2 and GDP growth was primarily a result of lower energy intensity. From 1990 to 2001, GDP grew by about 2.9 percent per year, while CO2 from energy grew by about 1.3 percent per year, i.e., CO2 grew at about half the rate of GDP. Energy use per dollar of GDP fell by 1.7 percent per year, while CO2 emissions per unit of energy consumed have remained at roughly the 1990 level.20  This decrease in the U.S. economy’s energy intensity since the early 1990s has resulted in large part from an increase in non-energy-intensive economic sectors (e.g., computer equipment and semiconductor manufacturing) relative to traditional energy-intensive manufacturing industries (e.g., steelmaking), as well as from energy efficiency improvements.21

The primary CO2 growth components during the 1990s were electricity generation and transportation. CO2 emissions from the electric power sector grew by 24 percent between 1990 and 2001, and CO2 emissions from transportation increased 19 percent during this period.22 The demand for electricity has grown with the U.S. economy and with substantial increases in the market penetration of electricity-consuming electronic equipment, consumer appliances, and manufacturing technologies. In the transportation sector, an increasing proportion of vehicles on the road (e.g., minivans, sport utility vehicles, and light trucks) are not subject to the passenger car Corporate Average Fuel Economy (CAFE) standards, but instead are subject to the significantly less stringent “light-duty truck” CAFE standards. CAFE standards established in 1975 required new passenger car fuel economy to reach 27.5 mpg in 1985, where the standard remains today. Less was required of light trucks; standards set by the U.S. Department of Transportation increased to 20.5 mpg in 1987 and stand at 20.7 mpg today.23  The actual fuel economy of new passenger cars and light trucks has closely followed the standards, and has not increased since 1988; indeed, today’s combined fleet of passenger cars and light trucks gets fewer mpg than the vehicles sold fifteen years ago because of the growth in the proportion of light trucks in the fleet.24  Finally, all vehicles are being driven more miles as a result of relatively low gasoline prices and land-use patterns characterized by sprawl.

Economic Analysis of Energy Policy

The body of economic work on energy and climate change contains several important themes to be considered in any effort that aims to identify “climate friendly” energy policies. These key themes include:

  • Energy use in the U.S. economy is largely a function of the current equipment (or “capital stock”) used to extract, produce, convert, and use energy (e.g., machinery used in longwall coal mining, technology used to explore for and produce oil and natural gas, boilers and turbines used to convert fossil fuel to electric power, and automobiles and trucks used to transport people and goods).
  • New energy technologies usually take time to develop, mature, and find broad acceptance in the market.
  • The market penetration of improved equipment reflects economic behavior, not just technological potential.
  • Energy or fuel prices can play a substantial role in energy use and emissions outcomes, apart from long-run technology choices.
  • To the extent that policy actions alter the market supply or demand of specific fuels or energy types, such policies can change energy prices. As a consequence, future energy use decisions would be based on a new set of prices, which may affect the expected level and cost of eventual emissions reductions.
  • Expectations regarding future prices, technologies, and policies can play a large role in shaping current investment decisions. Thus, the form and direction of policy enacted in the near term can encourage market participants to alter longer-term decisions even before regulatory compliance deadlines or other milestones occur.
  • It is critical to assess the impact of today’s energy policy choices in terms of the future cost of pursuing future GHG reduction policies.

 

Policy Objectives

While U.S. energy policy has many sources, forms, and influences, it is nevertheless possible to identify four traditional objectives on which U.S. energy policy has focused: 

  1. a secure, plentiful, and diverse primary energy supply; 
  2. a robust, reliable infrastructure for energy conversion and delivery; 
  3. affordable and stable energy prices; and 
  4. environmentally sustainable energy production and use.

The policy options considered in this brief serve one or more of these objectives.

Climate-friendly energy policies fall into one of three general categories—policies that: 

  1. reduce GHG emissions now; 
  2. promote technology advancement or infrastructure development that will reduce the costs of achieving GHG emissions reductions in the future; and 
  3. minimize the amount of new capital investment in assets that would be substantially devalued (or “stranded”) if a GHG program were implemented. 

Using the criteria outlined above, the following elements of a climate-friendly energy policy have been identified:

Fossil Fuels 

Expand natural gas transportation infrastructure. Encouraging expansion of the natural gas transportation system in North America through, for example, rate incentives, streamlined permitting for pipeline and liquefied natural gas (LNG) facilities, and expedited approvals needed for construction of an Alaska natural gas pipeline, will increase the delivery capability for natural gas and lower the price of the delivered product. This will facilitate the use of gas as a substitute for coal in electricity production and thus reduce GHG emissions. 

Increase natural gas production. Encouraging increased production of natural gas in North America through, for example, tax incentives, royalty relief, and access to public land for resource development will lower the price and increase the availability of natural gas. This will, in turn, permit the use of gas as a substitute for coal in electricity production and thus reduce GHG emissions.

Electricity 

Encourage deployment of efficient electricity production technologies
. Encouraging developers of new generation capacity to employ very efficient generation technologies—with tools such as tax incentives for combined heat and power and high-efficiency distributed generation—can significantly increase the amount of useful energy gleaned from fuels, and thus reduce both energy costs and emissions. Moreover, support for repowering existing plants with technology that improves the efficiency of electricity generation can reduce electricity prices and reduce fuel consumption per kilowatt-hour (kWh), with corresponding GHG reduction benefits. Conversely, policies that discourage such investments in improved efficiency, and instead result only in energy-consuming pollution control retrofits (e.g., scrubbers to reduce conventional air pollutants), may be counterproductive from a climate perspective. Incentives for investment in advanced technologies such as carbon capture and sequestration would allow future use of coal resources without net GHG emissions.

Maintain role for nuclear and hydroelectric power. Policies that allow the safe continued use of nuclear power plants—such as granting license extensions, approving plant upratings where warranted, and finding new solutions to the nuclear waste problem—preserve diversity of energy supply, may reduce electricity prices, and avoid very substantial coal consumption for electricity generation. Likewise, maintaining or expanding hydroelectric capacity in a way that protects natural resources provides low-cost electricity without GHG emissions.

Encourage development of renewable energy resources. Policies that encourage the development of renewable energy resources—such as production tax credits, a renewable portfolio standard, electricity transmission policies that do not discriminate against intermittent renewable resources such as solar and wind, and net metering for small distributed renewable resources—can help diversify our energy portfolio and are environmentally attractive. Wind, solar, geothermal, and hydropower generation produce no GHG emissions, and use of biomass produces no net GHG emissions.

Buildings End-Use Efficiency

Promote use of efficient technologies and green design in buildings. Policies that require increased efficiency of energy end-use (such as building codes or appliance efficiency standards), and policies that encourage use of highly efficient equipment and technologies (such as tax incentives, product efficiency labeling, and Energy Star™ programs) can significantly reduce energy consumption, consumer operating costs over a product’s or building’s lifecycle, the need for investment in new power plants, and emissions related to energy use.

Industrial End-Use Efficiency

Promote the use of more efficient processes and technologies in industry. Policies that provide incentives for investment in efficient processes and combined heat and power technologies, expand coverage of efficiency standards to standard-design industrial equipment, and provide more information on efficient technologies to industrial consumers can lead to further emissions reductions in the industrial sector.

Transportation

Enhance end-use efficiency of automobiles and light trucks. Regulatory and tax policies—such as more stringent CAFE standards, reforms to the “gas guzzler” tax, efficiency standards for tires, and tax or other incentives for the purchase of highly efficient hybrid vehicles—can significantly reduce fuel consumption per mile, thus reducing oil consumption and mitigating reliance on oil imports. Very significant energy and climate policy benefits can be gained in this area. According to a recent National Research Council study, if lead times are long enough, automakers can produce substantially more fuel-efficient vehicles without increasing net consumer costs or compromising safety.25 Moreover, fundamental redesigns such as hybrid vehicles (already commercially available in some Honda and Toyota vehicles) and fuel-cell vehicles offer important additional benefits.

Research and Development

Promote research and development on efficient electricity production technologies. Federal funding or tax incentives for R&D on improving the efficiency of the electricity generation process, regardless of fuel source, can provide options to reduce future energy prices and reduce future fuel consumption per kWh, with corresponding GHG benefits.

Promote research and development on efficient end-use technologies. Federal funding or tax incentives for R&D on improving transportation, building, and industrial end-use efficiency can provide options to reduce future energy costs to consumers and to reduce future energy consumption, with corresponding GHG benefits. Support for R&D is particularly important in areas where fundamental changes are possible, such as the widespread use of hydrogen in fuel cells to power vehicles.

Promote research and development on non-fossil fuels and carbon sequestration. Federal funding or tax incentives for R&D on alternatives to fossil fuels, such as biofuels and hydrogen, can provide future viable alternatives to oil. Development of economical carbon sequestration technologies could enable continued reliance on coal consistent with a GHG regulatory regime.

 

Conclusions

A “climate-friendly” energy policy can advance climate objectives while serving energy policy goals. However, a climate-friendly energy policy is not a substitute for climate policy. More significant GHG emissions reductions would be necessary in order to address climate change than can be justified solely on the basis of traditional energy policy objectives. In the long run, we can only curb climate change by weaning ourselves of our reliance on fossil fuels. The energy policy options outlined in this brief represent sensible and important first steps in U.S. efforts to reduce GHG emissions.

 


 

Endnotes


1 CO2 from fossil fuel combustion represents 82% of U.S. GHG emissions. Only 2% of U.S. GHG emissions are CO2 released from other activities. Although most methane emissions (the second-largest GHG emissions source) come from landfills and agricultural sources, about one-third are attributable to production of natural gas or coal, or to transportation of natural gas. See U.S. DOE, EIA. 2003. Emissions of Greenhouse Gases in the United States 2001. Available at http://www.eia.doe.gov/oiaf/ggrpt .
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2 Smith, Douglas W., Robert R. Nordhaus, Thomas C. Roberts, Marc Chupka, Shelley Fidler, Janet Anderson, Kyle Danish, and Richard Agnew. Designing a Climate-friendly Energy Policy: Options for the Near Term. Pew Center on Global Climate Change. Arlington, VA. July 2002.
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3 The U.S. Domestic Response to Climate Change: Key Elements of a Prospective Program. In Brief, Number 1. Pew Center on Global Climate Change. Arlington, VA.
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4 Nordhaus, Robert R. and Kyle W. Danish. Designing a Mandatory Greenhouse Gas Reduction Program for the U.S. Pew Center on Global Climate Change. Arlington, VA. May 2003. This report identifies issues that must be addressed in the design of a mandatory U.S. GHG reduction program. Three options are specifically evaluated: (1) cap-and-trade programs, (2) GHG taxes, and (3) a “sectoral hybrid” program that combines efficiency standards for automobiles and consumer products with a cap-and-trade program applicable to large sources of greenhouse gases.
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5 Greene, David L. and Andreas Schafer. Reducing Greenhouse Gas Emissions from U.S. Transportation. Pew Center on Global Climate Change. Arlington, VA. May 2003.
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6 CO2 makes up the lion’s share of U.S. GHG emissions, but other gases also play a role in enhancing the greenhouse effect. Non-CO2 greenhouse gases account for roughly 18% of the global warming potential of U.S. GHG emissions. Some of them have a very weak effect; options to control GHG emissions have focused on the five with the strongest impact. Methane (CH4) and nitrous oxide (N2O) are created through decomposition, chemical processes, fossil fuel production and combustion, and many smaller sources. Sulfur hexafluoride (SF6) is used as an insulating gas in large-scale electrical equipment. The remaining two are hydrofluorocarbons (HFCs) used as refrigerants and perfluorocarbons (PFCs) released during aluminum smelting and used in the manufacture of semiconductors. When compared using 100-year global warming potentials, their weighted emissions are as follows: CH4, 9%;  N2O, 5%; HFC/PFC/SF6, 2%. For further discussion of non-CO2 greenhouse gases, see Reilly, John M., Henry D. Jacoby, and Ronald G. Prinn. Multi-gas Contributors to Global Climate Change. Pew Center on Global Climate Change. Arlington, VA. February 2003.
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7 CO2 emissions from the combustion of biomass are offset by CO2 removed from the atmosphere by the plants.
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8 Crude oil in the SPR plus private company stocks would cover approximately 150 days without imports.
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9 For more information about deregulation in the electric power sector, see U.S. DOE, EIA. Electric Power Industry Restructuring Fact Sheet. Available at http://www.eia.doe.gov/cneaf/electricity/page/fact_sheets/restructuring.html.  
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10 U.S. DOE, EIA. 2002. Annual Energy Review 2001. Available at http://www.eia.doe.gov/aer/contents.html.
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11 U.S. DOE, EIA. 2003. Annual Energy Outlook 2003, p. 83. Available at http://www.eia.doe.gov/oiaf/aeo . This number reflects net imports.
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12Ibid., Tables A2 and A3.
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13 “Primary energy” consists of the sum of “site energy” (the energy directly consumed by end users) and the energy consumed in the production and delivery of energy products to end users. See http://www.eia.doe.gov/emeu/consumptionbriefs/cbecs/cbecs_trends/primary_site.html.
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14 U.S. DOE, EIA. 2002. Annual Energy Review 2001, Table 1.3.
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15 U.S. DOE, EIA. 2003. Annual Energy Outlook 2003, pp. 5-6.
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16 U.S. DOE, EIA. 2002. Annual Energy Review 2001, Tables 1.3 and 8.2a.
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17 U.S. DOE, EIA. 2003. Annual Energy Outlook 2003, p. 6.
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18 In addition to CO2 emissions, energy production and use contributes two other greenhouse gases: CH4, primarily from natural gas systems and coal mining, and N2O from fuel combustion.
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19 See Endnote 1.
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20 See U.S. DOE, EIA. 2003. Emissions of Greenhouse Gases in the United States 2001, p. 26.
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21Ibid.
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22Ibid., pp. 24 and 21 (respectively).
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23 A rulemaking by the Department of Transportation, in progress at time of writing, calls for the light truck standard to be raised to 22.2 mpg by 2008.
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24 Greene and Schafer.
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25 National Research Council. 2002. Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards. Available at http://www.nap.edu/books/0309076013/html/.
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Taking Climate Change into Account in U.S. Transportation

U.S. transportation is responsible for more than a quarter of U.S. greenhouse gas (GHG) emissions. This In Brief describes the options for reducing this contribution to global climate change. There are three fundamental ways to curb these emissions.
  • Improve vehicle efficiency. Major gains in fuel efficiency are technically feasible for cars, trucks, and airplanes. There is evidence, however, that consumers undervalue fuel savings when purchasing new vehicles. In addition, the environmental and security benefits of fuel efficiency are external—i.e., dispersed throughout society rather than to the individual consumer. Because fuel efficiency is thus undervalued in the market place, policies are essential to pull efficiency improvements into the market. The current system for setting vehicle efficiency standards could be made more effective by providing longer lead times for tougher standards. Another option would be to require light trucks to meet standards as stringent as those for cars. Because it takes time for the vehicle fleet to turn over, programs must be initiated now and sustained over decades to realize this technological potential.
  • Substitute low-carbon fuels for carbon-intensive fuels. Many alternative fuels produce less carbon dioxide (CO2) per unit of energy than petroleum. Petroleum, however, has many advantages and is supported by an extensive and well-functioning infrastructure, so policy intervention would be required to spur a transition to alternative fuels. Requiring the use of ethanol as a gasoline additive could yield a 3 percent net reduction in GHG emissions in the near term and a 10 percent reduction in the long term, while maintaining the current fueling system.1 Work should also start now to lay the groundwork for longer-term solutions, such as a hydrogen-based transportation system.
  • Increase transportation system efficiency. Numerous transportation modes—such as air, water, rail, car, bus, and bicycling—exist to move people and goods. Increasing the efficiency of the transportation system would require both improving accessibility to the various modes of transportation and using more efficient ones. Which mode is most efficient depends on the distance traveled as well as population density. In the United States, the evolution over decades of automobile dependence and land use patterns has resulted in an energy-intensive transportation system. Policy options for increasing system efficiency include funding public transportation, building infrastructure that eases the transfer of freight and passengers between modes, supporting "intelligent transportation" technologies. and promoting "smart growth."

Greenhouse gas emissions consequences are now unaccounted for in public as well as private transportation decisions. Taking climate change into account in these decisions would provide a major impetus to improve vehicle efficiency, substitute low-carbon fuels, and increase transportation system efficiency. Policy options include building institutional capacity at all levels of government to address the climate consequences of transportation, incorporating climate change as a consideration in disbursing monies from the federal Highway Trust Fund, and developing a greenhouse gas cap and trade program to constrain emissions at the lowest possible cost.

No single policy approach will be sufficient. Reducing GHG emissions from transportation calls for a balanced combination of cost-effective measures. Many of the policy measures discussed in this brief do much more than reduce CO2 emissions. For example, since U.S. transportation is almost entirely fueled by petroleum, decreasing GHG emissions from this sector would also decrease dependence on imported oil.

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Reducing Greenhouse Gas Emissions From U.S. Transportation

Reducing GHG from Transportation

Reducing Greenhouse Gas Emissions From U.S. Transportation

Prepared for the Pew Center on Global Climate Change
May 2003

By:
David L. Greene, Oak Ridge National Laboratory and 
Andreas Schafer, Massachusetts Institute of Technology

Press Release

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Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

Transportation accounts for nearly a third of our nation's greenhouse gas emissions, and its emissions are growing more rapidly than other sectors. In this report, authors David Greene and Andreas Schafer find that numerous opportunities are available now and in the future to reduce the transportation sector's impact on climate. Many of these same actions would also address other national priorities, including reducing U.S. dependence on oil imports.

This latest Pew Center report is the first building block in our effort to examine key sectors, technologies, and policy options to construct the "10-50 Solution" to climate change. The idea is that we need to tackle climate change over the next fifty years, one decade at a time. This report points to the following key elements of the 10-50 Solution to transportation.

  • We can start now, and we must start now. Fuel economy for cars and trucks could be increased by 25-33 percent over the next 10 to 15 years using market-ready technology at a net savings, if fuel savings are taken into account. Increasing efficiency of vehicles (aircraft, car, trucks and trains) takes time because fleet turnover typically takes 15 years or more.
  • We will need a sustained effort over many decades. Technologies on the horizon are likely to enable fuel economy improvements in cars and light trucks of 50 to 100 percent by 2030. Transforming land-use patterns to enable more efficient travel, or transitioning to a hydrogen based transportation system, will require decades of incremental change.
  • R&D and voluntary efforts are necessary but not sufficient; mandatory policies are essential. Since fuel economy is undervalued in the marketplace, policies such as mandatory standards and public information are needed to pull technological improvements into the market. Fuel economy has gotten worse recently not because of lack of technology, but because of lack of policy. Hydrogen holds out the tantalizing promise of near-zero greenhouse gas emissions, but government must provide clear policy direction to drive massive private investment by the fuel and vehicle industries.
  • We need a mix of policies, and there are many to choose from. Opportunities for significant emission reductions include implementing a carbon constraint, raising efficiency standards for automobiles, blending low-carbon fuels with gasoline, and changing land-use patterns through urban design and planning. Each of these measures could contribute to reducing GHG emissions, but none is sufficient alone. The authors estimate that a combination of reasonable measures would reduce carbon emissions by about 20 percent by 2015, and almost 50 percent by 2030, compared to "business as usual."

The authors and the Pew Center would like to thank Roland Hwang of the Natural Resources Defense Council, Barry McNutt of the U.S. Department of Energy, Alan Pisarski, and Daniel Sperling of the University of California, Davis for their review of and advice on a previous draft of this report.

Executive Summary

Since the introduction of motorized transportation systems, economic growth and advancing technology have allowed people and goods to travel farther and faster, steadily increasing the use of energy for transportation. Modern transportation systems are overwhelmingly powered by internal combustion engines fueled by petroleum. Emissions of carbon dioxide (CO2), the principal greenhouse gas (GHG) produced by the transportation sector, have steadily increased along with travel, energy use, and oil imports. In the absence of any constraint or effective countermeasures, transportation energy use and GHG emissions will continue to increase.

In the U.S. economy, transportation is second only to electricity generation in terms of the volume and rate of growth of GHG emissions. In terms of carbon dioxide, which accounts for 95 percent of transportation's GHG emissions, transportation is the largest and fastest growing end-use sector.1  Today, the U.S. transportation sector accounts for one-third of all U.S. end-use sector CO2 emissions, and if projections hold, this share will rise to 36 percent by 2020. U.S. transportation is also a major emitter on a global scale. Each year it produces more CO2 emissions than any other nation's entire economy, except China. Given its size and rate of growth, any serious GHG mitigation strategy must include the transportation sector.

This report evaluates potential CO2 emission reductions from transportation in the United States. Measures considered include energy efficiency improvements, low-carbon alternative fuels, increasing the operating efficiency of the transportation system, and reducing travel. Highway vehicles should be the primary focus of policies to control GHG emissions, since they account for 72 percent of total transportation emissions. Passenger cars and light trucks together account for more than half of total sectoral emissions.


Energy Efficiency

By 2015, the fuel economy of new passenger cars and light trucks can be increased up to one-third by the adoption of proven technologies, at a cost below the value of the fuel that would be saved and without reducing the size or performance of vehicles. Before 2030, advanced diesel engines, gasoline or diesel hybrid vehicles, and hydrogen-powered fuel cell vehicles will likely permit new car and light truck fuel economy to be increased by at least 50 to 100 percent, while satisfying current and future emission standards. Efficiency gains of 25 to 50 percent for new heavy trucks will likely also be possible over the next 15 to 30 years. For new aircraft, fuel economy increases of 15 to 25 percent seem feasible by 2015, reaching 25 to 40 percent by 2030.

Because the energy efficiency of new vehicles will rise gradually, and because it takes time to turn over the entire fleet of vehicles in use, by 2015 the increase in energy efficiency achieved by all transportation vehicles in use will be only about half that achieved by new vehicles. With policies to ensure the use of cost-effective technologies to increase fuel economy, by 2015 it should be possible to boost the average efficiency of vehicles in use by 10 to 15 percent, reducing GHG emissions by about 11 percent. By 2030 GHG emissions reductions on the order of 25 percent should be achievable. These estimates take into account the tendency for slight increases in travel when fuel costs are lowered by efficiency gains.


Alternative Fuels

Despite 25 years of effort, alternatives to petroleum have not displaced more than a few percent of petroleum fuels. Petroleum fuels are supported by an extensive and well-functioning infrastructure. They also have high energy density, low cost, and a demonstrated ability to adapt to environmental challenges. In the near term, lower-carbon alternative fuels such as natural gas and liquefied petroleum gases will continue to be viable in niche markets. Lower-carbon replacement fuels, such as alcohols or ethers produced from biomass, can be blended with gasoline to displace several percent of petroleum use. If methods of producing ethanol from cellulose can be commercialized and if current tax subsidies are continued, renewable liquid fuels blended with petroleum fuels could reduce transportation's CO2 emissions by 2 percent by 2015 and 6 percent by 2030.

Technological advances in fuel cells, hydrogen production, and hydrogen storage are needed to accomplish a transition to a largely hydrogen-powered transportation system. Such a transition will also require intensive planning, major commitments by government, industry, and the public, and supportive public policies. If achieved, however, a transition to hydrogen produced from renewable or nuclear energy or from fossil resources with carbon sequestration, could eliminate most of transportation's GHG emissions sometime after 2030.


System Efficiency

While changing behavior has the potential to reduce transportation fuel use and GHG emissions, large and sustainable reductions have never been achieved in this manner in the United States. Increasing wealth and vehicle ownership combined with decreasing household size and population densities has led to steadily declining vehicle occupancy rates. The same trends have historically contributed to declining market shares for mass transit, although mass transit ridership has been growing over the past few years. On the freight side, shippers increasingly value speed and reliability, favoring truck and airfreight, the most energy-intensive modes. Still, GHG emission reductions of a few percent can be achieved with concerted effort, and much might be possible if innovative strategies could be found to increase vehicle occupancy rates without diminishing service or convenience.


Reducing Transportation Activity

Mobility gives people access to opportunities and enhances the efficiency of the economy. Reducing transportation activity per se is not a desirable goal. Where there are environmental damages (such as GHG emissions) unaccounted for in private transportation decisions, increasing the cost of travel to reflect these impacts is beneficial from both an economic and environmental perspective. In particular, internalizing the externality of climate change through carbon cap-and-trade systems or direct pricing of the carbon content of motor fuels is an especially attractive option. An even greater impact can be achieved by redistributing certain fixed costs of motor vehicle travel so that they fall on carbon fuels. One example is collecting a portion of vehicle insurance fees as a surcharge on motor fuel. This could reduce GHG emissions from motor vehicles by 8 to 12 percent and could improve the overall economic efficiency of highway transportation.

The patterns of land use and development that have evolved over many decades are inefficient from a transportation perspective. If the geography of cities can be transformed to provide equal or greater accessibility with less travel, both the environment and the economy would benefit. Experimentation and modeling analyses indicate that travel reductions of 10 percent may be achievable in the long run, without loss of accessibility. The ability to consistently achieve and sustain such reductions has not been demonstrated in the United States, and much remains to be learned about planning and realizing more transportation-efficient patterns of land use.


Policy Options

There are plenty of practical and effective policies for reducing transportation's GHG emissions. The policies described in this report are not the only policies that can be effective; rather, they are representative of the kinds of policies a comprehensive strategy would include. A reasonable combination of policy measures should be able to reduce U.S. transportation sector CO2 emissions by 20 to 25 percent by 2015 and by 45 to 50 percent by 2030 in comparison to a transportation future without any efforts to control carbon emissions. If the demand for transportation energy use continues to grow at 2 percent per year through 2030, achieving these reductions will result in CO2 emissions in 2030 that are about the same as the current level.

These estimates of GHG reductions achievable by 2015 are based on: (1) proven energy efficiency technologies and low-carbon replacement fuels, (2) levels of efficiency improvement at which the value of the fuel saved is greater than or equal to the cost of technology, (3) no change in vehicle size or performance, (4) pricing and other policies that do not increase the overall cost of transportation and, (5) a carbon cap-and-trade system equivalent to approximately $50 per ton of carbon. Greenhouse gas reductions estimated to be achievable by 2030 are based on: (1) efficiency improvements that depend on technological progress judged highly likely by 2020 with a focused R&D effort, and (2) continuation or moderate extensions of pricing and behavioral policies adopted for 2015. GHG emissions would be lower if growth in demand for transportation fuel is slower, or with more stringent energy efficiency standards, a tighter carbon emissions cap, or if technological innovation is more rapid than assumed here.

Fuel efficiency improvements, especially of cars and light trucks, offer the largest potential for reducing CO2 emissions from transportation over the next 30 years. Several policies can contribute to realizing this potential, including fuel economy standards. Fossil fuel or carbon pricing policies would encourage fuel economy improvements while simultaneously discouraging transportation demand. Pricing measures alone, however, would probably not be sufficient to achieve the above indicated emission reductions. A price of $100 per ton of carbon, which translates into $0.25 per gallon of gasoline, might increase fuel economy by about 5 to 10 percent and reduce light-duty vehicle travel by about 1 to 3 percent, far below the estimated potential of a comprehensive strategy.

The long lead times required to turn over the entire fleet of vehicles and the supporting infrastructure mean that policies must be implemented now to create the impetus for change in order to achieve the reduction levels indicated in this report. Within the next 15 years, energy efficiency improvements, various pricing policies, and low-carbon replacement fuels are the key components of a comprehensive effort for reducing GHG emissions. Over the longer term a large-scale transition away from petroleum fuel toward low-carbon alternative fuels should be considered. Among the most promising low-carbon fuels for the longer term is hydrogen, which has many desirable fuel characteristics and can be produced from a variety of zero-carbon feedstocks or from fossil fuels with subsequent carbon sequestration. Obstacles, however, remain in areas such as hydrogen storage and the cost of hydrogen fuel cell vehicles. A transition to hydrogen will require an entirely new infrastructure for producing, transporting, distributing, storing, and retailing hydrogen, and possibly for sequestering CO2 emissions generated during its production.

Many of the policy measures discussed in this report do much more than reduce CO2 emissions. For example, improving fuel efficiency of the U.S. transportation system reduces dependence on foreign oil imports and increases the global competitiveness of the U.S. vehicle industry. Similarly, more efficient land-use patterns not only increase the ridership potential of public transportation modes but also relieve traffic congestion. Taking these multiple benefits into account spreads the costs of controlling CO2 emissions and adds incentives for taking action.

The size and rate of growth of transportation's GHG emissions make them impossible to ignore. The interconnectedness of transportation to nearly every aspect of human activity, the provision of most transportation infrastructure as public goods, the important external costs associated with transportation activity and energy use, and other market imperfections mean that no single policy is likely to achieve the needed reductions in transportation GHG emissions. A suite of policies will be necessary. Devising and implementing an effective, comprehensive strategy will be a difficult and complex task, but it can be done.

1. The end use sectors are industry, residential, commercial, transportation and agriculture. Electric utility GHG emissions are apportioned to the sectors according to their electricity use.

Conclusions

By combining a variety of policies, U.S. transportation-related carbon emissions could be cut by 20 to 25 percent by 2015 and by 45 to 50 percent by 2030, in comparison to a continuation of current trends in energy efficiency, petroleum dependence, and traffic growth. Curbing the growth of transportation's GHG emissions will require a combination of meaningful policies and technological progress. A successful policy portfolio will involve all modes of transportation and will include a variety of measures, from fuel economy and fiscal policies to infrastructure investments. In the longer run, technological progress — and policies that promote it — must provide the means for continued efficiency improvements and ultimately for a transition to low-carbon energy sources for transportation. There are many specific forms of policies that can achieve the same objective.

Reducing transportation's GHG emissions will not be easy because demand for mobility of both people and goods will almost certainly continue to grow. Increasing transportation activity will result in growing energy use and GHG emissions, unless the energy efficiency of vehicles can be increased, alternative energy sources developed, and ways found to improve the ability of land use and transportation systems to provide accessibility with less motor vehicle travel.

The international effort to protect the global climate, especially efforts to reduce GHG emissions from transportation, provides a unique opportunity for the United States to work cooperatively with other countries to reduce worldwide demand for oil. Both near-term and longer-term actions to reduce GHG emissions from transportation will produce major benefits for U.S. energy security in the form of reduced oil imports and reduced economic losses from oil price shocks. Actions to reduce GHG emissions taken in concert with the other oil-consuming nations of the world will undermine the market power of the OPEC cartel, amplifying the United States' own efforts to increase energy security. By staying out of the global effort to reduce GHG emissions, the United States may be squandering its best chance to solve the oil dependence problem.

Harnessing market forces is a very useful but probably insufficient strategy for mitigating transportation's GHG emissions. Even a carbon cap-and-trade system, as beneficial as it would be, would be hindered by the tendency of households to undervalue fuel economy. It would be unlikely to bring about an appropriate level of investment in long-term transportation energy technologies and would not guide important investments in transportation infrastructure and the built environment. A combination of policies is needed to promote energy efficiency, stimulate investments in research and development, improve land use and infrastructure planning, and harness market forces.

For at least the next decade, the U.S. transportation system will continue to be powered primarily by conventional, petroleum-based liquid fuels. As a result, the most productive options to reduce GHG emissions will be fossil fuel or carbon pricing policies, energy efficiency improvements, and the blending of low-carbon replacement fuels with petroleum liquids.

Over the next 15 to 30 years, new technologies will be introduced, and the stock of transportation vehicles will be turned over twice, making much larger increases in energy efficiency possible. The world is also likely to have begun an important transition from conventional petroleum to alternative energy sources. The path of least resistance would be a gradual transition to increased use of unconventional sources of liquid hydrocarbon fuels, yet promising technologies are emerging that could lead in a very different direction, toward major roles for hydrogen and electric motors. It is not too soon to begin planning for and developing the technologies for an energy transition for transportation. The use of unconventional fossil fuels entails higher costs and more severe environmental consequences. An alternative, cleaner, more economically efficient energy future for transportation is possible, if the right technologies can be developed.

Increasing the efficiency of energy use now will buy more time for the transition and for the development of alternative technologies. Other decisions made over the next 10 years in R&D and also in infrastructure investments will influence the path taken. The paths that lead toward very low GHG emissions will require bold changes in technology and investments in infrastructure. At the same time, continued improvements in energy efficiency will be valuable whichever path is chosen. If the high-carbon fossil fuel path is chosen, continuing efficiency gains will be needed to hold carbon emissions in check. If the low-carbon path is chosen, higher efficiencies will help reduce the costs of clean technologies.

An attractive alternative to a petroleum-based transportation system is one based on hydrogen. Hydrogen can be produced from a variety of energy resources with minimal environmental impacts with the right technologies. Hydrogen, however, is not yet ready to compete with petroleum. Technological advances are needed in hydrogen storage, in the robustness and cost of fuel cells to produce power from hydrogen, and in economical and environmentally benign hydrogen production. The federal government's newly created FreedomCAR and hydrogen initiatives and California's Fuel Cell Partnership aim to create a transportation system powered by pollution-free hydrogen fuel cells. Even with the best efforts of these programs, it will be at least 15 to 20 years before hydrogen can achieve significant success in the marketplace.

The United States is the source of one-fourth of the world's GHG emissions. It is also the owner of the world's largest transportation system, the fastest growing source of CO2emissions in the U.S. economy. The U.S. transportation system is a key target for GHG emissions reduction. There are many responsible and cost-effective actions that can be taken to restrain the growth of GHG emissions from transportation. Action can begin today, and pathways exist to a low-carbon future for transportation. Formulating and implementing an effective, comprehensive strategy will not be easy, but it can be done.

About the Authors

David L. Greene, Oak Ridge National Laboratory

A Corporate Fellow of Oak Ridge National Laboratory, David Greene has spent 25 years researching transportation and energy policy issues for the U.S. government. His research interests include analysis of policies to mitigate greenhouse gas emissions from transportation, energy and transportation demand modeling, economic analysis of petroleum dependence, and understanding market responses to advanced transportation technologies and alternative fuels. Dr. Greene earned a B.A. degree from Columbia University in 1971, an M.A. from the University of Oregon in 1973, and a Ph.D. in Geography and Environmental Engineering from The Johns Hopkins University in 1978. He has published over one hundred fifty articles, which have appeared in various professional journals, books, and technical reports. In recognition of his service to the National Academy of Science and National Research Council, Dr. Greene has been designated a lifetime National Associate of the National Academies.


Andreas Schafer, Massachusetts Institute of Technology

Andreas Schafer is a Principal Research Engineer at the Center for Technology, Policy & Industrial Development and the MIT Joint Program on the Science and Policy of Global Change at the Massachusetts Institute of Technology. Previously, he spent 5 years with the Energy Systems group at the International Institute for Applied Systems Analysis (IIASA), Laxenburg (Austria). His research interests cover the modeling of the demand for and supply of energy and transportation systems and the introduction of technology under environmental constraints. He holds a M.Sc. in Aero- and Astronautical Engineering and a Ph.D. in Energy Economics both from the University of Stuttgart, Germany.

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