Energy & Technology
Race to the Top: The Expanding Role of U.S. State Renewable Portfolio Standards
Prepared for the Pew Center on Global Climate Change
Barry G. Rabe, University of Michigan
Download Entire Report (pdf)
Eileen Claussen, President, Pew Center on Global Climate Change
Since the release of our 2002 report on state-level climate activity, Greenhouse and Statehouse: The Evolving State Government Role in Climate Change, the pace of innovation and adoption has quickened. States are taking a broad range of actions that reduce greenhouse gas emissions. One of the most widely-used policy tools is the creation of a renewable portfolio standard (RPS). These standards generally mandate that renewable energy provide an increasing share of state's electricity. As of mid 2006, 22 states and the District of Columbia have implemented an RPS.
In this Pew Center report, author Barry Rabe of the University of Michigan concentrates on this subset of the increasingly broad range of state climate policy initiatives. This work presents an overview of this policy tool, focusing on case studies of five states: Texas, Massachusetts, Nevada, Pennsylvania and Colorado. These cases reveal a number of themes with implications for other states considering adoption of an RPS, as well the implementation of a federal renewable portfolio standard.
RPS enactment and expansion appear to draw strong political support independent of party lines. States are enacting or expanding RPSs for multiple reasons, including economic development opportunities and a more reliable and diversified supply of electricity. Environmental factors, such as reduction of conventional pollutants or greenhouse gas emissions, are often seen as secondary drivers in many states. RPSs are already boosting renewable energy supplies in a cost-effective manner, and appear to hold considerable potential for more dramatic gains. They are driving the expansion of important homegrown industries. However, this report also identified a number of challenges that could potentially deter future development and successful implementation of this policy tool.
Many RPS programs remain in very early stages of implementation, and many states are facing serious implementation challenges. How should renewable energy be defined? How should individual states deal with intra-state and inter-state transmission capacity, an issue that calls for greater inter-state collaboration in policy development? Should special status be accorded specific, disadvantaged renewable sources, which might lead to a collision between competing special interests and end up by raising costs?
This report illustrates a classic case of federalism in energy and environmental policy. States adopting RPSs are providing actual data and real-world models, and the early successes of these states are changing the debate about what states can individually accomplish with their energy systems, how states can cooperate regionally, and whether a federal RPS may be feasible. These states are also, however, pushing up against the limits of what states can do without federal support and coordination. Engagement between state and federal policy makers on this issue has been surprisingly limited, and is overdue. These policy experiments may prove a deciding factor in the energy path that the United States chooses to take, demonstrating that renewables can be a viable part of our energy future.
The Pew Center would like to thank Margaret Kriz, a Nieman Fellow at Harvard University, Kirsten Engel, Professor of Law at the University of Arizona, and Rick Gilliam, Senior Energy Policy Advisor at Western Resource Advocates for their comments on an earlier draft of this report. Barry Rabe would like to thank Katie Kerfoot for her research assistance, and Joshua Bushinsky, the States Solutions Fellow at the Pew Center, who authored the Appendix.
The role of American state governments in developing policies to reduce greenhouse gases continues to expand at a steady clip, measured both in the sheer number of policies and their potential impact on emissions. One of the most widely-used policy tools involves creation of a renewable portfolio standard (RPS). Such policies mandate that utilities operating within a state must provide a designated amount or percentage of power from renewable sources as a portion of their overall provision of electricity. This policy is not unique to the United States, as it is employed by a number of national governments as well as subnational entities that range from the state of South Australia to the province of Prince Edward Island. But they have proliferated among the American states at a rapid rate, having been adopted by 22 states and the District of Columbia as of mid 2006, with a strong likelihood of continued expansion in coming years. Well over half of the American public now lives in a state in which an RPS is in operation and at least one state has such a policy in every region of the nation except the Southeast.
This report builds on earlier Pew Center analyses of the evolving state role in climate policy development, placing a particular focus on the RPS experience to date. It presents an overview of this policy tool and examines key factors in both policy formation and implementation. This work considers the experience of all RPS states but devotes particular attention to five case studies that illustrate both common themes and points of divergence among individual state programs. The analysis concludes with an examination of RPS performance to date and some of the leading opportunities and challenges facing future development.
The continued proliferation of state RPSs and the decision in many states to establish second-generation policies illustrate that these policies tend to draw a fairly broad base of political support that often crosses partisan lines. States are compelled to enact or expand RPSs for multiple reasons, and greenhouse gas emissions may or may not be central factors in prompting adoption. Instead, states consistently anticipate significant economic development benefits from promoting renewables, particularly given the promise of developing home-grown energy sources that could lead to instate job creation. In turn, states are also attracted to RPSs by the prospect of greater reliability of electricity supply in coming decades and the prospect of reducing conventional air pollutants through a shift toward expanded use of renewables. Virtually all state RPSs make some use of flexible compliance mechanisms, including tradable renewable energy credits, although there is some inter-state variation in defining what constitutes a renewable energy source.
In recent years, important trends have emerged in RPS development. These include increasingly ambitious levels of renewable energy mandated over future periods, such as 25 percent of New York electricity by 2013 and 20 percent of Nevada electricity by 2015. In turn, many states have begun to differentiate between various sources of renewable electricity, providing special provisions to support certain forms of renewables that have lagged behind others due to high costs, and some are beginning to incorporate energy efficiency as a way to meet RPS goals. In a number of instances, RPSs have clearly played a central role in fostering rapid and significant expansion of the amount of renewable energy provided in a state.
Looking ahead, RPSs face a number of opportunities and challenges. As the number of state policies continues to grow, inevitable questions of cooperation across state boundaries arise. This may be particularly evident in those parts of the country, such as the Northeast and Southwest, in which de facto RPS regions are emerging through the independent actions of neighboring states. In turn, states increasingly face implementation challenges, including issues of siting new renewable energy facilities and, in some instances, expanding transmission capacity. Furthermore, there has been remarkably little engagement between state and federal policy makers on this issue and clearly a strong need for greater intergovernmental collaboration in thinking about sustaining the advances of individual state policies while consideration of a federal version of an RPS continues.
Challenges and Opportunities: The Next Round of RPS Development
A decade and a half after Iowa's enactment of the first state RPS, this policy has diffused to the point where more than one-half of the nation's citizens are covered by some version of a standard. The 22 states that currently operate an RPS represent nearly every region in the country, working from the same basic principles but tailoring their particular program to the special circumstances presented by each individual state. If anything, the trend toward proliferation and diversification has intensified in the last few years. More and more states are adopting RPS programs, a growing number have begun to give serious attention to an RPS, and existing RPSs are being revisited legislatively and increasingly expanded in scope and ambition.
Many of these programs remain in very early stages of implementation, reflecting the complexity of organizing renewable energy credit systems and other key features. But early indicators suggest that RPSs have considerable promise for boosting renewable energy supplies and doing so in a cost-effective manner. The basic structure of an RPS involves a blending of regulation and delegation of many choices to the marketplace that is clearly appealing to a diverse set of elected officials and organized interests. RPS enactment-and expansion-continues to occur in states with Republican, Democratic, and divided control of state political institutions.
States are clearly drawn to the RPS concept for multiple reasons. Economic development opportunities are paramount in all cases, as a growing set of states see significant job and investment opportunities in expanding their base of renewable energy. In turn, states envision advantages in creating a more reliable supply of electricity for coming years, a direct response to mounting concerns over both the price and availability of more conventional energy sources such as natural gas. Environmental factors, including reduction of conventional air emissions as well as greenhouse gases, figure differently in various cases but are clearly seen as a secondary driver in many states. Collectively, the evolving and expanding state experience with RPSs confirms the very real potential of policy development that simultaneously advances economic and environmental concerns.
Looking to the future, it appears reasonable to assume that additional states will enact RPSs in the coming years, just as existing RPS states continue to pursue implementation and revisit their goals. In anticipating the next generation of RPS development, a series of important challenges and opportunities appears to loom, concerning both continued policy development by individual states and increasingly salient interstate and intergovernmental factors.
First, a series of important issues has begun to emerge that may not have been fully anticipated at the point of enactment but could potentially deter successful implementation. Part of the initial attraction of the RPS concept was that while it did impose regulatory requirements specifying the amount of renewable energy that would be provided, it did not favor one source over another as long as it was deemed eligible. This meant that an initial regulatory intervention was followed by deference to the market, allowing different renewables to compete and demonstrate their ability to emerge as a viable alternative to traditional sources. The growing tendency to accord specialized status to more expensive renewable sources removes the level playing field originally intended in most states and, in some instances, may require significant financial subsidies from state sources or rate payers and thereby raise the cost of the policies. Moreover, the shift toward differential treatment has changed some of the recent debate over renewable energy policy in state capitals toward a collision between competing special interests, each seeking preferential treatment for its particular source (Rabe and Mundo 2007). Over time, one could envision a transformation whereby a well-intended effort to supplement select renewable sources altered RPSs into a complex formula with differential treatment for varied sources, thereby removing much of the flexibility of this policy tool and increasing the cost of implementation.
Second, much of the early planning for RPS targets assumed public support for renewable energy not only in general terms but also in presumed receptivity to siting facilities and related transmission capacity. In two of the five cases, one of the most important determinants of RPS success will involve siting issues. In Massachusetts, the formidable opposition to the Cape Wind project and the controversy surrounding development of biomass capacity raise the question of whether strong political support for renewables in abstract terms will actually translate into new renewable capacity that can be successfully sited. Without some breakthrough on siting issues within the state, Massachusetts could be forced to backtrack on its RPS targets. This problem may become increasingly common for those states with relatively concentrated and populated areas for outstanding renewable sources and it raises a new set of challenges for policy proponents. In Texas, perhaps the biggest potential impediment to achievement of its ambitious RPS goals is the construction of transmission capacity to move robust sources of wind power toward more populous areas. More generally, the development of both intra-state and inter-state transmission capacity remains a significant challenge, particularly in those regions of the country where there is substantial physical distance between the energy source and its potential consumers.
Third, the challenge of developing superior transmission capacity and RPS proliferation more broadly suggests an increasing likelihood that states may benefit from greater interaction and collaboration with each other. Case studies confirm that individual states are keen to maximize economic and environmental benefits from RPS implementation but they also highlight instances in which cross-state cooperation may be essential. This may include agreements for common definitions of renewables and related credits as well as shared efforts to promote regionally-based renewable resources with high potential. States will also need to guard against "double counting," ensuring that renewable generation can only count toward RPS and greenhouse gas reduction requirements in one state. Such collaboration is most evident at present in the Northeast, where states are physically small and their economic and energy systems are closely connected. But interstate collaboration is also emerging as an issue in other regions, particularly the Southwest with its growing cluster of individual state RPSs. Indeed, one of the strongest cases against "bottom-up" policy design in a federal system involves those situations in which multiple states fail to work cooperatively and instead establish a patchwork quilt of provisions that preclude interstate cooperation. States need to begin to look beyond their own borders and seize multi-state or regional opportunities that would benefit all parties. One early model for such collaboration involves an 11-state effort convened by the Western Governors' Association in attempting to develop a common regional system for the issuance, tracking, and retirement of renewable energy credits. The so-called Western Renewable Energy Generation Information System (WREGIS) has been working in recent years to establish such a unified system for credit definition and oversight (Xenergy, Inc. 2003) and also includes authorities from western Canadian provinces and Mexican states.
Thus far, states are clearly learning lessons from one another, just as Nevada has closely monitored developments in Texas in refashioning its own RPS. Much of this cross-state interaction, however, occurs only sporadically and state officials across the continent acknowledge that they lack resources to carefully evaluate other programs and draw important lessons. Review of legislative testimony in all of the states examined as case studies suggests only occasional and often imprecise reference to the experience of other states. State budget woes in recent years have clearly eroded the capacity of some state agencies to maintain policy analysis expertise, attend conferences and workshops out of state, and monitor developments in neighboring states. In turn, pressures to maximize the capture of economic development benefits within state boundaries can serve to deter serious exploration of cross-state collaboration.
One area with considerable potential for inter-state collaboration is the development of a common metric for determining the greenhouse gas emissions impacts as various levels of renewable energy are brought on line in concert with RPS requirements. Of the five case studies, only Massachusetts has attempted to estimate in a systematic manner the greenhouse gas reduction achieved through RPS implementation (Massachusetts Office of Consumer Affairs and Business Regulation 2005, 2006). But Commonwealth officials acknowledge that this reflects only an initial estimate. "There are lots of debates over the assumptions that one uses and disagreement among stakeholders," noted one senior Massachusetts official. "I do not see a consensus here anytime soon." In contrast, other states have been reluctant to even venture a guess as to likely greenhouse gas impacts, noting methodological complexities and resource constraints in developing the needed analytical capacity. "The RPS is clearly having an impact on greenhouse gases but it is hard to get the model right," noted a senior Texas official. "If you add a big wind farm, where exactly is that off-setting generation? It is hard to track all of that and determine how much thermal source is being replaced." State officials generally concur that the methodological issues can likely be resolved and would clearly welcome a mechanism to help establish a commonly accepted metric as RPSs promote higher levels of renewable energy. The appendix outlines the key issues for making these calculations, and a set of options that state officials might explore in working toward common methodology in this area.
Interstate collaboration could also take other forms, allowing neighboring RPS states to trade RECs and encourage integration between RPS implementation and other state policies designed to reduce greenhouse gases. One could also envision common efforts to build respective renewable sources through both informal and formal agreements between states. In recent years, multiple states have demonstrated new ways to work toward common cause in areas ranging from tax policy to vehicle registration to regional attainment of ozone standards, all with the intent of benefiting all participating states (Greenblatt 2005; Engel 2005; Zimmerman 2004). Renewable energy-and RPSs-may offer similar opportunities for states, much as other states are beginning to join common cause on other climate initiatives. In the case of cap-and-trade programs, for example, New York and seven other eastern states have concluded that it makes more sense to work together than separately, leading to the evolution of the Regional Greenhouse Gas Initiative (De Palma 2005). More broadly, states might also expand opportunities to work with other neighbors, such as Canadian provinces, in instances where considerable energy is already shared and similar policies are emerging between respective states and provinces.
Such collaborative precedents might fruitfully guide states away from steps that significantly constrain interstate movement of renewable energy and potentially violate the Commerce Clause of the U.S. Constitution. This is simply not an issue in those states with a strong recognition of cross-state interdependence. But it is conceivable that policies that are in some way designed to minimize the role of out-of-state renewables in meeting RPS targets could face a Constitutional challenge. Examples of such policies include those that confine acceptable imports to those that arrive via a dedicated transmission line, most notably Nevada and Texas. The Constitutional boundaries are not at all clear in this area, especially given the recent departure from the Supreme Court of Justices William Rehnquist and Sandra Day O'Connor, who held strong views on the power of states in relation to the federal government. To date, no legal challenges invoking the Commerce Clause have been brought against a state RPS but the very possibility of such a test further underscores the potential benefits of greater interstate collaboration to minimize the likelihood of such a confrontation.
Fourth, as the United States moves toward a de facto national RPS through a tapestry of state-based programs, it is important to find ways that the federal government can play a constructive and supportive role. President George W. Bush signed the Texas RPS into law in 1999 and two former cabinet-rank officers took similar steps when they served as governors of their respective states (New Jersey and Wisconsin). That statehouse experience has not, however, necessarily translated into constructive federal engagement and support for continued state experimentation with RPSs. Indeed, it is difficult to understate the antipathy individuals responsible for different areas of RPS development and implementation at the state level express over their dealings with the federal government. This cuts across partisan and regional lines and reflects a deep state-based desire that, in the words of one official, "the feds not come in and mess up all the good stuff we've been trying to do."
Repeated fluctuation in the federal production tax credit for renewable energy has fostered a boom-and-bust cycle for renewable development in a number of states, leaving significant lags in the development of renewables during those periods in which the credit has been terminated or its status has remained uncertain. Officials in Texas and other states with large renewable targets contend that this fluctuation has been the single biggest impediment to even further expansion of renewable capacity. In this instance, most state officials welcome the recent extension of the credit in the 2005 Energy Act as one of the more constructive federal actions in many years.
States also remain concerned by their very limited inclusion in Congressional debates over various energy and climate initiatives. Most state officials interviewed for the case studies readily acknowledge they knew little or nothing about various federal RPS proposals that have been advanced in the U.S. Senate; they are adamant that states have taken the lead amid federal inertia and that the collective state experience with this policy tool should be studied carefully in guiding any future federal actions. In particular, state officials are opposed to any federal legislation that would preempt or constrain existing state policies and are very concerned about any steps that would penalize them for taking early actions. There appears to be particular concern among state officials about avoiding one of the unexpected consequences of the 1990 Clean Air Act Amendments. In that case, the level of sulfur dioxide allowance authorized for expanding renewable energy was set quite low (one ton of emissions for each 500 mWh of new renewables). The small number of allowances provided to incentivize renewable energy was not sufficient to make renewables competitive with the cheaper compliance options of switching to lower-sulfur coal or SO2 scrubbers.
One constructive step that could be taken early in the next Congress would be a sequence of hearings designed to distill lessons from state practice that could guide future consideration of the design of a federal RPS. Such hearings might also explore models for a two-tier RPS system, with one tier that established a national framework and national REC trading process alongside another that allowed them to sustain renewable targets above any federal level through their own programs. These systems could be linked through allocating credits to states for early action. Terms for state entrance into a possible federal program have been a major focus in the creation of the Regional Greenhouse Gas Initiative. This experience and lessons from other forms of intergovernmental collaboration in environmental policy could also afford useful guidance for possible models of state and federal cooperation under a multi-tier RPS.
Despite persisting intergovernmental concerns, state officials generally recognize and welcome constructive forms of federal engagement. They perceive the federal production tax credit as an essential step to equalize the playing field with conventional sources that have long received a range of governmental subsidies. They also acknowledge the need for federal assistance in improving transmission capacity, particularly given the challenge of tapping renewable sources in remote areas and finding ways to transfer such electricity to high-demand areas. In turn, many state officials note that the federal government could also promote interstate learning about RPS experience and help with the development of common metrics to determine greenhouse gas impacts as well as foster cross-state collaboration.
It remains unclear whether the federal government might at some point draw larger lessons from the states and develop a nation-wide version of an RPS that thoughtfully and systematically builds on the best practices of state experience. At present, the American experience resembles that of other federated systems of government, such as the European Union and Australia. In all of these cases, RPSs continue to proliferate and mature, with the possibility of eventual incorporation into a policy that applies across jurisdictions. For now, states have moved to the cutting edge of this issue both domestically and internationally, having evolved in recent years from modest experimentation to the assumption of central roles in this area of climate policy development.
All references are cited in the report, which can be downloaded here.
February 8, 2006
Contact: Katie Mandes, (703) 516-0606
PEW CENTER ON GLOBAL CLIMATE CHANGE RELEASES FIRST COMPREHENSIVE APPROACH TO CLIMATE CHANGE
All Sectors Must Share in Solution
WASHINGTON, D.C. – The Pew Center on Global Climate Change released the first comprehensive plan to reduce greenhouse gas emissions in the United States. The Agenda for Climate Action identifies both broad and specific policies, combining recommendations on economy-wide mandatory emissions cuts, technology development, scientific research, energy supply, and adaptation with critical steps that can be taken in key sectors. The report is the culmination of a two-year effort that articulates a pragmatic course of action across all areas of the economy.
The report calls for a combination of technology and policy and urges action in six key areas: (1) science and technology, (2) market-based programs, (3) sectoral emissions, (4) energy production and use, (5) adaptation, and (6) international engagement. Within these six areas, the Agenda outlines fifteen specific recommendations that should be started now, including U.S. domestic reductions and engagement in the international negotiation process. All the recommendations are capable of implementation in the near-term.
The report concludes that there is no single technology fix, no single policy instrument, and no single sector that can solve this problem on its own. Rather, a combination of technology investment and market development will provide for the most cost-effective reductions in greenhouse gases, and will create a thriving market for GHG-reducing technologies. To address climate change without placing the burden on any one group, the report urges actions throughout the economy.
“Some believe the answer to addressing climate change lies in technology incentives. Others say limiting emissions is the only answer. We need both,” said Eileen Claussen, President of the Pew Center.
Emissions in the United States continue to rise at an alarming rate. U.S. carbon dioxide emissions have grown by more than 18% since 1990, and the Department of Energy now projects that they will increase by another 37% by 2030.
Joining the Pew Center at the announcement were representatives from the energy and manufacturing sectors. Speaking at the release were: David Hone, Group Climate Change Adviser, Shell International Limited; Melissa Lavinson, Director, Federal Environmental Affairs and Corporate Responsibility, PG&E Corporation; Bill Gerwing, Western Hemisphere Health, Safety, Security, and Environment Director, BP; John Stowell, Vice President, Environmental Strategy, Federal Affairs and Sustainability, Cinergy Corp., Ruksana Mirza, Vice President, Environmental Affairs, Holcim (US) Inc.; and Tom Catania, Vice President, Government Relations, Whirlpool Corporation.
While actions are needed across all sectors, some steps will have a more significant, far-reaching impact on emissions than others and must be undertaken as soon as possible.
- A program to cap emissions from large sources and allow for emissions trading will send a signal to curb releases of greenhouse gases while promoting a market for new technologies.
- Transportation is responsible for roughly one-third of our greenhouse gas emissions, and this report addresses this sector through tradable emissions standards for vehicles.
- Because energy is at the core of the climate change problem, the report makes several recommendations in this area: calling for increased efficiency in buildings and products, as well as in electricity generation and distribution. Incentives and a nationwide platform to track and trade renewable energy credits are recommended to support increased renewable power. In recognition of the key role that coal plays in U.S. energy supply, the report calls for the capture and sequestration of carbon that results from burning coal. Nuclear power currently provides a substantial amount of non-emitting electricity, and is therefore important to keep in the generation mix. The report recommends support for advanced generation of nuclear power, while noting that issues such as safety and waste disposal must also be addressed.
- While most of the recommendations focus on mitigation efforts, the report acknowledges that some impacts are inevitable and are already being seen. As a result, it proposes development of a national adaptation strategy to plan for a climate-changing world.
- Finally, despite the importance of efforts by individual countries on this issue, climate change cannot be addressed without engagement of the broader international community. The report recommends that the U.S. participate in international negotiations aimed at curbing global greenhouse gas emissions by all major emitting countries.
Other recommendations include: long-term stable research funding, incentives for low-carbon fuels and consumer products, funding for biological sequestration, expanding the natural gas supply and distribution network, and a mandatory greenhouse gas reporting program that can provide a stepping stone to economy-wide emissions trading.
The full text of this and other Pew Center reports is available at http://www.c2es.org.
The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States’ largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, nonprofit, and non-partisan organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
On October 18, 2005, the Pew Center on Global Climate Change, under a grant from the Joyce Foundation, held a workshop in Cleveland, OH called “Capitalizing on Climate-Friendly Technologies.” The workshop examined how Ohio companies can capitalize on climate-friendly technologies, discussed what the state can do to assist developers, manufacturers and vendors of these technologies, and began to explore strategies to take advantage of these market opportunities. Presenters and participants at the workshop included state officials discussing incentives and opportunities for economic development through public-private collaboration, corporate executives explaining company strategies, a federal official discussing incentives included in the Energy Policy of 2005, and independent business experts identifying economic development tools that increase competitiveness in climate-friendly technologies.
Technology Markets and Products
Rentech Inc. (pdf)
Director, Biotechnology Business Development
President, Primary Metals Development
Alcoa Corporation (pdf)
Technology and Economic Development Initiatives
Colorado Photonics Industry Association (pdf)
I-85 Corridor Alliance, Alabama (pdf)
NorTech, Cleveland, Ohio
Federal Incentives for Climate-Friendly Technologies
Senior Policy Advisor, Office of National Energy Policy
U.S. Department of Energy (pdf)
The Role of Public-Private Partnerships
Ohio Air Quality Development Authority (pdf)
Governor’s Science and Technology Advisor
Governor Taft's Office (pdf)
Senior Advisor, Clean Fuel Initiative of the Deputy Undersecretary of Defense for Advanced Systems and Concepts
U.S. Department of Defense (pdf)
THE ROAD TO SOLUTIONS: REDUCING TRANSPORTATION’S ROLE IN CLIMATE CHANGE
SPEECH BY EILEEN CLAUSSEN
PRESIDENT, PEW CENTER ON GLOBAL CLIMATE CHANGE
PACIFIC GROVE, CALIFORNIA
August 23, 2005
Thank you very much. I am delighted to have this opportunity to be in California. I come to you, of course, from Washington, D.C., which really is a ghost town this month. The President is at his ranch and Congress is out of session, and the biggest news from the capital last week was that the White House had named a woman as executive chef. Yes, things are slow.
Of course there is no word yet on whether the Democrats will try to subpoena all the recipes this person put together back in cooking school. Reading the New York Times report on the appointment of the new chef, you could tell how she won the heart of the President. Following the announcement, the Times said, the new chef immediately left on vacation and was unavailable for comment.
But Washington has not been quiet all summer. Before they left town, of course, our nation’s leaders decided to address the energy challenges facing our nation by extending daylight savings time for another month. When Congress resumes work in the fall, they intend to establish a national bedtime. Anyone caught with his or her lights on after the appointed hour will be detained as an energy combatant.
In any case, it is great to be in California, and to have an opportunity to talk about real solutions to some of the problems facing our country. But I have to begin by mentioning an ad I saw recently for the Chevrolet Tahoe. The Tahoe, as you know, is the top-selling large SUV in the country and has a fuel economy rating of 16 miles per gallon in the city, 20 on the open road.
Despite this, the Tahoe now is advertised as having – and I quote – "the best fuel economy in its class." I am not kidding. This is the equivalent of Arnold Schwarzenegger saying he is the best governor in the country who holds the title of Mr. Universe. Once you define your class in narrow terms like this, you can be the best in anything. Think about baseball . . . you can have the highest batting average in West Coast Thursday night road games, for example, or the most home runs against pitchers who are vegetarians. In all of these cases, the competition isn't, well, that competitive.
But GM’s advertising gambit for the Tahoe may actually be a positive sign; because it reflects an acknowledgement that fuel economy is now a factor in Americans’ decisions about the cars we buy. Gas prices have been rising. The Middle East continues to be politically volatile, threatening supplies. And climate change finally seems to be appearing on the political radar. Even our reluctant President is talking about the need for action.
Before the recent rise in fuel prices, when consumers were asked about key things they considered when buying a new vehicle, gas mileage was twenty-fifth on the list. I repeat: twenty-fifth. Now, however, it seems that gas guzzling is not as socially acceptable as it was in the past. For anyone who picks up the morning paper or watches the evening news, low mileage is becoming increasingly hard to justify on a financial or environmental basis. And now we see this reflected in the consumer surveys: a 2004 J.D. Power survey found that poor gas mileage was the number-five reason why consumers rejected specific models of cars and trucks. Among the other top five reasons were that the total price was too high, the consumer didn’t like the exterior design and styling of the vehicle, and there just wasn’t enough of that new car smell. (Okay, I am kidding about that last one.)
Seriously, all of us know very well that Americans love their automobiles. And the reason we are here at this conference is because this love affair is causing problems for the climate. But it is not just the environment that is at risk. Our national security is, too. James Woolsey, the former CIA director, drives a Prius. And the reason he drives a Prius is not because he loses sleep at night thinking about climate change. Yes, he believes in the science and certainty of climate change, but what he really loses sleep over is the idea that our dependence on oil poses a grave risk to our economy and our security.
Woolsey put it in a this way in a recent paper he coauthored with former Secretary of State George Schultz – and I quote:
“Four years ago, on the eve of 9/11, the need to reduce radically our reliance on oil was not clear to many and, in any case, the path of doing so seemed a long and difficult one. Today, both assumptions are being undermined by the risks of the post-9/11 world and by technological progress in fuel efficiency and alternative fuels.”
Of course, James Woolsey and George Schultz are not alone in noting the alignment between America’s national security and environmental interests. New York Times columnist Thomas Friedman has written often about the emergence of a movement he calls the “geo-greens” — people who are worried about our dependence on Middle Eastern oil for both environmental and security reasons.
Here is how Friedman explains it:
“Geo-greens seek to combine into a single political movement environmentalists who want to reduce fossil fuels that cause climate change, evangelicals who want to protect God’s green earth and all his creations, and geo-strategists who want to reduce our dependence on crude oil because it fuels some of the worst regimes in the world.”
Those of us who have been talking for all these years about the importance of addressing climate change should welcome the opportunity to broaden the case for action on this issue. And, we should work together with all of the allies we can find – on all sides of the political spectrum – to develop a plan for protecting our economy, our security and our environment in the decades ahead.
But I am not here to talk about why we need to act. I would guess that virtually everyone in this room acknowledges that reducing our dependence on oil and addressing climate change are two reasons why we must act. So what I want to do is issue a challenge to the American automobile industry. It is a challenge that will require the industry to apply all of its considerable ingenuity and technical skill. It won’t be easy, but I think it can be achieved.
And the challenge is this: the auto industry should set a goal to reduce vehicle carbon dioxide emissions from business-as-usual levels by 50 percent by 2050. I call it the “Fifty by Fifty” challenge.
Now, I admit this sounds like a lot. Actually, it is a lot. But people and governments around the world, including right here in the United States, now accept that it is going to take bold steps to address the problem of climate change. It is going to take a new industrial revolution. And industry, of course, will need to take the lead in making that revolution happen.
A recent study from the U.S. Department of Energy, along with Advanced Resources International and Energetics, looked at a scenario where we achieve significant increases in automobile efficiency over the next 50 years; substantial penetration of zero-carbon vehicles; and a complementary decrease in the number of vehicle miles traveled. And the result, according to the study, would be a reduction in business-as-usual emissions of 57 percent. So 50 percent, should be eminently achievable.
The U.S. auto industry historically has responded slowly to uncomfortable challenges – to the crusade for clean air, to fleet fuel efficiency standards, to the vehicle quality and reliability challenges from foreign manufacturers in the second half of the 20th century. And now the buildup of atmospheric CO2 poses another challenge. It is not a stretch to say that the industry’s response to the environmental and national security problems created by our continuing (and growing) reliance on oil will determine its future. To meet the “Fifty by Fifty Challenge,” automakers must begin increasing the efficiency of the vehicles they produce right now, while at the same time accelerating the development of zero-carbon autos. The goal should be to develop the capability to have one in four new vehicles sold produce zero emissions by 2050.
The auto industry has some of the finest engineers and marketing people in the world. I’m optimistic that when they focus their considerable talents on the most important problem of our time, we will all reap the benefits.
But, of course, industry cannot do this entirely on its own. Government should provide the impetus for action through a clear statement of intent to address the problem, coupled with tough but achievable standards. Many nations, including those of the European Union, together with Japan, Canada and even China, are acknowledging this. They are setting the bar high for themselves. A recent Pew Center report found that the European Union and Japan have the most stringent emissions standards in the world. Even the new standards proposed here in California would be less stringent than what is required right now in the European Union. When standards are measured in terms of the fleet-average fuel efficiency rate required of automakers, the U.S. standards were lower not only than the EU’s and Japan’s but also Australia’s, Canada’s and even China’s. We can do better than that – and we must.
One problem with creating a buzz about climate change has been that many of the problems it creates are viewed as occurring somewhere in the distant future. President Bush tacitly acknowledged this bias when he placed the issue among the nation’s “long-term priorities.”
But the reality is that the impacts of climate change are not “out there” – they are being felt right now around the world. We have now crossed a horizon where these problems can be viewed as becoming increasingly urgent and alarming not in 50 or 100 years but in that span of the automotive business cycle – over, say, a 20-year planning period. The famed “Snows of Kilimanjaro,” for instance, are expected to be gone completely in 20 years. And I believe U.S. automakers may suffer a similar fate if they do not face up to this challenge right now.
So that’s the challenge. The real question is: how do we get there? What should the policy agenda be?
I know you will be exploring these issues in more detail over the next three days. My job (I think) is merely to get you thinking about some of these things in broader terms – as much as you want to think about these things at all after drinks and a delicious dinner. (When I first saw the schedule for this evening, I thought I could call my remarks, “Toward a Policy Agenda for Climate Change – But First Toward Bed.”) So, I will try to get us where we need to go as efficiently as possible.
My own agenda tonight is to provide context for your conversations between now and Friday. And I want to do this by touching on four key points.
- The first is that transportation, as I have already said, is a fundamental part of the climate change problem – and must therefore be a fundamental part of the solution as well. If we don’t meet the transportation challenge, we won’t stand a chance of meeting the overall challenge of addressing climate change.
- Second, I want to emphasize the need for both short-term and long-term solutions —this is not an either/or proposition. We clearly need both.
- Third, I want to talk about the role of public policy in creating a favorable climate for technology development and deployment.
- And, last but not least, I want to talk a little more about the role of industry – and specifically the automobile and fuel companies – in forging solutions. One of the hit movies of the summer is “Batman Begins.” The caped crusader, happily for our metaphor, drives a car, the Batmobile, in which he rushes around saving the world. I hope tonight we can launch the world premiere of a new superhero, the automobile industry, dressed in its Day-Glo superhero Spandex costume, rushing in at the propitious moment to save the world from global warming.
As I mentioned at the start of my remarks, the reason we are all gathered here this week is because, well, people love their cars and trucks – and cars and trucks, in turn, are an important source of greenhouse gas emissions.
Here in California, where the notion of the “freeway” came to life, your state is home to 26 million registered vehicles. Nationally, Americans own more than 225 million passenger cars, trucks and motorcycles. According to the American Automobile Association, we will drive more than 3 trillion road miles this year. By my calculations, this is the equivalent of more than 500 trips to Pluto and back every year. That’s Pluto, the planet at the edge of the solar system, not Pluto the character at Disneyland.
Over it’s manufacturing and operating lifetime, a single typical American-made vehicle – say, a Ford Taurus -- is responsible for 61.9 tons of CO2 entering the atmosphere. The vast majority of this -- 55.1 tons -- is from fuel burned over the road life of the car. So reducing emissions from auto manufacturing operations, while not unimportant, is not the answer to this problem.
The operation of passenger cars and pickups in the United States contributes about 19 percent of U.S. CO2 emissions. In California, where you do more driving and have more efficient electricity generation than national averages, this percentage is much higher — transportation is responsible for over 40 percent of California’s GHG emissions.
Nationwide, transportation activities are responsible for more than 1.8 billion metric tons of CO2 entering the atmosphere each year. These emissions consist primarily of carbon dioxide from fuel combustion, but they also include nitrous oxide and other greenhouse gases. Our transportation sector alone emits more carbon dioxide than all sources in every other country except China.
Think about that for a minute – if our transportation sector were a country in and of itself, it would be third in carbon emissions after the United States and China – and China, I remind you, has four times our population.
Despite all the talk about hybrids and Americans’ increasing attention to fuel economy, transportation-related energy use and emissions both are rising in this country. Among the reasons: we’re driving greater distances; and the fuel economy of today’s cars and trucks actually has been starting to decline. For every Prius that Toyota sold in 2004 in the United States, it sold two full-size Tundra pick-up trucks, which consume nearly three times as much gas to go the same distance as the Prius.
Most of you have probably seen the recently released EPA report on automobile fuel efficiency. It shows that the average 2004 model car or truck got 20.8 miles per gallon. That is 6 percent less than the average new vehicle sold in the late 1980s. Something is clearly wrong with this picture if we are to be on a path to dealing with our national security and the need to address climate change.
The key to a solution lies, I believe, in establishing a framework for action for the next 50 years. At the Pew Center, we have been working on such a framework -- we call it the 10-50 solution.
By 10-50, we mean that America needs be thinking ahead 50 years, envisioning what our society and economy will have to look like at that time in order to achieve the goal of significantly reducing our emissions of greenhouse gases. That’s the “50” part. The “10” means that we need to identify policies and strategies that we can pursue in the next ten years that set a course for the decades after to achieve our long-range goal. The 10-50 solution therefore looks at both the short term and the long term – and it helps us figure out those short-term steps that will get us to a long-term vision of a low-carbon economy, including a low-carbon transportation sector.
The 10-50 approach takes a long-term view because the problem of climate change, as I have said, calls on us to create a new industrial revolution. This is a revolution that is going to have to reach across every major energy-producing and energy-consuming sector of our economy. It is going to take time to develop and deploy the full complement of technologies that are needed to wean our economy from an over-reliance on fossil fuels.
At the same time, the 10-50 approach enables us to identify the practical steps we can take right now and in the decades to come to achieve steady progress. It forces us to ask important questions about the mix of policies needed to unleash the power of the marketplace as a positive force for change.
So let’s look first at short-term technologies that can reduce greenhouse gas emissions right now. And the technology that appears to hold the most promise is, of course, the hybrid gas-electric engine. Clean-diesel engines also hold significant promise. German clean-diesel technology vehicles emit 30 percent less CO2 per mile. But with the diesel engine, we still have work to do on particulate emissions; I know that the technology is improving all the time, so diesels should probably be part of the mix going forward. Diesel hybrid technology could potentially contribute up to 30 percent toward reaching our goal of 50% reduction from business as usual by 2050.
Biofuel blends also can help in the near term. And what all of these near-term technologies have in common is that they will not require significant changes in our elaborate infrastructure for producing, distributing and retailing conventional petroleum fuels. Nor will they require appreciable changes in the most popular and important features of today’s vehicles, reliability, safety, convenience, and 27 cupholders.
Of course, the simplest and cheapest way to reduce CO2 emissions is to drive lighter cars, but getting Detroit to put today’s vehicles on the equivalent of the South Beach Diet has been a challenge. The recently released EPA report I cited shows that the average new vehicle weight of automobiles in America has risen to about 4,000 pounds today, from about 3,200 in the early 1980s.
And there are other things that can be done without a whole lot of trouble to increase fuel efficiency – technologies and vehicle designs that can, for example, reduce aerodynamic drag and reduce rolling resistance. Again, all of these are eminently doable solutions, and all of them can happen now or relatively soon.
And what about the longer-term technologies? Here, of course, I am talking about hydrogen fuel cells, biofuels, and all-electric cars and trucks. And there are others. What these technologies have in common, in addition to their potential contribution to reducing long-term emissions, is that none are ready for mainstream use. Fuel cells, advanced energy storage and many other “break-through” technologies will take decades to figure out. The sooner we get started, the sooner they can deliver on their enormous promise of significant, long-term reductions in emissions.
It is important to note here, too, some of the synergies between the technologies that will help us achieve short-term vs. long-term progress. For example, as we continue working on hybrid technologies, we are getting a significantly better handle on the electric systems that will be the driving force of hydrogen-powered and all-electric cars.
It is also important to note the importance of not putting all of our eggs into one basket. We need to be pushing ahead on all of these technologies simultaneously in case some of them don’t pan out. It is important – no, vital – that we vigorously pursue every lead we have.
Which brings me to the next part of my remarks: what are the policies that can get us to take the short-term actions that will make a difference, and also invest significantly in the longer-term technologies that we will need if we are to meet the challenge. I believe that the single most important thing that the government can do to set the stage for real progress in reducing transportation-related emissions is to adopt standards. As is often the case on these issues, the United States has a lot to learn from California. Not only has your Governor embraced an ambitious target for reducing overall emissions, but policymakers here also are seeking to take the concrete step of placing direct limits on greenhouse gas emissions from cars. Whether or not this effort will move forward is now up to the courts. However, if it does move forward, several other states have already signaled a willingness to follow California’s lead.
But state standards, while a big step in the right direction, are not enough. We do need national standards. In the best of all possible worlds, we would convert our current fuel economy standards to a set of tradable standards based on greenhouse gas emissions – and to make those standards stringent enough that they spur action, but not so stringent that they cause major disruptions in the auto industry. At the very least, we need once and for all to reform the CAFE program – for example, by establishing tougher standards with longer lead times, and by making the program more rational and more effective. Giving SUVs and other light trucks a pass on meeting tough but achievable efficiency standards is insanity when you consider the environmental and national security challenges we face today.
But despite their importance, standards are not the only answer. In the same way that we are going to have to apply a diverse mix of technologies to the challenge of reducing emissions, we also are going to have to apply a diverse mix of policies.
In the short-term, the government can do much more to step up consumer incentives for buying hybrids and clean-diesel vehicles. Hybrid vehicles are selling. But despite their popularity, they will not represent more than a small fraction of U.S. vehicle sales without government help. We need more tax incentives for getting more highly efficient, light-duty vehicles on the road. Especially intriguing is the notion of a so-called “feebate” system that charges fees on the purchase of inefficient vehicles and rebates toward the purchase of efficient ones. How better to convey the notion that consumer choices make a difference? Along those lines, government also can do a lot more to make certain consumers have good and reliable information about the impacts of their choices – for example, by mandating that new and used cars have uniform stickers showing their greenhouse gas emissions.
We also can remove incentives in the law for purchasing inefficient vehicles such as SUVs. It is frankly hard to believe these incentives exist, given the energy and climate challenges we face. Until recently, for instance, business purchasers of SUVs heavier than 6,000 pounds – which included 38 styles of passenger vehicles like the Lincoln Navigator and the legendary Hummer – could write off $25,000 from income on the purchase. It’s a big tax loophole – so big you could drive a Hummer through it, especially if you compare that to the paltry $3,000 incentive to buy a fuel-efficient hybrid.
And, last but not least, government can and should take steps to boost public-sector procurement of climate-friendly vehicles. The goal is to create and expand the market - and government can help do that with its own purchases.
And then there are the long-term policies. If you look across the list of long-term technologies that could help to solve this problem, you see that every one of them faces substantial barriers that the private sector plainly will not be able to resolve on its own. Take hydrogen as an example. It is essential that we find environmentally friendly ways of producing hydrogen, because if we merely use fossil fuels to do it without capturing and sequestering the carbon dioxide, the climate problem does not improve; it actually gets worse. And the development of a hydrogen infrastructure clearly is something that industry and individual companies cannot and will not do without some level of government involvement and incentives. With hydrogen as with other long-term technologies, government needs to work with industry to come up with demonstrations that will show what's feasible and practical - and how to do it right.
So the bottom line is: reducing the transportation sector’s emissions will require both private sector commitment and government leadership. Private business cannot shoulder this alone. Government must play a role. Only government can create and implement a national program of standards with trading. Only government can offer incentives to increase the deployment of low-GHG-emitting vehicles. Only government can boost RD&D on low-carbon fuels and energy storage options, and incorporate climate change and system efficiency considerations in federal infrastructure and transportation funding.
Why is this a government responsibility? Because responding effectively to climate change is in the public interest. This is a problem that poses a very real threat to our economy and our quality of life. And it is incumbent on government to create the conditions necessary for solutions to flourish -- to create, if you will, the climate for innovation.
And this is not an issue that we should be addressing exclusively on a domestic basis. There are real advantages to working with other nations to reduce transportation-related greenhouse gas emissions. One proposal that emerged from a series of recent dialogues that the Pew Center organized on this issue is to create harmonized cross-border standards for fuel economy or vehicle emissions. These standards could be tradable, and they could be either uniform across all countries, and they could be differentiated to allow a longer phase-in period to reflect different circumstances in different countries.
In sum, there are countless ways to reduce emissions from the vital and growing transportation sector. Our challenge is to adopt policies that will ensure that those reductions happen sooner rather than later – before the damage is done and the costs become prohibitive.
Which brings me to my fourth and final point: the need for industry to don its fearsome cape, step into its gas-electric fuel efficient hybrid Batmobile, subdue the villains and save the world. Good things are happening:
- Toyota has led the way in making the hybrid an important and growing segment of the automobile market.
- Ford last month brought a hybrid compact SUV, the Mercury Mariner, to market a year earlier than originally planned.
- Both Toyota and Ford recently called publicly on the Bush Administration and other G8 governments to adopt a cap and trade or other market based system to help shape consumer choice.
These are important developments. But they are not enough. The transportation sector is a rare case where a limited number of American companies – I can count them on one hand – literally have a chance to change the world.
We have a unique opportunity to bring the key players together around a relatively small table and achieve something historic. Coming to agreement on a set of principles, a set of concrete actions, and, yes, a set of ambitious but achievable standards really should be possible.
If we are serious about reducing emissions from this sector, and we must be, we need to challenge ourselves to work together and come up with a plan that gets us where we need to go. That is what the “Fifty by Fifty Challenge” is about – getting a commitment to reduce vehicle carbon dioxide emissions from business-as-usual levels by 50 percent by 2050.
It is time. Given the transportation industry’s starring role in the problems I have talked about, it must now play a starring role in solutions. Not merely a supporting role, not a walk-on role, but a starring role.
All of us appreciate the role of the automobile companies and the other players in the transportation sector in getting us from place to place. But now this sector has to take us to a different destination, a new place where this country can meet its transportation needs without putting our national security and our climate at risk. It might take us 50 years, but I believe we can arrive at that destination. It’s where we need to go. Ladies and Gentlemen, start your engines . . . the race to the future is on. Thank you very much.
Press Release: New Reports Detail Challenges and Opportunities for Climate Change and Buildings, Electricity Sectors
For Immediate Release: June 16, 2005
Contact: Katie Mandes
BUILDINGS, ELECTRICITY AND CLIMATE CHANGE
New Reports Detail Challenges and Opportunities
Washington, DC —The U.S. buildings and electricity sectors—which together account for the largest portion of our economy’s physical wealth and enable almost every activity of our daily life – also account for approximately half of our nation’s CO2 emissions. Effective long-term climate change policy in the U.S. must address emissions from these two sectors.
Two new reports released today by the Pew Center on Global Climate Change identify a number of technologies and policy options for GHG reductions in both sectors. The first report is Towards a Climate-Friendly Built Environment, written by Marilyn Brown, Frank Southworth and Therese Stovall of Oak Ridge National Laboratory. The other is U.S. Electric Power Sector and Climate Change Mitigation, written by Granger Morgan, Jay Apt, and Lester Lave of Carnegie Mellon University.
Long capital stock turnover, regulatory uncertainty and diverse and often competing interests all contribute to the difficulty of reducing GHGs from these two sectors. These reports find that a portfolio of affordable technology and policy options exist to completely transform the high-emitting buildings and electricity sectors to low-GHG emitting sectors over the next 50 years. However, the long lead time required to develop new technologies, deploy available technologies, and turn over capital stock, means that policies need to be launched now to create the impetus for change. Efforts must be sustained over time to achieve the deep reductions required.
"The importance of these two sectors to both the U.S. economy and to the issue of climate change cannot be over-stated,” said Eileen Claussen, President of the Pew Center on Global Climate Change, “This research shows that we can achieve enormous reductions in the building and electric sectors, but only if we craft a clear and comprehensive policy to guide them."
Some insights that emerge from the reports are:
- Policies are needed to enable meaningful GHG reductions from these sectors. The diverse and fragmented nature of the buildings sector, and the current state of regulatory uncertainty in the electricity sector prevent many available GHG reduction options from being adopted in the market in the absence of policies.
- Significant increases in R&D and deployment policies are essential if we hope to significantly reduce GHGs from these sectors. A significantly expanded R&D program is needed in the U.S. to develop new technologies, and deployment policies are needed to push and pull available fuels and technologies into the market in the near and long term.
- An elimination of most GHGs from these sectors is possible over the next 50 years. If managed properly, the electricity sector could undergo a complete capital stock turnover to low or non-GHG emitting generation sources over the next 50 years; while buildings in the U.S. could become net low-GHG energy exporters in the same time frame – but government policies are essential to provide clear policy direction in order to drive the massive public and private investments and choices necessary to enable such a future.
This report is part of the Solutions series, which is aimed at providing individuals and organizations with tools to evaluate and reduce their contributions to climate change. In 2003, the Solutions series released the first of its sectoral reports, Reducing Greenhouse Gas Emissions from U.S. Transportation, written by David L. Greene of Oak Ridge National Laboratory and Andreas Schafer of the Massachusetts Institute of Technology. Other Pew Center series focus on domestic and international policy issues, environmental impacts, and the economics of climate change.
A complete copy of this report—and previous Pew Center reports—is available on the Pew Center's web site, /global-warming-in-depth/all_reports/.
The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States’ largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, nonprofit, and non-partisan organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.
Towards a Climate-Friendly Built Environment
Prepared for the Pew Center on Global Climate Change
Marilyn Brown, Oak Ridge National Laboratory
Frank Southworth, Oak Ridge National Laboratory
Therese Stovall, Oak Ridge National Laboratory
Eileen Claussen, President, Pew Center on Global Climate Change
Buildings in the United States – homes, offices, and industrial facilities – account for over 40 percent of our nation's carbon dioxide emissions. Most of these emissions come from the combustion of fossil fuels to provide heating, cooling, and lighting and to run electrical equipment and appliances. The manufacture of building materials and products, and the increased emissions from the transportation generated by urban sprawl, also contribute a significant amount of greenhouse gas (GHG) emissions every year. In this report, authors Marilyn Brown, Frank Southworth, and Theresa Stovall identify numerous opportunities available now, and in the future, to reduce the building sector's overall impact on climate.
This Pew Center report is part of 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. Looking at options for the near (10 years) and long (50 years) term, this report yields the following insights for reducing GHG emissions from the largest portion of our nation's physical wealth – our built environment.
- This sector presents tremendous challenges. There are so many different energy end uses and GHG-relevant features, multiple stakeholders and decision-makers, and numerous market barriers to energy efficiency.
- Yet numerous opportunities exist. In the near term, simply bringing current building practices up to the level of best practices would yield tremendous energy and cost savings. Past studies have shown that many climate-friendly and cost-effective measures in the buildings sector are not fully utilized in the absence of policy intervention. The R&D and six deployment policies examined in this report could reduce forecasted energy consumption and carbon emissions of buildings in the United States in 2025 by almost one-quarter, or by an amount roughly equal to 10% of total projected U.S. carbon emissions. In 2025 and beyond, newly constructed net-zero-energy homes and climate-friendly designs for large commercial buildings and industrial facilities could begin to generate sizeable GHG reductions by displacing the energy-intensive structures that embody today's standard practices.
- An integrated approach is needed to reduce GHG emissions from the diverse and fragmented building sector. Such an approach coordinates across technical and policy solutions, integrates engineering approaches with architectural design, considers design decisions within the realities of building operation, integrates green building with smart-growth concepts, and takes into account the numerous decision-makers within the industry.
- An expansive view of the building sector is needed to completely identify and capitalize on the full range of GHG-reduction opportunities. Such a view needs to consider future building construction (including life-cycle aspects of buildings materials, design, and demolition), use (including on-site power generation and its interface with the electric grid), and location (in terms of urban densities and access to employment and services).
The authors and the Pew Center would like to thank Robert Broad of Pulte Home Sciences, Leon Clarke of the Pacific Northwest Laboratory, Jean Lupinacci of the U.S. Environmental Protection Agency, and Steven Nadel of the American Council for an Energy Efficient Economy for their review of and advice on a previous draft of this report, and Tony Schaffhaeuser for contributions to an early version this paper.
The energy services required by residential, commercial, and industrial buildings produce approximately 43 percent of U.S. carbon dioxide (CO2) emissions. Given the magnitude of this statistic, many assessments of greenhouse gas (GHG) reduction opportunities focus principally on technologies and policies that promote the more efficient use of energy in buildings. This report expands on this view and includes the effects of alternative urban designs; the potential for on-site power generation; and the life-cycle GHG emissions from building construction, materials, and equipment. This broader perspective leads to the conclusion that any U.S. climate change strategy must consider not only how buildings in the future are to be constructed and used, but also how they will interface with the electric grid and where they will be located in terms of urban densities and access to employment and services. The report considers both near-term strategies for reducing GHGs from the current building stock as well as longer-term strategies for buildings and communities yet to be constructed.
The United States has made remarkable progress in reducing the energy and carbon intensity of its building stock and operations. Energy use in buildings since 1972 has increased at less than half the rate of growth of the nation's gross domestic product, despite the growth in home size and building energy services such as air conditioning and consumer and office electronic equipment. Although great strides have been made, abundant untapped opportunities still exist for further reductions in energy use and emissions. Many of these-especially energy-efficient building designs and equipment-would require only modest levels of investment and would provide quick pay-back to consumers through reduced energy bills. By exploiting these opportunities, the United States could have a more competitive economy, cleaner air, lower GHG emissions, and greater energy security.
GHG Emissions: Sources and Trends
GHG emissions from the building sector in the United States have been increasing at almost 2 percent per year since 1990, and CO2 emissions from residential and commercial buildings are expected to continue to increase at a rate of 1.4 percent annually through 2025. These emissions come principally from the generation and transmission of electricity used in buildings, which account for 71 percent of the total. Due to the increase in products that run on electricity, emissions from electricity are expected to grow more rapidly than emissions from other fuels used in buildings. In contrast, direct combustion of natural gas (e.g., in furnaces and water heaters) accounts for about 20 percent of energy-related emissions in buildings, and fuel-oil heating in the Northeast and Midwest accounts for the majority of the remaining energy-related emissions. Based on energy usage, opportunities to reduce GHG emissions appear to be most significant for space heating, air conditioning, lighting, and water heating.
Mechanisms of Change
Because the building industry is fragmented, the challenges of promoting climate-friendly actions are distinct from those in transportation, manufacturing, and power generation. The multiple stakeholders and decision-makers in the building industry and their interactions are relevant to the design of effective policy interventions. Major obstacles to energy efficiency exist, including insufficient and imperfect information, distortions in capital markets, and split incentives that result when intermediaries are involved in the purchase of low-GHG technologies. Many buildings are occupied by a succession of temporary owners or renters, each unwilling to make long-term improvements that would mostly benefit future occupants. Regulations, fee structures in building design and engineering, electricity pricing practices, and the often limited availability of climate-friendly technologies and products all affect the ability to bring GHG-reducing technologies into general use. Some of these obstacles are market imperfections that justify policy intervention. Others are characteristics of well-functioning markets that simply work against the selection of low-GHG choices.
Numerous individual, corporate, community, and state initiatives are leading the implementation of "green" building practices in new residential development and commercial construction. The most impressive progress in residential green building development and construction is the result of communities and developers wanting to distinguish themselves as leaders in the efficient use of resources and in waste reduction in response to local issues of land-use planning, energy supply, air quality, landfill constraints, and water resources. Building owners and operators who have a stake in considering the full life-cycle cost and resource aspects of their new projects are now providing green building leadership in the commercial sector. However, real market transformation will also require buy-in from the supply side of the industry (e.g., developers, builders, and architects).
Affordability, aesthetics, and usefulness have traditionally been major drivers of building construction, occupancy, and renovation. In addition to climatic conditions, the drivers for energy efficiency and low-GHG energy resources depend heavily on local and regional energy supply costs and constraints. Other drivers for low-GHG buildings are clean air, occupant health and productivity, the costs of urban sprawl, electric reliability, and the growing need to reduce U.S. dependence on petroleum fuels.
Technology Opportunities in Major Building Subsectors
The technical and economic potential is considerable for technologies, building practices, and consumer actions to reduce GHG emissions in buildings. When studying the range of technologies, it is important to consider the entire building system and to evaluate the interactions between the technologies. Thus, improved techniques for integrated building analyses and new technologies that optimize the overall building system are especially important. In this report, homes and small commercial buildings and large commercial and industrial buildings are analyzed separately for their energy-saving and emission-reduction potential, because energy use in homes and small businesses is principally a function of climatic conditions while energy use in large buildings is more dependent on internal loads.
Applying currently available technologies can cost-effectively save 30 to 40 percent of energy use and GHG emissions in new buildings, when evaluated on a life-cycle basis. Technology opportunities are more limited for the existing building stock, and the implementation rate depends on the replacement cycles for building equipment and components. However, several opportunities worth noting apply to existing as well as new buildings, including efficiencies in roofing, lighting, home heating and cooling, and appliances. Emerging building technologies, especially new lighting systems and integrated thermal and power systems, could lead to further cost-effective energy savings. All of these potential effects, however, are contingent upon policy interventions to overcome the barriers to change.
Community and Urban Subsystems
Evidence suggests that higher-density, more spatially compact and mixed-use building developments can offer significant reductions in GHG emissions through three complementary effects: (1) reduced vehicle miles of travel, (2) reduced consumption for space conditioning as a result of district and integrated energy systems, and (3) reduced municipal infrastructure requirements. Both behavioral and institutional barriers to changes in urban form are significant. The effect of urban re-design on travel and municipal energy systems will need to be tied to important developments in travel pricing, transportation construction, and other infrastructure investment policies.
Past studies have concluded conservatively that changes in land-use patterns may reduce vehicle miles traveled by 5 to 12 percent by mid-century. More compact urban development could also lead to comparable GHG reductions from efficiencies brought about by district and integrated energy systems, with a small additional decrement from a reduced need for supporting municipal infrastructures. In total, therefore, GHG reductions of as much as 3 to 8 percent may be feasible by mid-century, subject to the near-term enactment of progressive land-use planning policies.
Policy research suggests that public interventions could overcome many of the market failures and barriers hindering widespread penetration of climate-friendly technologies and practices. The mosaic of current policies affecting the building sector is complex and dynamic, ranging from local, state, and regional initiatives, to a diverse portfolio of federal initiatives. Numerous policy innovations could be added to this mix, and many are being tried in test-beds at the state and local level.
In this report, buildings energy research and development (R&D) and six deployment policies are reviewed that have a documented track record of delivering cost-effective GHG reductions and that hold promise for continuing to transform markets. The six deployment policies include (1) state and local building codes, (2) federal appliance and equipment efficiency standards, (3) utility-based financial incentive and public benefits programs, (4) the low-income Weatherization Assistance Program, (5) the ENERGY STAR(r) Program, and (6) the Federal Energy Management Program. Annual energy savings and carbon-reduction estimates are provided for each of these policies, both retrospectively and prospectively. Summing these values provides a reasonable estimate of the past and potential future impacts of the policies.
Annual savings over the past several years from these R&D and six deployment policies are estimated to be approximately 3.4 quadrillion Btu (quads) and 65 million metric tons of carbon (MMTC), representing 10 percent of U.S. CO2 emissions from buildings in 2002. The largest contributors are appliance standards and the ENERGY STAR Program. Potential annual effects in the 2020 to 2025 time frame are 12 quads saved and 200 MMTC avoided, representing 23 percent of the forecasted energy consumption and carbon emissions of buildings in the United States by 2025. The largest contributors are federal funding for buildings energy R&D (especially solid-state lighting) and appliance standards.
Conclusions and Recommendations
The analysis presented in this report leads to several conclusions:
- An expansive view of the building sector is needed to completely identify and exploit the full range of GHG-reduction opportunities. Such a view needs to consider future building construction (including life-cycle aspects of buildings materials, design, and demolition), use (including on-site power generation and its interface with the electric grid), and location (in terms of urban densities and access to employment and services).
- There is no silver bullet technology in the building sector because there are so many different energy end uses and GHG-relevant features. Hence, a vision for the building sector must be seen as a broad effort across a range of technologies and purposes.
- An integrated approach is needed to address GHG emissions from the U.S. building sector - one that coordinates across technical and policy solutions, integrates engineering approaches with architectural design, considers design decisions within the realities of building operation, integrates green building with smart-growth concepts, and takes into account the numerous decision-makers within the fragmented building industry.
- Current building practices seriously lag best practices. Thus, vigorous market transformation and deployment programs are critical to success. They are also necessary to ensure that the next generation of low-GHG innovations is rapidly and extensively adopted.
- Given the durable nature of buildings, the potential for GHG reductions resides mostly with the existing building stock for some time to come. However, by 2025, newly constructed net-zero-energy homes and climate-friendly designs for large commercial buildings and industrial facilities could begin to generate sizeable GHG reductions by displacing the energy-intensive structures that embody today's standard practices. By mid-century, land-use policies could have an equally significant impact on GHG emissions. This inter-temporal phasing of impacts does not mean that retrofit, new construction, and land-use policies should be staged; to achieve significant GHG reductions by 2050, all three types of policies must be strengthened as soon as politically feasible.
- Similarly, applied R&D will lead to GHG reductions in the short run, while in the long run basic research will produce new, ultra-low GHG technologies. This does not mean that basic research should be delayed while applied R&D opportunities are exploited. The pipeline of technology options must be continuously replenished by an ongoing program of both applied and basic research.
By linking near-term action to long-term potential, the building sector can assume a leadership role in reducing GHG emissions in the United States and globally.
The energy services required by residential, commercial and industrial buildings produce approximately 43% of U.S. CO2 emissions. Additional GHG emissions result from the manufacture of building materials and products, the transport of construction and demolition materials, and the increased passenger and freight transportation associated with urban sprawl. As a result, an effective U.S. climate change strategy must consider options for reducing the GHG emissions associated with how buildings are constructed, used, and located.
Homes, offices, and factories rarely incorporate the full complement of cost-effective climate-friendly technologies and smart growth principles, despite the sizeable costs that inefficient and environmentally insensitive designs impose on consumers and the nation. To significantly reduce GHG emissions from the building sector, an integrated approach is needed-one that coordinates across technical and policy solutions, integrating engineering approaches with architectural design, considering design decisions within the realities of building operation, integrating green building with smart-growth concepts, and taking into account the timing of policy impacts and technology advances.
A. Technology Opportunities in the 2005 to 2025 Time Frame
In the short run, numerous green products and technologies could significantly reduce GHG emissions from buildings, assuming vigorous encouragement from market-transforming policies such as expanded versions of the six deployment policies studied here. In the coming decade, given the durable nature of buildings, the potential for GHG reductions resides mostly with the existing building stock and existing technologies. Some of the numerous promising off-the-shelf technologies and practices outlined in this report include reflective roof products, low-E coating for windows, the salvage and reuse of materials from demolished buildings, natural ventilation and air conditioning systems that separately manage latent and sensible heat, smart HVAC control systems, and variable speed air handlers.
Federally funded R&D for energy savings in buildings must also be expanded in the short term so that an attractive portfolio of new and improved technological solutions will be available in the mid and long term. Achieving the goal of a cost-competitive net-zero-energy home by 2020, for example, will require scientific breakthroughs to be incorporated into new and improved photovoltaic systems, power electronics, thermochemical devices, phase-change insulation and roofing materials, and other components. In addition, policies that promote higher-density, spatially compact, and mixed-use building developments must begin to counteract the fuel-inefficient impact of urban sprawl.
In the 2025 timeframe, newly constructed net-zero-energy homes and climate-friendly designs for large commercial buildings and industrial facilities will need to begin to displace the GHG-intensive structures that embody today's standard practices. The emerging technologies described in this report could help significantly reduce GHG emissions from the building sector including
- sealing methods that address unseen air leaks,
- electrochromic windows offering the dynamic control of infrared energy,
- unconventional water heaters (solar, heat pump, gas condensing, and tankless),
- inexpensive highly efficient nanocomposite materials for solar energy conversion,
- thermoelectric materials that can transform heat directly into electrical energy,
- solid state lighting that uses the emission of semi-conductor diodes to directly produce light at a fraction of the energy of current fluorescent lighting,
- selective water sorbent technologies that offer the performance of ground-coupled heat pumps at the cost of traditional systems,
- abundant sensors dispersed through buildings with continuously optimizing control devices, and
- 80-90 percent efficient integrated energy systems that provide on-site power as well as heating, cooling, and dehumidification.
Market transformation policies are expected to continue to improve the existing building stock and play an essential role in ensuring the market uptake of new technologies. In addition, land-use policies could begin to have measurable benefits.
The analysis reported here suggests that six expanded market transformation policies-in combination with invigorated R&D-could bring energy consumption and carbon emissions in the building sector in 2025 back almost to 2004 levels. At the same time, the built environment will be meeting the needs of an economy (and associated homes, offices, hospitals, restaurants, and factories) that will have grown from $9.4 trillion in 2002 to $18.5 trillion in 2025.
B. Building Green and Smart in the 2050 Time Frame
Green building practices and smart growth policies could transform the built environment by mid-century. Some of the climate-friendly features of this transformed landscape that are outlined in this report include:
- building efficiency measures that dramatically reduce the energy requirements of buildings;
- high-performance photovoltaic panels, fuel cells, microturbines and other on-site equipment that produce more electricity and thermal energy than is required locally, making buildings net exporters of energy, thereby transforming the entire demand and supply chain in terms of energy generation, distribution, and end use;
- higher-density communities that enable high-efficiency district heating and cooling;
- gridded street plans and other compact and readily accessible local street systems that also enable mass transit, and pedestrian and cyclist-friendly pathways to displace other forms of travel;
- parks and tree-lined streets to act as carbon sinks and to mitigate the "heat island" effect; and
- in-fill and mixed-use land development to shorten trip distances while reducing infrastructure requirements.
In the long run, improving the locational efficiency of communities and urban systems could possibly have as large an impact on GHG emissions as improving the design, construction, and operation of individual structures.
C. Linking Near-Term Action with Long-Term Potential
Given the durable nature of buildings, the potential for GHG reductions resides mostly with the existing building stock for some time to come. However, by 2025, newly constructed net-zero-energy homes and climate-friendly designs for large commercial buildings and industrial facilities could begin to generate sizeable GHG reductions by displacing the energy-intensive structures that embody today's standard practices. By mid-century, land-use policies could also significantly reduce GHG emissions. This inter-temporal phasing of impacts does not mean that retrofit versus new construction versus land-use policies should be staged; to achieve significant GHG reductions by 2050, all three elements of an integrated policy approach must be strengthened in the near term.
Similarly, applied R&D will lead to GHG reductions in the short run, while basic research will take longer to produce new, ultra-low GHG technologies. This does not mean that fundamental research should be delayed while applied R&D opportunities are exploited. The pipeline of technology options must be continuously replenished by an ongoing program of both applied and basic research. Vigorous market transformation and deployment programs will be needed throughout the coming decades to shrink the existing technology gap and to ensure that the next generation of low-GHG innovations is rapidly adopted.
By linking near-term action with long-term potential in an expansive and integrated framework, the building sector can be propelled to a leadership role in reducing GHG emissions in the United States and globally.
U.S. Electric Power Sector and Climate Change Mitigation
Prepared for the Pew Center on Global Climate Change
Granger Morgan, Carnegie Mellon University
Jay Apt, Carnegie Mellon University
Lester Lave, Carnegie Mellon University
Eileen Claussen, President, Pew Center on Global Climate Change
The electricity sector in the United States enables almost every aspect of our economy—from agriculture, to manufacturing, to e-commerce. As witnessed during the California Energy Crisis and the 2003 blackout in the northeast and midwest, interruptions in the supply of electricity can be highly disruptive. It is hard to imagine a sector that is more important to our economy than electricity. But electricity also accounts for one third of our nation’s greenhouse gas emissions. In order to effectively address the climate challenge, we must significantly reduce greenhouse gas emissions associated with electricity production and use. In this report, authors Granger Morgan, Jay Apt, and Lester Lave identify numerous opportunities to decarbonize the U.S. electricity sector over the next 50 years.
This Pew Center report is part of 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. Looking at options available now and in the future, this report yields the following insights for reducing GHG emissions from the electricity sector.
- There are likely multiple pathways to a low-carbon future for the electricity sector, and most involve some portfolio of technological solutions. The continued use of coal with carbon capture and sequestration; increased efficiency in the generation, transmission and end use of electricity; renewable and nuclear power generation; and other technologies can all contribute to a lower-carbon electric sector. Yet, all of these technologies face challenges: Cost, reliability, safety, siting, insufficient public and private funds for investment, and market and public acceptance are just some of the issues that will need to be resolved.
- A major effort is needed to develop and deploy commercially available low-carbon technologies for the electric sector over time. The lower-carbon efficiency and generation technologies available and competitive in the market today are probably insufficient to decarbonize the electricity sector over the next few decades. Given the magnitude of the challenges the industry faces in coming decades, it is critical that the United States—both the public and private sectors—develops and maintains dramatically expanded R&D. Near-term and long-term R&D investments will help ensure that we have technologies to enable a low-carbon electricity sector.
- It is critical that we start now to embark on the path to a lower-carbon electric sector. A decarbonization of the electricity sector could be achieved in the next 50 years through increased efficiency and fuel-switching in the near term, and a gradual deployment of lower-carbon technologies over the next several decades. Over the long term, GHG reductions will be achieved at lower cost if climate considerations are incorporated into the industry’s investment decisions today. Voluntary efforts to reduce GHG emissions will not be enough, especially given the current uncertainty in the industry. A clear timetable for regulation of GHG emissions is essential—a timetable that begins in the near future.
The authors and the Pew Center would like to thank Severin Borenstein of the University of California Energy Institute, Ralph Cavanagh of the Natural Resources Defense Council, and Tom Wilson of EPRI for their review of and advice on a previous draft of this report.
Measured by environmental impact and economic importance, the electricity industry is one of the most important sectors of the American economy. The generation of electricity is responsible for 38 percent of all U.S. carbon dioxide (CO2) emissions and one third of all U.S. greenhouse gas (GHG) emissions. This sector is the largest single source of these emissions. It is also the largest source of sulfur dioxide (SO2), oxides of nitrogen (NOX), small particles, and other air pollutants.
At the same time, electricity is critical to the U.S. economy. Recent annual national expenditures on electricity totaled $250 billion—making the electricity sector’s share of overall GDP larger than that of the automobile manufacturing industry and roughly equal in magnitude to that of the telecommunications industry. Expenditures alone, however, understate the importance of electricity to the U.S. economy. Nearly every aspect of productive activity and daily life in a modern economy depends on electricity for which there is, in many cases, no close substitute. As the most desirable form of energy for many uses, electricity use has grown faster than GDP. The Internet and computers would not operate without very reliable, high-quality electricity. Electricity also plays a major role in delivering modern comforts and easing household tasks, from running heating and cooling systems to washing clothes and dishes. It plays an even more important role in the commercial, manufacturing, and agricultural sectors, where it provides lighting and powers a variety of machines. In short, it is hard to imagine a modern economy functioning without large amounts of reliable, high-quality electricity.
The economic and environmental importance of the electric power industry is, moreover, likely to grow in coming decades. Electricity demand has increased steadily over the last three decades and is projected to continue rising in the future, despite ongoing improvements in end-use efficiency. The industry, meanwhile, has undergone dramatic structural changes over the last 10 years, moving from a system of monopolies subject to state price regulation to a mixed system that now includes some elements of market competition in many states. After declining for 75 years, electricity prices have risen since 1970, making expenditures for carbon control a difficult proposition in the absence of mandatory GHG policy. The uncertain state of electricity market restructuring efforts around the country, particularly since the California crisis of 2001-2002, has increased perceptions of investor risk and sharply raised the cost of borrowing for capital investments by investor-owned utilities.
In this context, reconciling growing demand for affordable and reliable electricity supplies with the need for substantial reductions in GHG and criteria pollutant emissions presents a significant challenge for policy-makers and for the electricity industry itself. Indeed, even if worldwide growth in demand for electric power ceased today, the industry’s current level of emissions is not sustainable. Stabilizing atmospheric carbon dioxide concentrations at twice the level of pre-industrial times is likely to require emissions reductions of 65-85 percent below current levels by 2100. Clearly, reductions of this magnitude can be achieved only by taking action globally and across all sectors of the economy.1 But the electricity sector will undoubtedly need to assume a major share of the burden—in the United States and worldwide—given its centralized structure and contribution to overall emissions.
This report explores the electric power industry’s options for reducing its GHG emissions over the next half century. Those options include new technologies that are still being developed—such as coal gasification with carbon capture and sequestration—as well as strategies that rely on existing technologies at different stages of commercial and technical readiness (such as nuclear and renewable generation), lower-carbon fuels (like natural gas), and efficiency improvements (both at the point of electricity production and end use). Many of these options, in addition to reducing CO2 emissions, also reduce conventional air pollutants.
Although a power generating plant has a lifetime of 30-50 years, low-carbon technologies could claim a substantial fraction of the generation mix by mid-century—in time to help stabilize atmospheric GHG concentrations within the next century or two. Some of these technologies, such as coal-based integrated gasification and combined cycle (IGCC) generation, still need to overcome basic cost, reliability, and market-acceptance hurdles; others, such as carbon capture and sequestration, have yet to be demonstrated on a large scale. Still others, such as wind, nuclear, or even (given recent fuel price increases) natural gas combined cycle power, are relatively well developed but face constraints in terms of siting, public acceptability, cost, or other factors.
Nevertheless, the analysis presented in this report suggests that substantial GHG reductions could be achieved by the power sector—without major impacts on the economy or on consumer lifestyles—through the gradual deployment of lower-carbon options over the next several decades. At the same time, more immediate emissions reductions can be achieved through lowering demand by increasing the efficiency with which electricity is used; substituting natural gas for coal; improving efficiency at existing plants including highly efficient combined heat and power systems at suitable sites; expanding deployment of renewable generation technologies, including biomass co-firing of coal plants; and through the use of carbon offsets such as forestry projects and methane capture and collection. These immediate measures can reasonably be expected to reduce electricity growth and expand low-carbon electricity production in the United States from its 28 percent share in 2003, while also reducing emissions from higher-carbon generators.
While initial steps to limit electricity sector CO2 emissions will have only a modest impact on total U.S. emissions, steady and deliberate efforts to promote long-term technological change in this sector eventually could produce significant climate benefits, given the industry’s share of current emissions. The dollar cost of achieving GHG reductions will depend to a significant extent on which of several possible technology pathways emerge as both feasible and cost-effective in the decades ahead. Increasing the efficiency with which electricity is used is important to any energy future. In one scenario, the successful commercialization of carbon capture and sequestration technology would allow for continued use of fossil fuels in combination with somewhat increased reliance on similarly priced wind resources. In another scenario, a new generation of nuclear technology proves acceptable and plays an expanded role in meeting future electricity needs. Future emissions reductions might need to be achieved chiefly through increased reliance on relatively more expensive natural gas and renewable energy. Some forms of renewable energy can certainly play a role, but just how large a role depends on a range of uncertain issues in terms of cost, technical performance, and power system architecture. A major scale-up of renewable energy would likely require a greatly enhanced transmission network and expensive energy storage technologies to compensate for the remoteness and intermittency of much of the wind and solar resource base. These issues will be resolved only through further research and expanded field experience.
In all cases, however, long-term reductions will be achieved at lower cost if climate considerations are incorporated into the industry’s investment decisions sooner rather than later. Building another round of conventional pulverized coal plants that comply with new pollution control requirements for SO2, NOX, particulate matter, mercury, and other toxic emissions, but that later need to be scrapped, or retrofitted with costly and inefficient CO2 scrubbers, would likely be the most costly path.
To ensure that climate considerations figure in the industry’s planning decisions and to provide effective market incentives for investment in low-carbon technologies, a clear timetable for the regulation of GHG emissions is essential. Many industry experts and utility executives see such regulations as inevitable over the next 10-20 years, but cannot—without some certainty about future regulation—justify added expenditures for low-carbon technologies today, either to their shareholders or to state regulators concerned about the local economic impacts of higher-priced power. Voluntary efforts to reduce CO2 emissions simply will not be sufficient in an increasingly cost-competitive and risk-averse market. If, however, GHG emission limits are implemented in concert with other pollution control requirements, long-term air quality and climate objectives will be achieved more quickly and at lower total cost than under a piecemeal approach.
Four major policy recommendations emerge from the findings in this report concerning prospects for a long-term transition to a low-carbon electricity power sector:
- Establish a firm regulatory timetable for reducing CO2 emissions from the electricity industry that parallels the timetable for reducing discharges of conventional pollutants. To assure that emissions targets are met at minimum cost, they should be set well in advance and should be implemented using market-based mechanisms such as a cap-and-trade system or a carbon tax. Avoiding high costs later requires accounting for CO2 in current investment decisions and technology choices.
- Address the most serious institutional and regulatory barriers to the development of low-carbon and carbon-free energy technologies by implementing policies aimed at: (1) developing an adaptive regulatory framework for managing geologic carbon sequestration, in order to provide an alternative (coal gasification with carbon capture) to building new conventional coal plants; (2) determining if it is feasible to mitigate the safety, proliferation, and waste-management concerns that currently inhibit the expansion of nuclear power; (3) facilitating the adoption of cost-effective low- or no-carbon renewable technologies such as wind and biomass and promoting distributed resources and micro-grids—that is, clusters of small, modular generators interconnected through a low-voltage distribution system that can function either in concert with, or independent of, the larger grid; and (4) creating financial arrangements that decrease the risk penalty assigned by investors to new capital in the restructured era that have tended to discourage major electricity industry investments and that present further hurdles to the deployment of new technologies.
- Promote greater end-use efficiency through policies that encourage power companies to invest in cost-effective, demand-side energy savings. Impose stricter federal efficiency standards for appliances and buildings (as detailed in the Pew Center report, Towards a Climate Friendly Built Environment) and promote the deployment of efficient combined heat and power systems. California has succeeded in slowing per capita electricity demand growth significantly through a variety of efficiency initiatives; these and other programs should be examined to estimate their potential to reduce demand more broadly and to identify “best practices” that can be documented and implemented elsewhere.
- Create a federal requirement that all parties in the electricity industry invest at least one percent of their value added in R&D in order to explore how promising new technologies can solve the difficult reliability, efficiency, security, environmental, cost, and other problems facing the industry. Firms should have the choice to make the investments themselves or contribute to a fund managed by the U.S. Department of Energy. In parallel with this industry mandate, the Department of Energy needs to develop a more effective program of needs-based research into power generation and storage, electricity transmission and distribution, conservation, demand management, and other electric power technologies and systems.
The path to a low-carbon future for the electricity sector poses a range of challenges. As France has demonstrated, nuclear power is a known technology that could produce such a future, but nuclear power faces a number of major problems including high cost, low public acceptance, and risks of proliferation. Large-scale fuel switching to natural gas could lead to substantial reductions in CO2 emissions, though not their complete elimination, but it would be expensive and probably adversely impact the nation’s energy independence. Carbon capture and sequestration holds the promise that it could allow continued use of America’s enormous coal reserves. While likely affordable and technically feasible, it has yet to be demonstrated on a large scale and faces open questions of cost and reliability. Some forms of renewable energy can certainly play a role, but just how large that role can be depends on a range of uncertain issues in terms of cost, technical performance, and power system architecture. These issues will be resolved only through further research and expanded field experience. Conservation and load management hold great potential, but to date regulators and political decision makers have not advanced these solutions with the vigor that is needed. Clearly there are multiple paths to success, most involving some portfolio of these solutions. Today our best option is to work hard to advance the most promising, in the hopes that several ultimately prove to be technically, economically, and politically feasible.
The electricity industry’s investment decisions are unlikely to favor low-carbon options unless and until a clear regulatory timetable for limiting CO2 emissions is established. Absent such a timetable, aging pulverized coal units will likely be retrofitted with add-on controls for SO2, NOX, and mercury and could continue operating for decades with no provision for CO2 abatement. This could lead to a situation where more drastic CO2 reductions must be achieved over a shorter timeframe in the future, potentially at far higher cost.
Environmental issues generally, and global warming concerns in particular, have focused attention on a number of major challenges to the current U.S. electricity system. Industry restructuring, underinvestment in transmission infrastructure and other system assets, under-utilization of currently available low-carbon electricity generation sources, reliability and security issues, and insufficient R&D funding interact to cloud the future of this vital sector of the U.S. economy. Under any future scenario, this complex set of issues must be addressed in a manner that accounts for the hybrid—half restructured and half traditionally-regulated—nature of the industry. The elements that matter most now are:
- An end to regulatory uncertainty regarding future CO2 control. Establishing clear and consistent policy goals sooner rather than later and implementing these goals through mechanisms such as a cap-and-trade system with scheduled cap reductions will avoid very significant costs.
- Development efforts focusing on promising technologies that do not require fundamental breakthroughs, such as IGCC with carbon capture and sequestration for coal as well as natural gas.
- Adoption of best practices for promoting energy conservation and improved efficiency.
- A federal requirement that electricity industry companies spend at least one percent of their value added on research to develop critical enabling technologies and to address core questions that are likely to be crucial in determining which of several possible technology paths the industry should follow in the future. Examples include making carbon capture and sequestration feasible and determining whether cost-effective electricity storage options can be developed for intermittent resources like wind and solar.
Properly managed, it should be possible to accomplish the transition to a low-carbon electricity future at manageable cost and with little disruption to the U.S. economy. But the United States must initiate that transition now.
About the Authors
M. Granger Morgan
Carnegie Mellon University
M. Granger Morgan is Professor and Head of the Department of Engineering and Public Policy at Carnegie Mellon University where he is also University and Lord Chair Professor in Engineering. He is also a Professor in the Department of Electrical and Computer Engineering and in The H. John Heinz III School of Public Policy and Management.
Morgan's research addresses problem in science, technology and public policy. Much of it has involved the development and demonstration of methods to characterize and treat uncertainty in quantitative policy analysis. He works on risk analysis, management and communication; on problems in the integrated assessment of global change; on improving health, safety, and environmental regulation; on energy systems, focused particularly on electric power; and on several other topics in technology and public policy. His books, published by Cambridge University Press, on Uncertainty: A guide to dealing with uncertainty in quantitative risk and policy analysis (1990 with Max Henrion) and Risk Communication: A mental models approach (2002 with Baruch Fischhoff, Ann Bostrom, and Cynthia J. Atman) are widely cited as providing the definitive treatment of these topics.
At Carnegie Mellon, Morgan directs the new NSF Center on Climate Decision Making and co-directs, with Lester Lave, the Carnegie Mellon Electricity Industry Center.
Morgan serves as Chair of the EPA Science Advisory Board, Chair of the EPRI Advisory Council, and Chair of the Scientific and Technical Council for the International Risk Governance Council (based in Geneva, Switzerland). He is a Fellow of the AAAS, the IEEE, and the Society for Risk Analysis.
He holds a BA from Harvard College (1963) where he concentrated in Physics, an MS in Astronomy and Space Science from Cornell (1965) and a Ph.D. from the Department of Applied Physics and Information Sciences at the University of California at San Diego (1969).
Carnegie Mellon University
Jay Apt is Executive Director of the Carnegie Mellon Electricity Industry Center at Carnegie Mellon University's Tepper School of Business and the CMU Department of Engineering and Public Policy, where he is a Distinguished Service Professor.
He received an A.B. from Harvard College in 1971 and a Ph.D. in experimental atomic physics from the Massachusetts Institute of Technology in 1976. His research interests are in economics, engineering, and public policy aspects of the electricity industry, economics of technical innovation, management of technical enterprises, risk management in policy and technical decision framing, and engineering systems design.
He received the Metcalf Lifetime Achievement Award for significant contributions to engineering in 2002 and the National Aeronautics and Space Administration's Distinguished Service Medal in 1997.
Lester B. Lave
Carnegie Mellon University
Lester B. Lave is University Professor and Higgins Professor of Economics at Carnegie Mellon University, with appointments in the Business School, Engineering School, and the Public Policy School. He has a BA from Reed College and a Ph.D. from Harvard University.
He was elected to the Institute of Medicine of the National Academy of Sciences and is a past president of the Society for Risk Analysis. He has acted as a consultant to many government agencies and companies. He has received research support from a wide range of federal and state agencies, as well as foundations, nongovernmental organizations, and companies.
Lave is the director of the CMU university-wide Green Design Institute and is co-director of the CMU Electricity Industry Center. His research is focused on applying economics to public policy issues, particularly those related to energy in general and electricity in particular.
Judith M. Greenwald, Director of Innovative Solutions at the Pew Center, Discusses Keeping the Nuclear Power Option Open
(This article appeared in Oxford Energy Forum, May 2005)
Addressing the challenge of global climate change will require a sustained and comprehensive commitment to climate-friendly policies and investments throughout the world. Such policies and investments must be focused on enabling a transition to a low-carbon economy through a significant reduction in annual greenhouse gas (GHG) emissions by 2050. A commonly stated goal is to stabilize the atmospheric concentration of carbon dioxide (CO2) at twice its pre-industrial level. Such a “decarbonization” in the context of increasing global demand for energy would necessitate an increase of roughly 100 to 300 percent of present-day worldwide “primary power” consumption from non-CO2-emitting sources such as renewables, nuclear power, the use of fossil fuels with carbon capture and sequestration, and energy efficiency improvements.
Achieving this transition depends on both near-term and long-term actions...
TECHNOLOGY, PUBLIC POLICY AND COAL: MAKING THE CONNECTION
SPEECH BY EILEEN CLAUSSEN
PRESIDENT, PEW CENTER ON GLOBAL CLIMATE CHANGE
COAL21 ANNUAL CONFERENCE
APRIL 5, 2005
Thank you very much. I appreciate the opportunity to be here for your first Annual Conference. It is always a pleasure to come to Australia from the United States. For this trip, I decided to bone up a bit on Australian phrases. And I was interested to learn that someone who has “gone bush” in Australia is actually traveling in the outback.
In America, of course, someone who has “gone Bush” is someone who supports the President. And then there are all the others who merely want Bush gone.
Seriously, I am delighted to be here and to learn more about COAL21. As I looked through the program for the next two days, it occurred to me that we have a long way to go in terms of educating people about some of the things you will be talking about. There is IGCC, CCS, ultra-clean coal, oxy-fuel and more. To get an idea of the degree to which these issues have penetrated the mainstream consciousness, I decided turn to that all-important resource: Google. And so I typed in CCS, confident that I would immediately be referred to information about carbon capture and storage.
But, lo and behold, I was directed before anything else to a firm called Custom Computer Services in Brookfield, Wisconsin. Other listings on the opening pages of my CCS search were for the Canadian Cardiovascular Society, the Congress of California Seniors, the Community College of Spokane and, of course, the Captain Cook Society, which should be of great interest here in Australia. The Australian branch of the society, by the way, will be holding its annual meeting later this month right here in Sydney, in case you are interested.
In any case, I clicked through several pages of results and failed to find even one mention of carbon capture and storage. And when I typed in IGCC, I had to scroll through listings for the Insulating Glass Certification Council and the Indo-German Chamber of Commerce before I got to anything about coal.
The point of all this is that it appears we have some work to do in order to bring the technologies we are talking about into the mainstream of society. And that is what I want to talk about today: what we need to do so that we can get these technologies developed as quickly as possible, and begin to significantly reduce greenhouse gas emissions from coal generation.
But first I want to say how impressed I am to learn more about COAL21 and to see such a serious and sincere commitment to climate solutions on the part of industry. And I applaud the partnerships you have forged with government and the research community.
We may not have an initiative quite like COAL21 in the United States, but we do have industry leaders like you, who are acknowledging that climate change is a problem and who are committed to addressing it.
To date, 38 companies have joined the Pew Center’s Business Environmental Leadership Council. These companies include some of the most well-recognized brand names across the globe. They represent most industrial sectors and the largest emitters of greenhouse gases, including coal-burning utilities, mining companies, aluminum producers, automobile manufacturers, pulp and paper manufacturers, chemical companies, oil and gas businesses, and the cement industry. In joining the Council, these companies are united with the Pew Center in several beliefs, including this one – and I quote:
“We accept the views of most scientists that enough is known about the science and environmental impacts of climate change for us to take actions to address its consequences.”
It is a very simple statement – and it is a statement that all of you, through your participation in COAL21, could surely sign onto as well. But, of course, I didn’t come all this way simply to give you a pat on the back and say “G’day.” What I want to do this morning is challenge you to think even bigger and more broadly about coal’s future.
I want to start by laying out what I believe are two predictions for the future in which I have great confidence. The first is that we will soon be living in a carbon-constrained world. And the second is that coal will continue as a primary source of energy throughout the globe. How we reconcile these two predictions is, I believe, the crucial question facing this industry in the months and years ahead.
So let me talk briefly about prediction number one: the inevitability of carbon constraints. The scientific consensus on this issue seems to me to be quite clear. The earth is warming, this warming will accelerate in the years ahead, and it is largely the result of human activities. Yet another point of consensus – it is actually an indisputable fact – is that there is a great deal of inertia in the climate system. The greenhouse gases we have already placed in the atmosphere will continue to warm the planet for many decades, if not centuries with important consequences for sea-level rise, water availability, ecosystems and human health.
Right now, there is about 40 percent more carbon dioxide in the atmosphere than there was at the dawn of the Industrial Revolution. In fact, we haven’t experienced this level of carbon dioxide emissions for over 400,000 years.
In order to stabilize atmospheric CO2 concentrations at double their pre-industrial level (or 550 ppm)– a scenario that many scientific studies use to project the consequences of global warming but one that involves some adverse effects from climate change – the TOTAL amount of CO2 emissions we can release is roughly 1200 Gigatons (Gt).
Now think about this: Since the beginning of the industrial revolution – when the burning of fossil fuels began adding CO2 to the atmosphere -- we have consumed one-quarter of this budget.
At current growth projections, and I believe these are quite conservative, we will have consumed another quarter of the budget in a fraction of that time – in only another 25 years, or by 2030. So you can see where this is going – it took us over 100 years to use the first quarter – only 25 for the next – and in the absence of change from our current path, we reach – and surpass concentrations of 550 ppm (a doubling of pre-industrial levels) well before the end of this century, leading to greater impacts, such as the loss of coral reefs and barrier islands.
We have to get serious. I recognize that cost is the biggest driver in business decision making. But we also have to think about the environment when we make decisions, particularly for substantial capital investments that will last a long time. Because if we make the wrong decisions, we will not only be sacrificing the environment, but we will also end up by stranding significant amounts of capital.
So it is critical that we wake up and pay attention both to what the science is telling us and to where the economics of bad decision-making will lead. If we start now, I am convinced we can do this in an intelligent, measured way – a way that promotes investment in new technologies and allows time for capitol stock to turn over, so that we both protect our environment and sustain a growing global economy.
And the fact is, people already are waking up. The growing scientific consensus on this issue has prompted people and governments around the world to stand up and take notice, and to embrace the need for change. One sign of how far this issue has progressed came at this year’s World Economic Forum in Davos, Switzerland. When asked to identify key issues facing the world today, participants in the forum (50 percent of whom came from industry) listed climate change as one of the top three – ahead of terrorism and weapons of mass destruction. Here is a brief quote from the official review of the meeting:
“Increasingly, global businesses recognize that we are at a tipping point on climate change. There is growing recognition that mitigation decisions must be taken now.”
And right here in Australia a poll conducted by the Lowy Institute found that the two international issues that most concern your citizens are nuclear weapon development and global climate change.
70 percent of Australians polled expressed concern about global warming, while only 63 percent expressed concern about international terrorism and 44 percent spoke of illegal immigration and refugees.
But people are not just acknowledging this problem; they are also doing something about it. Kyoto, as all of you know, is now in force, meaning that more than 140 countries, including most of the world’s industrial powers, are implementing or considering steps to meet their treaty commitments and reduce their emissions.
We are also beginning to have serious discussions about what happens after 2012, when Kyoto’s current commitment period is over. And, as the world embarks on the next phase in all of this, what has happened until today will be a walk in the park. Because, whatever form it takes, the next international agreement is going to include much more action from many more countries, as we enter a seriously carbon constrained world.
Kyoto, of course, is not the only case of governments responding to this issue. We also have seen the launch in the EU of the broadest emissions trading system ever established. And, in Great Britain, the government has developed an energy blueprint for the next 50 years that makes climate change a key driver of that country’s energy policy, along with price and security of supply. Prime Minister Tony Blair, who is serving as president of the G-8 nations this year, has made climate change a priority for that group.
And it is not just national governments that are taking action. In the United States, 28 state governments have adopted climate action plans, and 15 have programs or policies in place to reduce, sequester or register greenhouse gases. Governors from 10 northeastern states are working on a strategy to reduce carbon dioxide emissions from power plants through a regional cap-and-trade initiative. And, 19 states have adopted renewable energy mandates that will result in real reductions in emissions.
Here in Australia, there is also a great deal of activity going on, at all levels of government. So the ball is rolling for real action on this issue at the international, the national and the subnational levels. And it is gaining speed. The trend is undeniable. Carbon constraints are on the way – indeed, in many instances they are already here.
“One day we will live in a carbon-constrained world.” That is a direct quote from Jim Rodgers, the CEO of Cinergy Corp. in the United States. And he is not the only U.S. electricity or energy executive saying this. John Rowe of Exelon has said in no uncertain terms that – quote – “there should be mandatory carbon constraints.” And here’s a quote from Wayne Brunetti of Xcel Energy: “Give us a date, tell us how much we need to cut, give us the flexibility to meet the goals, and we’ll get it done.” End quote.
I hope I have made a compelling case to you that carbon constraints are on the way – and industry needs to be prepared. So then we can move on to the second prediction, that the world will continue to rely on coal. I do not need to tell you about the vital role that coal plays, and will continue to play, in meeting the world’s energy needs. But I do want to offer a few statistics to put it in perspective.
In the United States today, coal provides 51 percent of all electricity, more than double the amount of any other fuel source and five times more than gas, oil, or hydroelectric power. Here in Australia, of course, coal is even more dominant in the energy mix, providing 85 percent of the nation’s electricity. And then there are the developing countries like China and India. China alone now accounts for 31 percent of worldwide coal consumption, and the developing world is going to be bringing huge amounts of new coal burning capacity online in the years ahead.
The bottom line: Coal is the most abundant energy source today, it is dispersed throughout the world, and it is available at a relatively low cost. There is no way that the world can continue to quench its growing thirst for energy without it.
So those are the facts: carbon constraints are coming, as they should be, and coal is here for the long haul. Now the question is how do we reconcile these future scenarios? How can the future include both carbon constraints and coal?
In the United States today, coal is responsible for 33 percent of carbon dioxide emissions. The comparable figure for Australia is 58 percent. Worldwide, the proportion of CO2 emissions from coal is 26 percent. As we say in America, something’s got to give.
To the extent that the coal industry fails to take seriously its obligation to substantially reduce emissions, then the controls imposed from outside are likely to be both more severe and less business-friendly. This is why the COAL21 National Action Plan is so important.
By laying out a pathway for developing new technologies to reduce coal-related emissions, you are planting your flag on the side of solutions. But the most important point I want to leave you with today is that a technology strategy alone is not enough. It is absolutely essential. But we also need broader climate policies that will draw the new technologies into the marketplace– policies that reflect the urgency of this issue and the need for real reductions in emissions.
Technology and policy. We need to do both. And we can do both. So let me go back to the 2005 World Economic Forum meeting at Davos, where there are two thoughts that are particularly relevant. First, “There is no single “magic bullet” or technology to address climate change. A diverse portfolio of low and zero carbon technologies will be required.” And second, “But it is essential that business be guided by clear price signals and a predictable regulatory path.” I’d like to spend a little time now talking about ways to move forward on each of these priorities.
First, technology. You are the experts on the technologies that can reduce greenhouse gas emissions from coal. And the agenda for this conference reflects that. Over the next two days, you will be talking about CO2 capture and storage, IGCC, oxy-fuel combustion, lignite dewatering and drying, ultra-clean coal and more. The potential for combining IGCC with carbon capture and storage is, of course, where a lot of the attention is right now – and for obvious reasons: whatever we do, we have to do it as efficiently as possible. But each of the technologies on your agenda holds great promise. And we need them now.
Worldwide, in developing and developed nations, the International Energy Agency anticipates that about 250 gigawatts of new coal capacity will be built in this decade. We will build almost double that (480 gigawatts) between 2011 and 2020. We have already missed our chance to influence the choice of technology for most of the capacity that will come online before 2010. But the longer we wait, the more likely it is that we will fail in the next decade as well. We simply cannot afford to do this.
So where are we today in developing the technologies we need? Well, let’s look at IGCC as an example. Right now, there are only two real IGCC plants in operation in the United States, but neither is operating fully on coal. Of 106 proposed new coal plants for the U.S., nine are IGCC. There is also the Bush administration’s $1 billion FutureGEN project, which you will hear about later. But no specific plans have yet been announced. So, in reality, we haven’t figured out if this is even viable yet.
With carbon capture and the other technologies, it is the same story. Lots of great ideas, some demonstrations here and there, but we are nowhere near where we need to be. And governments and industry are going to have to work together to jump-start these technologies and get them to a point where they can actually make a difference.
The COAL21 National Action Plan is absolutely correct in saying that international collaboration in this work is essential. We need to reduce duplication of effort—and that means planning, funding and deploying trial projects with publicly shared results. Any R&D we do on these technologies should be focused squarely on the remaining technical hurdles to their deployment, with special attention to reducing the costs involved. There is enormous potential here – but, as all of you know, we have a lot of work to do before these technologies can even begin to make a real contribution to protecting the climate. And the clock is ticking.
But again, an R&D focus alone is not enough. We need to combine technology and policy. A recent Pew Center study looked at three future energy scenarios for the United States – one where oil and gas are abundant and relatively inexpensive; one where energy supply disruptions and terrorism concerns lead to more interest in both alternative energy and coal; and one where government and industry partner to get climate-friendly technologies to the marketplace.
Even in this last scenario, where technology triumphs and where we presumably would get a fairly good handle on technologies such as carbon storage and coal gasification, the study projected no net reduction in U.S. carbon emissions by 2030 without a broader climate policy. I want to repeat that for emphasis – even if we get these technologies to a point where they can be deployed in cost-effective ways, we still need broader policies to enable change. Industry needs to know that government is serious about this issue, that there are clear and certain goals driving our policies, and that all sectors will be held accountable for reducing their emissions.
What types of policies am I talking about? At the international level, we need an agreement that engages all major emitters of greenhouse gases, from both the developed and the developing world. It is the only fair way to do this. It is the only way to bring the United States – and Australia too – back into the process. And it is the only way to fully engage the major emitters in the developing world.
But I am not saying that all countries—or all companies—need to play by the same rules. Flexibility is key. Different countries are at different stages in their development, and they have different resources to invest in climate solutions. And different countries are endowed with different kinds and quantities of natural resources. So we need a framework where everyone is involved in ways that they and their competitors view as fair. “Fair and effective” should be our mantra as we move forward. “Fair” because we need broad engagement in this effort, and “effective” because we need to create pathways that get us to a low-carbon global economy. .
Moving from the international stage to policies at the national level, we need to look at an assortment of policies that can contribute to reduced emissions. One of these is cap-and-trade. As you know, this is a policy that sets targets for greenhouse gas emissions and allows companies the flexibility to trade emission credits in order to achieve their targets. This is the policy in New South Wales, and, as I already mentioned, a number of U.S. states are considering a cap-and-trade initiative as well.
The United States Senate for the first time voted on a national cap-and-trade measure last year. It attracted the support of 43 senators, and its sponsors have vowed to bring it up for consideration again. Cap-and-trade policies can be important because they encourage economy-wide reductions in emissions. And the work we have done shows this is the least expensive way to do it – reductions happen where it is cheap and where it makes the most economic sense.
However, cap-and-trade is far from the only policy option at the national level. And for some countries, it may not be the preferred approach. Government standards and codes, public infrastructure investments, public-private partnerships and government procurement all have a role to play in reducing emissions and forcing change. We also may need to think sector by sector, either on a national or a global basis. Are there specific sectors where a particular approach makes the most sense, and if there are, how should we go about getting new technologies and new processes into the market for that sector.
In the electricity sector specifically, we need policies and incentives that will result in companies building the best, most efficient plants they can; retiring old, inefficient plants as expeditiously as possible; and capturing and storing the carbon stream.
We also need national energy policies like the British example – policies that balance our desire for security, growth and affordability with the need to build a diverse portfolio of climate-friendly technologies.
Last but not least, we need to pay attention to adaptation. Because, even with an ambitious strategy to reduce emissions, we’re already committed to future changes in the global climate that will pose serious challenges to our natural ecosystems and resources, our economies, and human health. The recent report from the Arctic Climate Impact Assessment made it crystal clear: climate change is happening now. And the nations of the world need to be ready to adapt.
This morning, I have made 2 predictions: carbon constraints are coming; and coal will remain a crucial source of energy throughout the world. And I have talked about how we can reconcile these facts in two ways: first, by making a much more vigorous commitment to technologies that will reduce the environmental impact of coal generation; and, second, by advancing broader public policies to mobilize real action on the climate issue both in our domestic economies and worldwide.
I believe the only way to address this problem successfully is to unleash a global technological revolution. And the goal of governments, acting multilaterally and within their own borders, must be to adopt policies and strategies that spur this revolution on.
In Australia, in America and throughout the world, businesses continue to receive mixed signals from their governments about whether or not we are serious about addressing this challenge. It is time to erase all the doubts and the uncertainty. It is time to act boldly, government and industry together, to embrace the importance of both technology and public policy in protecting the climate we share.
Thank you very much.