The Center for Climate and Energy Solutions seeks to inform the design and implementation of federal policies that will significantly reduce greenhouse gas emissions. Drawing from its extensive peer-reviewed published works, in-house policy analyses, and tracking of current legislative proposals, the Center provides research, analysis, and recommendations to policymakers in Congress and the Executive Branch. Read More
The Center's Assessment of EIA’s Analysis of the Amended (SA.2028) Lieberman-McCain Climate Stewardship Act (S.139)
On June 8, 2004, EIA released its economic analysis of SA.2028, the amended version of S.139: the Climate Stewardship Act introduced by Senators John McCain and Joseph Lieberman. (See evaluation of the original bill.) This amended version, which would hold U.S. greenhouse gas (GHG) emissions at year 2000 levels by 2010, was considered by the U.S. Senate in October 2003. For more information, see Summary of Act.
The original EIA analysis of S.139 was undertaken at the request of Sen. James M. Inhofe (R-OK), with additional analyses requested by the bill’s sponsors. This recent release – additional work analyzing the amended bill (SA.2028) – follows a request from Sen. Mary Landrieu (D-LA). A separate analysis of SA.2028 was previously released by researchers at the Massachusetts Institute of Technology. See our Summary of MIT’s Analysis.
The Center has examined EIA’s analysis of SA.2028 and finds it to be consistent with its earlier approach. However, it is still primarily driven by the underlying key assumptions that result in unrealistically high cost projections.
These key underlying assumptions are:
1. High growth of emissions in the baseline case: The high baseline case is the single most important element in explaining EIA’s high cost projections. EIA’s baseline case assumes high growth in:
- petroleum use in transport: +46% by 2025;
- coal-fired electricity generation: +35% by 2025; and
- the non-CO2 greenhouse gases (GHG), including a 440% increase in emissions of industrial high-GWP gases (HFCs, PFCs, and SF6) by 2025 despite a production slow-down in recent years and considerable uncertainty over future industry-specific trends.
Furthermore, EIA assumes no relevant policies will be enacted over the next twenty years:
- there will be no further federal or state requirements for criteria air pollutants, and therefore less incentive to rely on cleaner fuels and technologies – even though, for example, President Bush has proposed tougher standards for powerplants through the Clear Skies Act;
- natural gas prices will remain very high despite proposed policies to increase supply;
- individual states will do nothing to address GHG emissions – even though the northeastern states are actively developing a program to impose CO2 caps on their powerplants, California is about to impose CO2 tailpipe standards, additional states are developing renewable portfolio standards, and other states are considering similar initiatives; and
- the federal government will do nothing to address climate change – it will not even implement President Bush’s voluntary GHG intensity reduction target or technology programs.
EIA’s assumptions result in an high baseline case which widens the apparent gap that must be closed to comply with SA 2028, and thereby increases EIA’s cost projection.
2. Limited opportunities to increase efficiency and reduce consumption: EIA still assumes that covered entities in the transportation, building and industrial sectors will do very little to increase their efficiency or reduce consumption under SA 2028. For example, EIA forecasts only a very modest increase in automobile efficiency, from 26.4 mpg to 27.2 mpg by 2025. These assumptions are made despite the fact that the GHG cap-and-trade program established by SA 2028 would create a sustained price signal, which should spur technology improvements, and the diffusion of these technologies into the marketplace.
3. Limited opportunities to reduce non-CO2 GHG emissions: EIA still assumes there are limited opportunities for covered entities to reduce their emissions of the non-CO2 GHGs (methane [CH4], nitrous oxide [N2O], and the industrial high GWP gases [HFCs, PFCs, SF6]). Under this assumption, EIA projects that overall emissions of non-CO2 GHGs from covered sectors would actually increase by around 70% under SA 2028 (note that EIA projects an increase of 230% in the baseline case). In contrast, the MIT analysis (see below) finds that overall non-CO2 GHG emissions would be reduced by around 45%. Particular examples that the MIT model finds for cost-effective reduction opportunities in the non-CO2 GHGs include the industrial high-GWP GHGs (HFCs, PFCs, and SF6) in the semiconductor, magnesium and aluminum sectors, and reducing methane emissions from coal and oil production facilities, landfills and natural gas pipelines.
4. Limited available offsets: EIA assumes that there is only a limited amount of cost-effective offsets available. For example, on domestic sequestration, EIA projects only 112 MTC at under $100/TC will be available; however, a forthcoming report from the Center by Robert Stavins of Harvard University indicates an availability of 300 MTC at under $50/TC. EIA also takes a restrictive view of available international offsets, assuming that trading will only take place with the EU-15 through 2025. This ignores the fact that access to mitigation opportunities in other developed countries and, particularly, in developing countries would greatly increase the supply of inexpensive international credits.
5. Tight natural gas supply: EIA still assumes a very tight supply of natural gas. This assumption would limit one key option for a smooth transition away from highly carbon intensive energy use. However, as shown by EIA’s own evaluation of past reference cases, natural gas has been the fuel with the least accurate forecasts of production, consumption and prices.
Pathway towards emissions reductions
Because EIA assumes limited availability of cost-effective efficiency improvements and limited reduction opportunities for non-CO2 gases, the great majority (88%) of required emissions reductions would come from fuel switching in the electricity sector. As any sizeable transition to natural gas would be limited according to EIA’s predicted tight supply, the EIA model predicts the electricity sector would comply by using expensive renewable and nuclear technologies together with premature retirement of some existing coal plants. Such a large-scale and unplanned shift of capital assets would be expensive. This overall story is the same for the amended SA.2028 as for the original S.139 bill, with the only real change from the relaxed cap being a lower requirement for new nuclear units and some greater retention of existing coal plants (in 2010 coal use is up 7% from 2001 levels, falling to 79% of current levels by 2020).
In addition, EIA's analysis is very conservative in its assumptions regarding the diffusion of those high efficiency technologies that already exist. Among other things, EIA assumes there will be less use of combined heat and power and distributed generation technologies under SA 2028 than in the baseline case. EIA is also pessimistic on the market penetration of new technologies – assuming, for example, that by 2025 no hydrogen and no coal-fired IGCC with sequestration plants would be operational despite these being principal objectives of federal energy R&D.
The actual experience of companies on the Center’s Business Environmental Leadership Council that have elected to take on a GHG reduction target is that low-cost, or cost-saving opportunities are often available – even for much more ambitious targets than proposed in the bill. For example, BP set a target of reducing GHG emissions by 10% from 1990 levels by 2010. By instituting an emissions trading program, BP met its target 8 years ahead of time and achieved $650 million of savings over three years for an estimated outlay of $20 million. DuPont has met its target to reduce GHG emissions by 65% between 1990 and 2010 and managed to use 9% less total energy in 2002 than it did in 1990, despite an almost 30% increase in production. Compared to a linear increase in energy with production, this achievement resulted in $2 billion in cumulative energy savings. EIA’s model shares the weakness of many computable general equilibrium (CGE) or “top-down” economic models – it tends not to recognize these opportunities and, as a result, overstates projected costs.
Comparison with MIT Analysis
MIT developed two cases that focused on Phase 1 reductions as entailed in SA 2028. However, the first case is actually a CO2-only case. This is much less flexible than SA 2028, but the model still projects the same allowance prices as EIA. (Both studies estimate an allowance price of $125/TC [$34/TCO2] in 2020.) The second MIT case assumes unlimited non-CO2 credits in 2020. (Here MIT projects allowance costs much lower than EIA’s, at $52/TC [$14/TCO2] in 2020.) The MIT analysis allows use of all available cost-effective non-CO2 GHG emission reductions.
In contrast to EIA’s emissions reduction pathway through fuel switching, in the MIT analysis, greater efficiency and reductions in non-CO2 GHGs lead to far less pressure on the electricity sector. With these assumptions, MIT predicts a reduction in natural gas prices compared to the baseline case, and coal use remaining stable at current levels.
Translating these emission reduction pathways to the wider U.S. economy, a fundamental point is that for a similar allowance price, EIA projects macro-economic impacts of 0.22% of GDP, while MIT finds a consumer welfare loss of only 0.02% by 2020. Consumer welfare in this case measures lost consumption (or income) by consumers (as leisure effects are not included), and consumption is the major component of GDP (the other components being investment, government expenditures and imports/exports balance). Consumer welfare is a good measure of the actual impact on the population.
“Looking Beyond Kyoto: A U.S. Perspective”
Remarks of Elliot Diringer, Pew Center on Global Climate Change
at the Green Week 2004 Conference of the European Commission
Brussels, 2 June 2004
I’d like to begin by offering my congratulations to Commissioner Wallström and to her esteemed colleagues at the Commission for two very welcome and very significant accomplishments.
First, I would like to congratulate you on the establishment of the EU emissions trading scheme. It was not so long ago that the very idea of emissions trading was viewed quite skeptically here in Brussels. Today Europe has not only embraced this alien notion from across the Atlantic, but is leading the world in its practice.
Second, I’d like to offer my congratulations, and my thanks, for the vigorous efforts that led to the recent reaffirmation of Russia’s intent to ratify the Kyoto Protocol. I don’t imagine the EU has received any official message of thanks or congratulations from my side of the Atlantic. But as one representing an organization seeking to advance the effort against climate change, I believe President Putin’s declaration is indeed welcome news, and for several reasons.
One reason is that the Protocol’s entry into force will help ensure that Europe and the other ratifying countries deliver on the commitments made in Kyoto. And in so doing, they will demonstrate to those who are not yet acting that this is a challenge that can be met.
Second, even if Washington is right now distracted by other concerns, Kyoto’s entry into force will send a strong message to the United States. It will remind us of the urgent need for action against climate change, and of the importance of acting multilaterally.
Finally, Kyoto’s entry into force will set in motion the diplomatic machinery that could advance us to the next stage in the international effort against climate change. For we all know that while Kyoto is a start, it is hardly the final answer to global warming. And while I have just congratulated the EU for pushing ahead with the protocol, it is critical, I believe, that we now start looking beyond Kyoto.
If the protocol does indeed enter into force, negotiations could begin as early next year toward a new round of commitments. We should use this opportunity to work toward a new approach – one both broader and deeper, one with the hope of engaging all the world’s major emitters in a long-term effort that fairly and effectively mobilizes the technology and resources we need to protect our global climate.
In a moment I’d like to share some preliminary thinking from the Pew Center on the possible path beyond 2012. But because no path forward can in the long run succeed without the United States, let me first offer a brief assessment of the situation back home.
Most of you I am sure heard about the big climate change news in the States last week. Indeed, it was the most widely heard pronouncement on this issue ever in the United States. I am referring of course to the release of the new movie called “The Day After Tomorrow.” I have not yet seen it but my son has given me his review. And it sounds to me as if one could leave the theatre believing either that climate change is pure science fiction – or that it’s real, and that at any moment it could thrust New York City into an instant ice age.
But while the movie itself might do little to educate people on the real causes and consequences of climate change, or its potential cures, it has drawn enormous media attention to those very issues. The media are so interested, I think, not simply because Hollywood has produced a new disaster movie, but because there is at long last a genuine debate on climate change underway in the United States. And this debate, I am pleased to say, is beginning to produce some genuine action.
Before the “Day After Tomorrow,” the event that may have done the most to raise public awareness of climate change in the United States was, oddly enough, President Bush’s rejection of the Kyoto Protocol. In the three years since, this issue has received growing attention in the media, in boardrooms, in the offices of state governors, and in the U.S. Congress.
The most promising developments have been at the state level. Several of our largest states, led both by Republican and by Democratic governors, are preparing to cap emissions from power plants, cars and SUVs. The nine Northeast states – including New York, New Jersey, and Massachusetts – are working toward creating a regional greenhouse gas market. And California, which traditionally has led the country in demanding cleaner cars, has enacted legislation to limit carbon dioxide from cars and SUVs. The law is being challenged in the courts by the carmakers, and Governor Schwarzenegger has promised to defend it. If the new law survives, other states are expected to follow California’s lead.
These state efforts are important and encouraging, but they must be a prelude only to stronger action at the national level. Here the most promising development is the introduction of legislation to establish a nationwide greenhouse gas cap-and-trade system. This legislation, introduced by Senators John McCain and Joe Lieberman, a Republican and a Democrat, is the first proposal ever put before Congress for a mandatory cap on U.S. greenhouse gas emissions. Recently it won 43 votes in the Senate, several votes short of a majority but a very respectable showing for a first vote. Senators McCain and Lieberman promise to keep bringing the legislation back, and a companion bill has now been introduced in the House of Representatives.
I must be frank and say that it will be some time still, perhaps years, before such legislation is enacted, regardless of the outcome of our November election. And that is important to bear in mind as we think about steps beyond 2012. Because the United States will be in a position to join other countries in a binding international agreement, I believe, only once we have achieved a broad national consensus on just how we are prepared to address this issue at home.
Still, we must begin now to envision such an agreement – one that can work not only for the United States, Europe, and the other industrialized nations, but for developing countries as well. Last year, the Pew Center organized a series of papers and international workshops on the key challenges in forging a workable approach that can take us beyond Kyoto. We are not yet at the point of suggesting specific approaches or architectures. But some important themes emerged from our work last year, and I’d very briefly like to share some of those with you today.
First, a point that emerged over and over again: The basic challenge we face is building political will. In material terms, of course, the challenge is technological – nothing less, actually, than a global technological revolution. This revolution must be carried out in the marketplace, because only markets can mobilize the resources and ingenuity that are needed. But the markets won’t do this on their own. The direction – the imperative – must come from government. And that requires political will.
When and how it materializes depends on a host of factors: public awareness, media attention, elections, even the weather. But it depends as well on our resourcefulness in fashioning common approaches. We must ask ourselves: What types of international arrangements can best capture and motivate political will to achieve the broadest possible participation in an effective, long-term effort?
A second, and related, point is that there is no getting around national interest. We all know that climate change is a common challenge that must be met through collective action. But the political reality is that nations will engage in collective action only if they perceive it to be in their national interest. All parties must try to better understand their respective domestic concerns, and to build a collective framework that assists each in generating greater political will.
This is, in part, a matter of recognizing that climate is not simply an environmental issue but fundamentally one of economics and development. And it is in part a matter of reocgnizing that a multilateral approach cannot succeed by attempting solely to remold countries’ behavior from the top down. It must at the same time recognize and reflect national circumstances from the bottom up.
This leads to a third point: We need a more flexible architecture, one that can accommodate a broader range of national strategies. We must construct a more “variable geometry,” as one of our papers puts it. The Kyoto Protocol provides a degree of flexibility. But it employs only one form of mitigation commitment: fixed targets and timetables. Other approaches are needed. We need different strategies for developed and for developing countries, and possibly within those groupings as well.
A fourth point is that, in considering alternative approaches, we should think about targeting action, not only emissions. The climate effort so far has sought to drive mitigation through measures mandating specific environmental outcomes. An alternative or complementary approach might instead frame commitments in terms of the kinds of actions that are required. For instance, having a long-term greenhouse gas concentration target – say 550 parts per million – would be extraordinarily helpful. But negotiating one would likely be fruitless, and potentially even counterproductive. Why not instead agree on the types of actions needed to move economies toward the goal of climate stabilization. For instance: achieving zero net emissions from the power sector, or replacing gasoline with hydrogen, by 2050.
My fifth and final point is that we must consider the right forum, and the right quorum, for future international efforts. There are strong rationales for a global approach – from an environmental perspective, from an economic perspective, and from an equity perspective. But the reality at the moment is one of fragmentation. A variable geometry could mean for now parallel regimes undertaken within any number of regional or multilateral forums. It is also possible to envision a different grouping within the existing global framework, something perhaps transcending the present division between developed and developing countries. If we count the EU as one party – just 12 parties account for nearly 80 percent of global CO2 emissions. In the long run, some type of global approach is not only preferred but necessary. The question is whether at this stage something less than fully global might better deliver the political will that is needed.
I offer these thoughts not as hard principles or prescriptions, but rather as broad points worth considering as we chart a course forward, a course that will take us beyond 2012, and beyond Kyoto. That there is today an international effort against climate change is thanks in large measure to the political will shown here in Brussels, and across Europe. As we across the Atlantic begin coming to terms with the climate issue, we must all think anew about the best ways to move the international effort forward. We will need to be open, and we will need to be creative, if we are to forge a common approach equal to the challenge.
Global Climate Change and Coal's Future
Remarks by Eileen Claussen
President, Pew Center on Global Climate Change
Spring Coal Forum 2004 - American Coal Council
May 18, 2004
It is a pleasure to be here in Dallas. And I want to thank the American Coal Council for inviting me to address this forum.
I thought I would open my remarks today with some commentary on the upcoming FOX movie about climate change—it is entitled “The Day After Tomorrow.” It is not often, after all, that I get to talk about the movies in my speeches. And I suppose that’s because there are not a lot of movies on the topic of climate change—of course, I am not counting “Some Like It Hot.”
In case you haven’t already heard, “The Day After Tomorrow” comes out Memorial Day weekend. It is a movie that tries to show the consequences of climate change by letting loose tornadoes in Los Angeles, dropping grapefruit-sized hail on Tokyo, and subjecting New York City to a one-day shift from sweltering-to-freezing temperatures.
The only thing I can say is it’s a dream scenario for the people at The Weather Channel.
Actually, the reason I bring this up is because we are bound to be hearing a great deal about the issue of climate change over the next several weeks. This is a major motion picture with a major marketing push behind it.
And, while I know of no one in the scientific community who believes climate change will unfold in the way it is portrayed in the film, I also know this: If this movie sounds far-fetched, it is frankly less of a distortion—much less—than the argument that climate change is a bunch of nonsense. It is not. Climate change is a very real problem with very real consequences for our way of life, our economy and our ability to ensure that future generations inherit a world not appreciably different from our own.
I strongly believe it is time for some straight talk about the problem of climate change and what it means for you - the coal industry. So while my remarks here today are also relevant to the oil and gas industry, I believe coal to be in a more precarious position, and I believe that for 2 reasons: 1) I think coal is an easier target politically and 2) oil and gas are already involved in the policy process. So despite the current outlook for coal in the United States, I am here to say that a robust future for coal is not a sure thing, particularly if we do not find environmentally acceptable and cost-effective ways to use it.
So let’s look at some facts.
Here in this country, as all of you know very well, coal provides 52 percent of all electricity, more than double the amount of any other fuel source and five times more than gas, oil or hydro-electric power. Coal is the most abundant energy source today, it is dispersed throughout the world, and it is available at a relatively low cost. Worldwide coal consumption, according to the U.S. Energy Information Administration, is expected to grow by more than 40 percent between 2001 and 2025, with China and India accounting for three-fourths of that increase.
Given these facts, a scenario in which we meet the world’s various energy challenges without coal seems to me highly unlikely.
At the same time, however, I cannot imagine—or, rather, I fear to imagine—what will happen if over the next 50 years we do not get serious about reducing worldwide emissions of carbon dioxide and other greenhouse gases that we know contribute to climate change.
Coal alone is responsible for 37 percent of CO2 emissions in the United States. Thirty-seven percent. Worldwide, the EIA projects that coal will continue as the second largest source of carbon dioxide emissions after petroleum, accounting for 34 percent of the total in 2025.
Coal’s dominant role in the global energy mix, together with its responsibility for a large share of CO2 emissions, suggests it is high time to figure out how to continue using coal in a way that results in the least amount of harm to the global climate.
I am not going to tell you that we can address this problem with no costs. Our goal must be to ensure that the costs themselves do not become a barrier to action. I believe we can manage those costs in a way that enables continued economic growth and, equally important, in a way that causes the least amount of harm to the environment.
And finally, we must acknowledge the very real costs of not acting to address the problem of climate change. I will talk more about that later.
And so today I want to lay out for you how important it is for this industry—your industry—to become a part of the solution to climate change. I also want to talk about your role in helping to shape the policies and in developing the technologies that will allow us to reduce greenhouse gas emissions from coal generation and other sources.
But before that, I need to address the question of why I am here and why we are having this discussion in the first place. And the answer is because the threat of climate change, as I have already noted, is very real. If you still have any doubts about this, then I refer you to the findings of a special, well-balanced panel put together by the National Academy of Sciences at the request of President George W. Bush. The panel’s conclusion: the planet is warming and human activities are largely to blame. And, of course, the human activity that is most responsible is the burning of fossil fuels.
Let's get one other thing out of the way -- the Kyoto Protocol. I am not here to argue the merits of the Protocol. And I'm certainly not here to argue for ratification of Kyoto. Because I think it's pretty clear that, at least as far as the United States is concerned, the Kyoto Protocol is a dead issue. So, let's agree on that, and let's move beyond Kyoto, and talk about what really needs to happen.
This is what we know. The 1990s were the hottest decade of the last millennium. The last five years were among the seven hottest on record. Yes, the earth's temperature has always fluctuated, but ordinarily these shifts occur over the course of centuries or millennia, not decades.
Now I know there are skeptics on this issue - there might even be a few here today, so let me take a minute to talk about some of the more common misconceptions I hear.
A common one is to point to the satellites circling our planet overhead and to note that these precision instruments show no warming of our atmosphere. Global warming, some skeptics say, is therefore just an artifact of urbanization or some other miscalculation here on the ground.
All I can say about these claims is that they are dead wrong. As early as 2000, the National Academy of Sciences concluded that the warming observed on the ground was real, despite what the satellites might tell us. What’s more, since that time estimates of warming from satellites have progressively increased. Just this month, in fact, a new study in the journal Nature took a fresh look at the satellite data and found that the so-called “missing warming” had been found, bringing the satellite estimates more in line with temperatures observed on the ground.
Warming by itself, of course, is not proof of global warming. Climate conditions vary naturally, as we all know, and I am sure you have heard arguments that such natural variability, whether caused by volcanoes or the sun, can account for the climate change we’ve seen in recent decades. But, when scientists actually take a look at the relative importance of natural vs. human influences on the climate, they consistently come to the same conclusion. And that is this: observed climate change, particularly that of the past 30 years, is outside the bounds of natural variability. Atmospheric concentrations of carbon dioxide are more than 30 percent higher now than they were just a century ago. Despite what you may hear, this increase in carbon dioxide is undeniably human in origin, and it is the only way to explain the recent trends in the global climate.
Scientists project that over the next century, the average global temperature will rise between two and ten degrees Fahrenheit. A ten-degree increase would be the largest swing in global temperature since the end of the last ice age 12,000 years ago. And the potential consequences of even gradual warming are cause enough for great concern.
What will those consequences be? We can expect increased flooding and increased drought. Extended heat waves, more powerful storms, and other extreme weather events will become more common. Rising sea level will inundate portions of Florida and Louisiana, while increased storm surges will threaten communities all along our nation’s coastline, including the Texas coast.
Looking beyond our borders, we can see even broader, more catastrophic effects. Imagine, for example, what will happen in a nation such as Bangladesh, where a one-meter rise in sea level would inundate 17 percent of the country.
In addition to the obvious threat to human life and natural systems, climate change poses an enormous threat to the U.S. and world economies. Extreme weather, rising sea level and the other consequences of climate change will result in substantial economic losses.
We cannot allow the argument that it will cost too much to act against climate change to prevail in the face of the potentially devastating costs of allowing climate change to proceed unchecked.
Furthermore, the longer we wait to address this problem, the worse off we will be. The Pew Center in 2001 held a workshop with leading scientists, economists and other analysts to discuss the optimal timing of efforts to address climate change. They each came at it from a different perspective, but the overwhelming consensus was that to be most effective, action against climate change has to start right now.
Among the reasons these experts offered for acting sooner rather than later was that current atmospheric concentrations of greenhouse gases are the highest in more than 400,000 years. This is an unprecedented situation in human history, and there is a real potential that the resulting damages will not be incremental or linear, but sudden and potentially catastrophic. Acting now is the only rational choice.
But what can we do? The Pew Center on Global Climate Change was established in 1998 in an effort to help answer this very question. We are non-profit, non-partisan and independent. Our mission is to provide credible information, straight answers and innovative solutions in the effort to address global climate change. We consider ourselves a center of level-headed research, analysis and collaboration. We are also a center in another sense–a much-needed centrist presence on an issue where the discussion too often devolves into battling extremes where the first casualty is the truth.
The Pew Center also is the convenor of the Business Environmental Leadership Council. The group’s 38 members collectively employ 2.5 million employees and have combined revenues of $855 billion. These companies include mostly Fortune 500 firms that are committed to economically viable climate solutions. And I am pleased to say that they include firms that mine coal and firms that burn it—some of whom are represented here today. As members of the Business Environmental Leadership Council, all of these companies are working to reduce their emissions and to educate policy makers, other corporate leaders and the public about how to address climate change while sustaining economic growth.
And, if their work with the Pew Center proves anything, it is this: Objecting to the overwhelming scientific consensus about climate change is no longer an acceptable strategy for industry to pursue.
We need to think about what we can realistically achieve in this country and around the world and begin down a path to protecting the climate. And that means making a real commitment to the full basket of technologies that can help to reduce the adverse environmental effects of coal generation. The most promising of these technologies, of course, are: carbon capture and storage; and coal gasification, or IGCC.
Carbon capture and storage, or CCS, holds out the exciting prospect for all of us that we can continue using proven reserves of coal even in a carbon-constrained world. In only the last three decades, CCS has emerged as one of the most promising options we have for significantly reducing atmospheric emissions of greenhouse gases. Today, 1 million tons of CO2 are stored annually in the Sleipner Project in the North Sea, and several more commercial projects are in various stages of advanced planning around the world. Between off-shore, saltwater-filled sandstone formations, depleted oil and gas reservoirs, and other potential storage locations, scientists say we have the capacity to store decades worth of CO2 at today’s emission rates.
Of course, it will still take a great deal more effort before CCS is ready for prime time. In a paper prepared for a recent Pew Center workshop held in conjunction with the National Commission on Energy Policy, Sally Benson of the Lawrence Berkeley National Laboratory identified several barriers to the implementation of carbon capture and storage, or CCS. They include:
- The high costs and quote-unquote “energy penalties” of post-combustion CCS.
- The high capital costs of gasification, as well as a lack of experience with the technology in the utility sector.
- Limited experience with large-scale geologic storage.
- Uncertainty about public acceptance of CO2 storage in geologic formations.
- A lack of legal and regulatory frameworks to support widespread application of CCS.
- And, last but not least, a lack of financial resources to support projects of a sufficient scale to evaluate the viability of CCS.
Yet another technology that could potentially help to reduce the climate impact of coal generation is IGCC. Of course, IGCC’s principal benefit from a short-term environmental perspective is a significant reduction in criteria air pollutant emissions and in solid waste. But, over the long haul, IGCC has great potential to reduce CO2 emissions as well, both because, compared to pulverized coal combustion, it could result in significant improvements in efficiency, because it can be much more easily combined with CCS, and because it enables hydrogen production from coal.
But, as with CCS, IGCC still has a ways to go before it can deliver on its enormous promise. As of today, there are only two real IGCC plants in operation in the United States, but neither is operating fully on coal. Yes, the Bush administration has made a big splash with its announcement of the $1 billion FutureGEN project—which, as you know, would build the world’s first integrated sequestration and hydrogen production research power plant. But no specific plans have yet been announced.
The bottom line: these technologies—both CCS and IGCC—are nowhere near prime time. Right now, to stretch the analogy further, they are far enough from prime time to be on the air around 3 a.m. with a bunch of annoying infomercials. And they won’t get any closer to prime time without substantial investment in research and development, as well as a major policy commitment to these technologies.
The potential rewards are great. If we make the necessary commitment to CCS and IGCC, these technologies could make an important contribution to the United States’ efforts to control greenhouse gas emissions in the decades ahead. And the potential for coal to become a source of hydrogen for transportation could revolutionize the industry and our energy future.
But we need to make a commitment.
Investing in the development of these technologies, in fact, may be the only way for coal to have a long-term future in the U.S. energy mix. There will be a time in the not-too-distant future when the United States and the world begin to understand the very real threat posed to our economy and our way of life by climate change.
When that happens, those industries that are perceived as part of the problem and not part of the solution are going to have a difficult time. Allow me to put it another way: if current trends continue, there is a strong possibility that, at some point, policymakers and the public are going to see the need for drastic reductions in our emissions of carbon dioxide and other greenhouse gases. The coal industry—because of its responsibility for such a large share of those emissions—may find itself the focus of intense scrutiny and finger-pointing. And it will need to demonstrate that it is making steady and significant progress in reducing its emissions—or else face draconian policy measures.
The coal industry, of course, cannot tackle this challenge alone. Government, too, must become a part of the solution, and this is not just a matter of technology policy; there is a need for a broader climate policy. I mean a policy that sets a national goal for greenhouse gas emissions from ALL important sectors - including transportation, utilities and manufacturing - and then provides companies and industries with the flexibility to meet that goal as cost-effectively as possible. This is the approach taken in the Lieberman-McCain Climate Stewardship Act.
The need for a broader climate policy was the key conclusion of a recent Pew Center study that looked at three future energy scenarios for the United States. Even in the most optimistic scenario where we develop a range of climate-friendly technologies such as CCS and IGCC, the study projected that we will achieve no net reduction in U.S. carbon emissions without a broader policy aimed at capping and reducing those emissions.
So the challenge before us is clear: we need to craft a wide-ranging set of policies and strategies to reduce humanity’s impact on the global climate. And coal needs to be proactively and positively engaged—much more so than has been the case thus far.
I am pleased to report that there are elected leaders at the state level and in Congress who understand the importance of government action. In Congress, of course, last year we saw the Climate Stewardship Act introduced by Senators Joseph Lieberman and John McCain. This measure, which would establish modest but binding targets for reducing U.S. greenhouse gas emissions, attracted the support of 43 senators—a respectable number and an indication of growing support for U.S. action on this issue. A companion measure to the Senate bill was introduced in the House of Representatives earlier this year.
Policymakers, particularly at the state level are moving beyond debate to real action on this issue. Among the examples:
- Thirteen states, including Texas, now require utilities to generate a specified share of their power from renewable sources.
- New York and nine other mid-Atlantic and northeastern states are discussing a regional “cap-and-trade” initiative aimed at reducing carbon dioxide emissions from power plants.
- And, last September, the governors of three Pacific states—California, Oregon, and Washington—announced that they will be working together to develop policies to reduce emissions from all sources.
So the fact is, we have a lot of people in government at the state and federal levels who are beginning to look seriously at this issue and who are trying to figure out how best to respond. So the coal industry needs to be at the table now, because the policy discussion has begun.
But understand - getting to the table is not just a matter of showing up and saying, “Let’s talk.” To earn a seat at the table, coal is going to have to demonstrate that it is committed to real and serious action on this issue. And as you are probably aware, some of your competitors from a climate change perspective - the gas, oil and renewable industries are already there.
The benefits of active involvement by industry in environmental policy became clear to me during negotiations on the Montreal Protocol.
An important reason for the success of that agreement, I believe, is that the companies that produced and used ozone-depleting chemicals—and that were developing substitutes for them—were very much engaged in the process of finding solutions. As a result, there was a factual basis and an honesty about what we could achieve, how we could achieve it, and when. And there was an acceptance on the part of industry, particularly U.S. companies, that the depletion of the ozone layer was an important problem and that multilateral action was needed.
In the same way, industry involvement was an important part of the process that developed the Acid Rain Program created under the Clean Air Act Amendments of 1990. And, once again, those with a seat at the table, by and large, came out with a policy they could live with. Those who were not at the table were not as happy with the outcome.
It is a basic principle of democratic governance: the more you get involved in the process and in shaping solutions, the more likely it will be that those solutions are agreeable to you. Or, as the Chinese proverb puts it, “Tell me, I forget. Show me, I remember. Involve me, I understand.” For those of you who think there is no possible configuration that would allow the coal industry, government and environmental advocates to sit around one table—I am here to tell you that I for one am willing to make the seating arrangements work. Because we need them to work.
Whether the issue is public-private partnerships, incentives for technology development, or the level and timing of reductions in emissions, coal has a chance to shape the right solutions.
What are the right solutions? A lot of it has to do with technology—and, more specifically, with the policies needed to push and pull solutions such as CCS and IGCC to market. (Let me say here that I don’t want to leave the impression that these are the only technologies we need to look at because there are others, such as coalbed methane, that show enormous promise as well.)
I will say it one more time: coal’s place in the U.S. and global energy mix in the decades to come will depend largely on the industry’s ability, in concert with government, to develop the technologies that will allow us to achieve dramatic reductions in carbon emissions from coal generation. Without those technologies, coal loses out when the United States and the world finally appreciate the need for serious action to address this very serious problem.
In closing, I want to note that the promotional materials for the film, “The Day After Tomorrow,” ask the question: “Where will you be?” It is my sincere hope that, whether you go and see the movie or not, this industry will be on the side of solutions to this very urgent problem.
I honestly believe you don’t have much of a choice. After all, a mine is a terrible thing to waste.
Thank you very much.
CLIMATE CHANGE: OVERCOMING THE BARRIERS TO ACTION
Remarks by Eileen Claussen
Earth’s Future: Taming the Climate
Columbia University Symposium
April 23, 2004
Thank you very much. It is a pleasure to be here to celebrate Columbia University’s 250th anniversary. So let me begin by saying Happy Birthday to one of the world’s finest institutions of higher learning.
On the flight here today, I was thinking about the next 250 years and wondering what will become of Columbia and the wider world in that time. (Given the topic we are here to discuss, along with projections that Manhattan could well be threatened by sea level rise in the years ahead, I decided that Columbia always has a future as a great underwater oceanographic institution. So all is not lost.)
Yesterday, as all of you know, was Earth Day—or, as the Bush administration referred to it, Thursday, April 22nd. The 34th anniversary of Earth Day, I believe, provides an important opportunity to acknowledge how far we’ve come since the 1970s. Our air and water are cleaner, and we have laws to control pesticides, ocean dumping, and hazardous waste disposal. On the other hand, we still have to endure the music of long-lasting 70s rock bands such as Aerosmith and Kiss. So I suppose things have not universally improved. (My apologies to all of the Aerosmith and Kiss fans in the audience.)
Seriously, we have made significant progress on environmental issues since the 1970s—but, obviously, not nearly enough. And I commend you for commemorating Earth Day yesterday in such an appropriate and public-spirited way, by focusing your attention on an issue where we have not seen significant progress: global climate change.
During the first day of this symposium, you heard from Michael McElroy and a number of distinguished panelists about the state of our knowledge regarding the climate change issue. You heard about trends in global temperatures and what this means for the climate. You heard about ways we can possibly adapt to the predicted changes. And you heard some ideas about what can be done to slow down or stop climate change.
My job in this symposium is to try to explain why humanity is doing so little to prepare for the certainty of climate change. And, because I am genetically programmed to focus on solutions, I will also lay out some ideas for an overall approach that might help us chart a productive path forward on this issue.
But first a very brief refresher course on why we are here. We are here because there is overwhelming scientific evidence on three basic points: one, the earth is warming; two, this warming trend is likely to worsen; and three, human activity is largely to blame.
And so the question is: if we know these three things, why are we not acting on that knowledge? Why are we not doing more to limit those human activities that are the driving force in climate change—namely, our emissions of greenhouse gases stemming primarily from the burning of fossil fuels?
The answer, very frankly, is because we have allowed ourselves to be swayed by a number of tired excuses—excuses put forward, for the most part, by people and interests who plainly want nothing to happen to address the problem of climate change. The reason, more often than not, is that they have an economic interest in the status quo.
The first excuse for inaction usually revolves around the issue of scientific uncertainty. Even though we know that the earth is warming, that the warming will get worse, and that human activities are largely to blame, the fact that we cannot accurately predict exactly how much warming we will see or how quickly it will happen is used unfailingly as a reason for inaction.
But I submit to you that uncertainty in the science is not a valid reason to hold off on addressing this problem, given what we do know. The fact that we are uncertain about exactly how climate change will proceed may actually be a reason to act sooner rather than later. And I will tell you why:
First, current atmospheric concentrations of greenhouse gases are the highest in more than 400,000 years. This is an unprecedented situation in human history, and there is a real potential that the resulting damages will not be incremental or linear, but sudden and potentially catastrophic. Acting now is the only rational choice under these circumstances.
· A second reason to act now is that the risk of irreversible environmental impacts far outweighs the lesser risk of unnecessary investment in reducing or mitigating greenhouse gas emissions.
· Third, it is going to take time to figure out how best to meet this challenge--both the technology and the policy responses. We must begin learning by doing now.
· Fourth, the longer we wait to act, the more likely it is that the growth in greenhouse gas emissions will continue, and that we will be imposing unconscionable burdens and impossible tasks on future generations.
· Fifth, there is an obvious lagtime between the development of policies and incentives that will spur action and the results. So even if we do not wait, we will be waiting.
· And, last but not least, we can get started now with a range of actions and policies that have very low or even no costs to the economy.
This brings me to the second tired excuse that is used to argue for inaction in the face of climate change: the costs will be too high. This argument ignores the fact that if we do this right—and if we start sooner rather than later—we can minimize those costs. And, more important, we can minimize the very real economic costs of doing nothing.
Next week, the Pew Center will be releasing a report that weighs the potential costs of climate change in relation to the potential benefits. Yes, in the short term, there may be scattered economic benefits in sectors such as agriculture resulting from higher temperatures and more rainfall. However, our research shows that these benefits begin to diminish and eventually reverse as temperatures continue to rise. In other words, the potential economic damage from climate change far outweighs any short-term economic gain.
What kind of economic damage are we talking about? In 2002, the United Nations Environment Program released a report done in collaboration with some of the world's largest banks, insurers and investment companies. The report found that losses resulting from natural disasters appear to be doubling every 10 years and, if this trend continues, will amount to nearly $150 billion over the coming decade.
Over the last two years alone, we have seen horrific wildfires in the western United States and devastating flooding in central Europe and China. These are the kinds of events scientists predict will occur more frequently or with more intensity in response to climate change. Of course, it is impossible to conclusively link any one of these disasters to the broader warming trend, but we may be getting an idea of what’s to come. And we cannot allow those who argue that addressing this problem will cost too much to ignore the potentially devastating costs of allowing climate change to proceed unchecked.
What’s more, the costs of acting to address climate change can be kept at a manageable level—if we use economic instruments wherever possible; if we act thoughtfully and in phases, so that we allow for capital stock turnover and the development of new technologies; and if we provide certainty for the private sector to make wise investments and create new climate-friendly businesses.
Responding to climate change does not have to wreak economic havoc. A recent MIT study assessing the costs of the Lieberman-McCain Climate Stewardship Act found that a modest, national emissions trading system would cost less than $20 per household per year. In addition, a significant number of companies are showing that they can meet ambitious targets for reducing their emissions—targets of 10 percent, 25 percent, even 65 percent below 1990 levels—at minimal or no cost. I repeat: at minimal or no cost. Some companies are even saving money. For example recently announced that it had achieved its target of a 10-percent reduction in emissions eight years ahead of schedule—and at a savings of roughly $600 million due to more efficient energy use and streamlined production processes.
So while I would not argue that addressing climate change over the next 50 years is free, I do believe that with care and pragmatism, we can do what we need to without breaking the bank. Cost should not be a reason not to act.
A third excuse that we have allowed to stifle action against climate change is that the United States should not be asked to bear the economic costs of reducing our emissions while other countries, notably China and India, get a quote-unquote “free ride.” In other words, why should we have to do all this hard work if other people do not?
This argument is weak enough when you consider that we can reduce our emissions in economically feasible ways. It’s weaker still when you recognize that the United States already is lagging behind in the global technology race, with big implications for U.S. jobs. Our dallying over climate policy is ceding to Europe and Japan – which have already agreed to emission caps – the lead in developing climate-friendly technologies. And I say we should worry less about China and India attracting the polluting technologies of the last century, and worry more that we won’t be selling them the technologies of the 21st century.
The fact that developed countries should act first to reduce their emissions is enshrined in the United Nations Framework Convention on Climate Change (which the United States is a party to, thanks to the signature of our first President Bush: George H.W.). Why did the United States agree to this? Because developed countries are responsible for most of the greenhouse gases in the atmosphere and therefore should reduce their emissions first. And, because developed countries are far wealthier than developing countries, we have the means to take action now.
This is not to say, of course, that developing countries should have no responsibilities. Just as the United States and other developed nations will need to become more carbon-friendly as we turn over our capital stock, so must developing countries develop in more carbon-friendly ways. But to expect, or even to wish, that developing countries should face emission limits at the same time and on a similar scale as we do is folly.
We have now touched on three main excuses for doing nothing: the science is uncertain; the economic costs of addressing this issue are too high; and developed nations should not be asked bear this burden first. All of these excuses are used to delay action on this issue. In pushing for such a delay, people often resort to a fourth excuse that underlies all of the others: we can solve this problem if and when we really have to. But until then, leave us alone. This is what I call the “silver-bullet defense.”
Americans, by nature, are an optimistic people who have a deeply held faith in their ability to apply their down-home ingenuity to solve every problem that comes along. We live in a world of wrinkle-erasing botox injections, iron-free shirts and cellular phones with cameras built-in. We’ve got to be able to come up with an equally wondrous technology to solve this problem of global warming. Just give us time.
There are two problems with this argument. First, we don’t have time. You cannot launch an industrial revolution overnight—and that is exactly what we need: another industrial revolution. Second, climate change is too big a challenge for any one solution. It is going to take a wide-ranging portfolio of technologies, from energy-efficiency technologies and hydrogen to carbon sequestration, renewable fuels, coalbed methane, biofuels, nanotechnology and biotechnology. Developing these technologies and getting them to market is going to take a lot of hard work. We cannot just snap our fingers and make it happen.
We need to replace our existing energy system. Businesses, however, continue to receive mixed signals from policy-makers about whether or not we are serious about getting on with the challenge of weaning ourselves from fossil fuels. What’s more, the federal government spends even less than the private sector on energy-related RD&D, which is particularly disappointing when you consider the importance of energy to our economy, our security and our environment.
We can do better than this. We need to encourage, perhaps even require, the development of the full complement of technologies—some of which we may not even know about yet—that will begin to deliver real reductions in greenhouse gas emissions.
In the same way that we need a broad portfolio of technologies, we will need an array of policy solutions as well.
Among the most important of these is an economy-wide cap-and-trade system. This is a policy that sets targets for greenhouse gas emissions and then allows companies the flexibility to trade emission credits in order to achieve their targets in the most economic manner. This is the approach taken in the Climate Stewardship Act introduced last year by Senators Joseph Lieberman and John McCain. Their bill garnered the support of 43 U.S. senators and prompted the first serious debate in Congress about exactly what we need to be doing to respond to the problem of climate change. (A companion measure was introduced in the House of Representatives just last month.)
But a cap-and-trade policy alone is not enough. We also need an aggressive R&D program, government standards and codes, public infrastructure investments, public/private partnerships, and government procurement programs—and I am sure there are policies we haven’t even thought of yet. However, despite needing all these policies, we still seem to be waiting for an easy, catch-all answer that will get us out of this mess, just as we are waiting for a technology silver bullet to make the problem go away overnight. And waiting itself becomes yet another excuse for doing nothing.
But in doing nothing, we are making a choice. We are choosing to ignore what we know to be true—namely, that the earth is warming, that this warming is getting worse, and that human activity is largely to blame. We are choosing to leave as our bequest to future generations a world that will, in all likelihood, be very different from the world we live in today. We are choosing to saddle our children and our children’s children with an array of problems that may well be beyond their ability to solve.
This is not a case, in other words, where inaction can be explained in terms of benign neglect—“we just didn’t know.” Atmospheric levels of carbon dioxide, the major greenhouse gas, have reached an all-time high, according to a report last month from the National Oceanic and Atmospheric Administration. By putting off serious action, we are essentially making a conscious decision to make the problem worse. And for that, there is really no excuse.
Of course, it doesn’t have to be this way. There are indeed many smart and inexpensive steps we can take beginning right now to reduce our greenhouse gas emissions and start developing the low-carbon energy technologies of the future.
How can we start? Here are a few ideas—things we can do to lay the groundwork for reduced emissions, increased energy efficiency and improved energy security in the years ahead:
· Number One: We can require companies to track and disclose their greenhouse gas emissions. If it is true that what is measured is managed, then this is an essential step if we ever want to move forward with any kind of program for reducing emissions.
· Number Two: We can use a standard-setting process to set practical but progressive goals to improve the efficiency of our vehicles and our appliances.
· Number Three: We can make strategic public investments in promising technologies.
· Number Four: We can provide incentives for farmers and foresters to adopt practices that take carbon from the atmosphere and store it in soil, crops and trees.
· Number Five: We can step up efforts to determine whether we can safely and permanently sequester carbon in geologic formations deep underground at a reasonable cost.
· And Number Six: As I mentioned already, we can build an economy-wide system that sets modest but mandatory targets for reducing emissions and uses market approaches like emissions trading to meet them at the lowest possible cost.
That’s just a random assortment of things we can do right now. And none of these activities—not one—would pose any kind of serious threat to U.S. economic performance. Indeed, by creating the conditions for a new industrial revolution that encourages the development and deployment of low-carbon energy technologies, we can create new opportunities, new jobs, and new wealth.
The key as we move forward is to set a clear, long-term goal of where we want to be on this issue, and then to figure out the short- and medium-term steps that will get us there. At the Pew Center, we call it the “10-50 Solution.” By 10-50, we mean that we believe this is a 50 year issue and we should be thinking ahead and envisioning what our society and our economy will need to look like if we are to significantly reduce our emissions.
That’s the “50” part. Then, in order to make it manageable, we break it down into 10 year increments. And we identify the policies and strategies we can start pursuing in the next ten years and the decades to come so we can achieve our long-range goal.
That’s the “10” part.
The 10-50 approach takes a long-term view because we know it will take time to achieve the result that we need -- a low carbon economy.
At the same time, the 10-50 approach enables us to identify the practical steps we can take in the short-term and in the decades to come so we can achieve steady progress.
If we do this right, one step at a time with a long term goal - it will be like Calvin from Calvin & Hobbes who said, 'Know what's weird? Day by day, nothing seems to change, but pretty soon…everything's different'.
In closing, let me say again that I greatly appreciate the opportunity to be here today. And I ask all of you to join with me and the Pew Center in saying that the time is past for making excuses about why we should not or cannot take serious action to address the problem of global climate change. With an approach based on sound science, straight talk, and a commitment to working together to protect the climate while sustaining economic growth, we can achieve real progress on this issue. And we must.
Columbia University is 250 years old this year. Let’s work together to ensure that, 250 years from now, there will be a symposium at this great university on what happened at the dawn of the 21st century to finally get a handle on this enormous problem.
Thank you very much.
The 10-50 Solution: A Decade-by-Decade Approach to Climate Change
Remarks by Eileen Claussen
President, Pew Center on Global Climate Change
April 22, 2004
Thank you very much. It is a pleasure to be in Minneapolis. I know this may date me, but as I was on my way here to the home of the old Mary Tyler Moore show, I was reminded of an exchange between Mary and her boss, Lou Grant.
Lou Grant says, “You know, Mary, you’ve got spunk.”
“Well, thank you, Mr. Grant,” says Mary.
“And you know what?” says Lou. “I HATE spunk.”
In all seriousness, I honestly believe that everyone at this conference has spunk. And, unlike Lou Grant, I am a big fan of it. The reason you have spunk is that you are the leaders of the sustainability movement in America. And I am honored to be with such a distinguished group of environmental problem-solvers to celebrate Earth Day—or, as the Bush administration calls it, Thursday, April 22nd.
On the occasion of the 34th anniversary of Earth Day, I believe it is important to acknowledge how far we’ve come in that time. In 1970, after all, we had a lot of people driving around in monster vehicles powered by gas-guzzling V-8 engines. Today, by contrast, we have, well, a lot of people driving around in monster vehicles powered by gas-guzzling V-8 engines. The more things change, the more they stay the same.
Seriously, we have made significant progress on these issues since the 1970s—but, obviously, not nearly enough. And today we have a choice.
We can fall over ourselves seeking short-term gains for our businesses and society—potentially at great expense to our future. Or, we can think ahead—there’s a novel idea—and invest in strategies, processes and ideas that will help to ensure that our businesses—and, indeed, our life as we know it—are still around 10, 20, or 50 years down the line.
In attending this conference, I know that all of you have made the second choice. And I congratulate you for your commitment to environmental problem-solving—which I hope will be the number-one growth industry of the 21st century.
Today, I would like to talk with you about the issue of climate change. No surprise there. And, understanding that this group is looking at a wide range of environmental and sustainability topics, I want to start with a brief overview of what we know about climate change and what we are (and are not) doing in response. I will conclude my remarks by suggesting to you a new approach for addressing this enormous problem—an approach that couples a long-term vision of progress with a solid understanding of the interim steps that will help us achieve that vision.
But first a description of the problem itself. Global temperatures increased approximately 1ºF over the twentieth century, and additional warming of 2.5º to 10º F is projected over the century to come. What is causing this warming? The driving force, although not the only force, is human emissions of greenhouse gases, which grew globally by approximately 10 percent during the 1990s.
In the same vein as the standard line, “It’s not just the heat, it’s the humidity,” climate change is about much more than rising temperatures. It is also about increases in sea level, changes in precipitation, including more frequent floods and droughts, an increase in extreme weather events, as well as other effects. As if that’s not enough, substantial increases in global mean temperature could set off large-scale changes to the earth’s systems such as a shutdown of the Gulf Stream or a melting of the West Antarctic ice sheet. The thresholds are uncertain and it may take centuries for these things to happen, but it is possible that warming in the 21st century could trigger these types of events—events that, once started, will be extremely difficult, if not impossible, to reverse.
What are we doing to address this problem? At the global level, 121 countries have now ratified an agreement that would for the first time establish binding limits on worldwide emissions of greenhouse gases. I am talking, of course, about the Kyoto Protocol.
Over the last several years, there has been a lot of discussion of this treaty in political circles—much of it of a harshly critical nature—and I think it is important to remember what Kyoto is and what it is not. Most importantly, we must remember that Kyoto was never intended as the be-all and end-all solution to the problem of climate change. Rather, it was intended as a first step, a way to commit the nations of the world to real action to reduce their emissions of greenhouse gases. Right now, Kyoto’s targets take us only to 2012—just eight years away—when, in fact, we are going to have to work at this issue for decades to come.
The other thing to remember about Kyoto is that it is not only Russia’s fault that the treaty is right now in diplomatic limbo. As you may know, Kyoto cannot enter into force until it is ratified by countries responsible for 55 percent of global greenhouse gas emissions. And, right now, Russia’s signature is needed to reach the 55-percent level.
In all the talk about whether or not Russia will ratify and all the outrage that will surely surface should they decide not to, it is useful to remember that, among other big emitters, the United States and Australia have already opted out. So there is plenty of blame to go around.
Even though it remains in limbo, and even though it may never enter into force as it currently stands, the Kyoto Protocol was and remains an historic achievement—as well as a powerful instrument for bringing the countries of the world together around a common understanding of the problem and of our shared role in addressing it. It is because of Kyoto, after all, that we are finally seeing some nations get serious about reducing their emissions. The European Union, for example, has adopted a carbon dioxide emission trading program. And Prime Minister Tony Blair has committed Great Britain to a 60-percent cut in greenhouse gas emissions by 2050--the first instance of a world leader taking a long-term view on how to address this problem.
So that’s the global story. Here in the United States, we have a different story. At the federal level, we have seen no real action on this issue from either the Bush or the Clinton administrations (although Congress did engage in a serious debate about the climate issue last year). At the same time, state governments and large corporations in this country are, in many instances, taking it upon themselves to shape solutions.
Let’s start in Washington. A lot has been made of the Bush administration’s ill-mannered rejection of the Kyoto Protocol way back in 2001. But the rejection itself wasn’t really all that shocking. This was a new administration with its own ideas about how to tackle the problems of the world. Rather, what was truly shocking was that the White House offered nothing in the way of an alternative global solution—and, equally important, no real plan for reducing the United States’ contribution to the problem.
Indeed, the White House and its congressional allies were none too friendly toward a plan put forward last year by Senators John McCain and Joe Lieberman that would for the first time establish modest but binding targets for reducing U.S. greenhouse gas emissions. However, despite the opposition of the Bush administration and congressional leaders, the McCain-Lieberman Climate Stewardship Act attracted a very respectable 43 votes in the Senate, showing strong and growing bipartisan support for mandatory action against climate change in the United States. (A companion measure was introduced in the House of Representatives just last month.)
Still, for real action on this issue in the United States, we need to look to the state capitals and corporate boardrooms.
First the states. In 2002, the Pew Center released a report entitled Greenhouse and Statehouse: The Evolving State Government Role in Climate Change. In it, we surveyed state activity on this topic and found that a variety of measures that have proven controversial at the federal level--such as renewable portfolio standards, emission targets, and mandatory reporting of emissions--have indeed been implemented at the state level, often with little dissent.
The state initiatives are an important development not only because they can help pave the way for federal action but also because of the simple fact that U.S. states are large emitters of greenhouse gases. Texas, for example, emits more greenhouse gases than France, the United Kingdom, or Canada. Ohio’s emissions exceed those of Turkey and Taiwan, and emissions in Illinois exceed those from The Netherlands. Clearly, if we are intent on scrutinizing—and, hopefully, celebrating—what is happening in these and other nations to address the problem of climate change, we also must take account of the actions of individual U.S. states with comparable levels of emissions.
The Pew Center’s report makes clear that states across America have initiated programs that are achieving real reductions in their emissions.
· For example, 13 states, including Texas, now require utilities to generate a specified share of their power from renewable sources.
· Two states, Wisconsin and New Jersey, have created mandatory reporting programs for large emitters of greenhouse gases.
· Massachusetts has established a multi-pollutant cap that requires six older power plants to reduce their CO2 emissions.
· And, in California, state lawmakers have gone beyond target-setting and reporting and are working to establish direct controls on carbon emissions from cars and SUVs.
What’s more, we now are seeing groups of states begin to discuss climate solutions on a regional basis. Thus you have the agreement among New York and nine other mid-Atlantic and northeastern states to discuss a regional “cap-and-trade” initiative aimed at reducing carbon dioxide emissions from power plants. And, last September, the governors of three Pacific states—California, Oregon, and Washington—announced that they will be working together to develop policies to reduce emissions from all sources.
The second place in America, in addition to the state capitals, where real action is happening on the climate issue is in corporate boardrooms. At the Pew Center, we work with a group of leading companies that are committed to economically viable climate solutions. The 38 members of our Business Environmental Leadership Council together employ nearly 2.5 million people and have combined revenues of $855 billion. And here’s just a sampling of some of the things they are doing to reduce their emissions:
· Alcoa, for example, is developing a new technology for smelting aluminum that, if successful, will allow the company to reduce its greenhouse gas emissions to half their 1990 levels over the next nine years.
· United Technologies, or UTC, has reduced overall greenhouse gas emissions by 15 percent since 1997. In addition, the company has exceeded its goal of reducing energy consumption as a percentage of sales by 25 percent from 1997 levels.
· And, of course, I want to mention DuPont, which made a voluntary pledge to reduce its global emissions of greenhouse gases by 65 percent by the year 2010. In 2002, DuPont announced that it had achieved this target eight years ahead of schedule.
· Another company that has met its target ahead of schedule is BP, which in 2002 announced that it had reduced its global greenhouse emissions by 9 million metric tons in just four years.
All of these are important developments, and they show how increasing numbers of leading companies see a clear business interest both in reducing their emissions and in helping to shape a climate-friendly future.
But the truth of the matter is that these companies are basically freelancing—as are the states that I have mentioned. In the absence of a broader national strategy to address this problem, corporate executives and state officials are taking it upon themselves to act. We should all applaud that and encourage them to do even more. However, the global nature of the climate issue demands much broader action and a much broader strategy to bring about revolutionary change in the way we power our economy.
Consider this: in order to stabilize the global climate, global emissions must eventually fall to well below their 1990 levels. Depending upon whom you talk to, the figure ranges from 50 to 95 percent! And this would have to be achieved by the end of the century. And as I mentioned earlier, the UK already has a plan in place to reduce its emissions by 60 percent below 1990 levels by 2050. Where is the U.S.? As of 2000, we were 13.6 percent above 1990 levels, and we have no plan to reduce our emissions at all.
Clearly, individual states and a handful of companies cannot do this alone.
So how do we move forward? How do we create the impetus for broad, across-the-board reductions in emissions of greenhouse gases? At the Pew Center, we recently developed something we are calling the “10-50 Solution.” And, in case you were wondering, it is not a miracle household cleaner. Rather, it is a new way of thinking about the problem of climate change—and how to solve it.
By 10-50, we mean that we should be thinking ahead about where we want to be on this issue in 50 years (that’s the “50” part), and then identify the policies and strategies we can start pursuing in the next ten years and the decades to come so we can achieve our long-range goal. (That’s the “10” part.). In this, I am reminded of Antoine de Saint-Exupery’s advice that, “As for the future, your task is not to foresee, but to enable it.”
Here is what we know. First, we know that we need a low-carbon economy by mid-century. Second, we know that it will take a new industrial revolution to get there, and that low-carbon energy technologies will play a critical role in that revolution. And, third, we know that all signs indicate that we cannot and will not achieve a low-carbon economy if we continue on a “business-as-usual” path.
I am not here to say exactly what the alternative, low-carbon path will look like or exactly where it will take us. No one can say that. Rather, I want to point out some of the issues or guidelines we need to be thinking about as we begin to chart that path and get going.
I believe we need to be thinking about four major issues as we map our path to a low-carbon future. The first of these is technology development—in other words, how to spark an energy technology revolution.
The 1990s saw the peak of an unprecedented technology boom in computer, information, and telecommunication technologies. But we did not see this unprecedented technological change spread into the energy sector. Despite more than a few optimistic predictions to the contrary, the energy sector continues on a conventional-technology trajectory – without many signs of substantial change.
One reason for this is that there are fundamental market and policy forces that keep an energy technology revolution from happening. Developing the technology to replace the existing and entrenched energy system will require massive investment. But businesses continue to receive mixed signals from policy-makers about whether or not we are serious about getting on with the challenge. So there is not sufficient incentive to place big bets on the development and diffusion of low-carbon energy technologies.
What’s more, the federal government spends even less than the private sector on energy-related RD&D, which is particularly disappointing when you consider the importance of energy to our economy and our national security—not to mention the implications of our energy use for the environment. While there is some support for some breakthrough technology, most of the investment remains attached to carbon-intensive energy technologies.
The second issue we need to be thinking about as we look ahead to a low-carbon future has to do with what happens after we develop the technologies we need. In other words, how do we ensure that new, climate-friendly technologies can enter the marketplace and compete?
Many people who concede that government has a role in fostering energy R&D simply stop there. Once the technology is developed, they say, consumers will simply go out and buy it. In fact, experience tells us differently.
The fact that R&D alone will not get technologies into the market became clear to us through some of our work over the last few years. This past year, we finished a report that looked at historical U.S. technology and innovation policies to see what lessons could be learned for addressing climate change. One of the key insights from this report is that past government policies that go beyond R&D -- to promote downstream adoption of technologies and learning by doing -- have greatly influenced technological change. This was true in the past, and is likely to be true in the future. The bottom line is that we must have specific policies both to push and to pull these technologies into the market.
You’ll notice that I said these technologies, which brings me to the third issue we need to pay attention to: There is no technological silver bullet solution to climate change.
This problem is just too big for any single solution. At a workshop we sponsored with the National Commission on Energy Policy last month on the 10-50 solution, we convened a group of experts and business leaders to look specifically at five technologies that are sure to play a prominent role in reducing the carbon intensity of our economy. These are: energy efficiency technologies; hydrogen; carbon sequestration/coal gasification; advanced nuclear technologies; and renewables. These five technologies are obviously very important, but I want to be clear today, as I was during our March workshop, that any future portfolio of low-carbon fuels and energy technologies will surely be broader than them. For example, important fuels and groups of technologies—from coalbed methane to biofuels, ocean wave power, geothermal energy, nanotechnology, and biotechnology—may all have important roles to play in a future low-carbon energy mix.
So we have all of these technologies, and the fact remains that not one of them is likely to be deployed in the marketplace on the scale and in the time frame needed to address climate change without an explicit and unprecedented set of policies from government. Our shared challenge will be to develop policies that are broad enough and neutral enough to provide incentives for a high level of innovation across the relevant energy, materials, and information technology industries. At the same time, we need these policies to be targeted and specific enough to give promising technologies a start down the road toward significant deployment--and to do so without dampening the competitive ingenuity that is a driver of the most innovative economy in the world: ours.
This brings me to the fourth and final issue we need to be thinking about as we try to respond in a decisive and effective way to the challenge of climate change. Just as there is no technology silver bullet, there is no policy silver bullet for transitioning to a low-carbon future. According to some people, all we need is a strong technology R&D policy; in other words, forget about adopting a mitigation policy. Still others say a mitigation policy is all we need – and that even a small price signal will do the trick now and forever, amen.
At the Pew Center, we think we need both a strong R&D and a strong mitigation policy, as well as some policies that we may not even know about yet.
The Pew Center has always been a strong advocate of an economy-wide cap-and-trade policy—in other words, a policy that sets targets for greenhouse gas emissions and allows companies the flexibility to trade emission credits in order to achieve their targets. We still believe that a cap-and-trade system is an essential step in the “10-50” strategy.
But we also believe that cap-and-trade by itself will not bring about the technological revolution that is necessary. An aggressive RD&D program, government standards and codes, public infrastructure investments, public/private partnerships and government procurement all probably have some role to play. What we need to do is refine what this portfolio of options should look like, and what the timing of each of the components should be.
So those are the four things we need to be thinking about: how to develop climate-friendly technologies; how to market them; how to ensure that we are looking broadly at the many technologies that can help while paying close attention to the most promising technologies; and how to arrive at a broad set of policies that will put this country on a track to real reductions in emissions.
In closing, let me say that it is clear from all of the work that the Pew Center is doing on this issue that we need vision. We need spunk. We need people like those of you at this conference to help us move the discussion of climate change away from the divisive debate over environmental vs. economic tradeoffs. Instead, we need to focus on the concrete steps we can take—both in this decade and in the decades to come—to get a handle on this enormous problem. Each of us has a role we can play:
· If you are a manufacturer, do you have a goal and a plan for reducing your emissions and energy use and, ultimately, adopting low-carbon sources of energy?
· If you are a real estate developer or architect, what are you doing to develop the prototype homes and office buildings of 2015 or 2025—structures that achieve new levels of energy efficiency and embrace climate-friendly technologies?
· If you are an engineer, to what extent are you engineering new processes and products that will deliver significant energy savings in the decades to come? Are you engineering the systems that will help us deliver on the promise of new low-carbon energy technologies?
· And, last but not least, if you are a government official, what policies can you put forward that will help your community or your state couple a long-term vision with short-term action to address this issue?
And don’t let me forget one other important category of people: citizens. In this year of presidential and congressional elections, as well as elections at the state and local levels, all of us, as citizens, need to be engaged on this issue.
Recent history shows us that our government, whether it is in Democratic or Republican hands, has a very hard time dealing with the issue of climate change in an effective way. There are a lot of interests lined up on the side of doing nothing. But the number of people at this conference, and all the great work that you are doing to solve environmental problems, suggests to me that our side can be just as strong—and stronger.
Thank you very much.
The Climate Stewardship Act (H.R.4067), as proposed by Reps. Wayne T. Gilchrest (R-MD) and John W. Olver (D-MA), would require the Administrator of the Environmental Protection Act (EPA) to promulgate regulations to limit greenhouse gas (GHG) emissions from the electricity generation, transportation, industrial, and commercial economic sectors. The covered sectors accounted for approximately 85% of the overall US emissions in the year 2000. The bill also would provide for the trading of emissions allowances and reductions through a National Greenhouse Gas Database that would contain an inventory of emissions and registry of reductions.
Target: Starting in 2010, the bill would cap U.S. aggregate emissions for the covered sectors at the 2000 level. The bill's emissions limits would not apply to the agricultural and the residential sectors. Certain subsectors would be exempt if the Administrator determined that it was not feasible to measure their GHG emissions.
Allowances: An entity that is in a covered sector, or that produces or imports synthetic GHGs (HFCs, PFCs, and SF6), would be subject to the requirements of this bill if it:
(a) owns at least one facility that annually emits more than 10,000 metric tons of GHGs, measured in units of carbon dioxide equivalents (MTCO2E);
(b) produces or imports petroleum products that, when combusted, would emit more than 10,000 MTCO2E; or
(c) produces or imports synthetic GHGs that, when used, would emit more than 10,000 MTCO2E.
Each covered entity would be required to submit to the EPA one tradeable allowance for each MTCO2E emitted directly, emitted through the combustion of petroleum products, and emitted through the use of synthetic GHGs.
Allocation of Allowances: The Secretary of Commerce would determine the amount of allowances to be given away or "grandfathered" to covered entities and the amount to be auctioned. The Secretary's determination would be subject to a number of allocation factors identified in the bill. Proceeds from the auction would be used to reduce energy costs of consumers and assist disproportionately affected workers and industries.
Flexibility Mechanisms: Covered entities would have flexibility in acquiring their allowances. In addition to the allowances grandfathered to them, covered entities could trade with other covered entities to acquire additional allowances, if necessary. Also, any entity would be allowed to satisfy up to 15% of its total allowance requirements by submitting:
(a) tradeable allowances from another nation's market in GHGs;
(b) a registered net increase in sequestration;
(c) a GHG emission reduction registered by a non-covered entity; and
(d) allowances borrowed against future reductions.
A covered entity that agreed to emit no more than its 1990 levels by 2010 would be allowed to meet up to 20% of its requirement through (a) international credits, (b) sequestration, and (c) registered reductions, but not (d) borrowed credits.
National Greenhouse Gas Database: The EPA Administrator would be required to implement a comprehensive system for reporting and inventorying GHG emissions and for registering GHG reductions and sequestration. Covered entities would be required to report their GHG emissions and non-covered entities (including those in the agricultural sector) would be allowed to register GHG emission reductions achieved since 1990 and sequestration.
Penalty: Any covered entity not meeting its emissions limits would be fined for each ton of GHGs over the limit at the rate of three times the market value of a ton of GHG.
Climate Change Effects on Coastal and Oceanic Resources: The bill would amend the Coastal Zone Management Act to require the National Oceanic and Atmospheric Administration to report periodically on the possible and projected impacts of climate change on coastal communities and oceanic and coastal ecosystems. The bill would also require the Department of Commerce to identify adaptation measures that might be used to protect these resources and to estimate the costs of the measures.
Research: The bill would establish an abrupt climate change research program at the Commerce Department and a program at the National Institute of Standards and Technology in climate change-relevant standards and measurement technologies.
The 10-50 Solution: Technologies and Policies for a Low-Carbon Future
A workshop sponsored by the Pew Center on Global Climate Change and the National Commission on Energy Policy
March 25-26, 2004
The St. Regis Hotel, Washington, DC
On March 25-26th, the Pew Center on Global Climate Change and the National Commission on Energy Policy (NCEP) sponsored a workshop entitled “The 10-50 Solution: Technologies and Policies for a Low-Carbon Future.” The goal of this workshop was to articulate a long-term vision for a low-carbon economy within 50 years and to discuss the technologies, industrial processes and policies needed in the short and medium term to achieve it. Over 100 policy-makers, business leaders, NGO representatives, and leading experts participated in the event.
In preparation for the workshop, the Pew Center and NCEP commissioned background papers on technological advances in five key areas (efficiency, hydrogen, carbon sequestration/coal gasification, advanced nuclear technologies, and renewables) and on policies designed to promote these and other low-carbon technologies in the marketplace. Workshop presentations and final proceedings, including a summary of common themes and policies identified during the workshop, and workshop background papers are now available.
In Brief, Number 7
Technological innovation on a global scale will be needed to mitigate global climate change. To significantly reduce emissions of carbon dioxide (CO2) and other greenhouse gases (GHGs), three types of technological innovations are needed: (1) more efficient technologies that use less energy to deliver valuable services such as electricity and transportation; (2) technologies to expand the use of alternate energy sources with lower or zero GHG emissions, such as renewable energy (e.g., wind and solar); and (3) technologies to capture and sequester the CO2 from fossil fuels before (or after) it enters the atmosphere, such as disposal in geologic formations. Technological change will be instrumental in reducing costs, widening applicability, and improving reliability in these three categories, and will be required to reduce emissions of the non-CO2 GHGs as well.
The most effective way to bring about these innovations is through a combination of technology policy incentives that encourage climate-friendly technologies, and environmental policies such as a cap-and-trade program that limits GHG emissions. Lessons learned from the United States’ rich experience with technology and innovation policies can be applied to GHG-reduction efforts, and include the following:
- A balanced policy portfolio must support not only research and development (R&D), but also promote diffusion of knowledge and deployment of new technologies: R&D, by itself, is not enough.
- Support for education and training should supplement research funding.
- Policies that do not directly promote technological innovation (i.e., “non-technology policies”) still provide critical signposts for prospective innovators by indicating technological directions likely to be favored by future markets.
- Policy-makers should channel funds for technology development and diffusion through multiple agencies and programs, because competition contributes to policy success.
- Public-private partnerships can foster helpful, ongoing collaborations.
- Effective programs require insulation from short-term political pressures.
- Regulatory and marketplace certainty help create favorable conditions for firms to invest in new climate-friendly technologies.
- Policy-makers must be prepared to tolerate some “failures” (i.e., investments that do not pay off), and learn from them as private sector entrepreneurs do.
- In light of the inherent uncertainty in innovation, government policies should generally support a suite of options rather than a specific technology or design.
Government policies will be critical to the development and adoption of a portfolio of new technologies needed to abate global climate change. Widespread adoption of these new technologies—for electric power generation, transportation, industry, and consumer products—is required in any major effort to reduce the greenhouse gas (GHG) emissions that contribute to climate change. However, technological change on an economy-wide scale cannot happen overnight. Well-crafted government policies in both the short and long term will be instrumental in encouraging more rapid development, deployment, and diffusion of climate change mitigation technologies,1 and will be essential complements to environmental policies that set limits on GHG emissions—such as a GHG cap-and-trade program. Implementing these policies in the near term is essential for creating an environment in which technological innovation can thrive and contribute to GHG reductions. The United States—a global leader in innovation—is well placed to lead such technological change and hence enjoy benefits in terms of global competitiveness in new energy and other GHG mitigation technologies.
Private firms tend to under-invest in technology development, making government policy for technological innovation necessary. This under-investment occurs because environmental externalities (such as climate change) are undervalued. In addition, firms that invest in technology innovation cannot retain all of the benefits of their expenditures because the knowledge that they gain “spills over” to competing firms. As a result, although most innovations come from private firms, government policies of many types influence the rate and direction of technological change.
Global research and development (R&D) funding trends indicate that both governments and private firms are under-investing in energy technology R&D. In the United States, federal government energy technology R&D budgets declined 74 percent between 1980 and 1996 (from $5 billion to $1.3 billion), and were accompanied by declines in private sector investments.2 Similar funding declines have occurred throughout the industrialized world.3 Because the United States is a global leader in R&D, the nation’s under-investment in energy technology R&D has particularly disturbing implications for global efforts to address climate change. The research, development, and diffusion of new technologies necessary to address climate change will require coordination between the public and private sectors, and across nations.
This brief summarizes the role of technological change in GHG mitigation strategies, provides a taxonomy of technology policies, and gleans lessons learned from U.S. technology and innovation policies. It concludes with policy insights for spurring technological innovation in the effort to address climate change.
The Role of Technological Change in GHG Control Strategies
Climate change is one of the most far-reaching and formidable environmental challenges facing the world. The earth is undoubtedly warming, largely as a result of GHG emissions from human activities including industrial processes, fossil fuel combustion, and changes in land use, such as deforestation. Continuation of historical emission trends will result in additional warming over the 21st century, with current projections of a global increase of 2.5°F (1.4°C) to 10.4°F (5.8°C) by 2100, and warming in the United States expected to be even higher. Potential consequences of this warming include sea-level rise and increases in the severity or frequency (or both) of extreme weather events, including heat waves, floods, and droughts. The risks of these and other consequences are sufficient to justify action to significantly reduce GHG emissions.
In the United States, energy consumption is the dominant source of GHG emissions. Carbon dioxide (CO2) accounts for approximately 84 percent of total GHG emissions. Although other GHGs4 have a more powerful effect on global warming per molecule, CO2 enters the atmosphere in far greater quantities because it is produced whenever fossil fuels are burned.5 To significantly reduce these emissions, three types of technological innovations are needed: (1) increased energy efficiency for technologies that deliver valuable services like electricity and transportation; (2) technologies to expand the use of alternate energy sources with lower or zero GHG emissions; and (3) technologies to capture and sequester CO2 from fossil fuel combustion before (or after) it enters the atmosphere. Technological change will be instrumental in reducing costs, widening applicability, and improving reliability in efforts to reduce emissions of CO2 and non-CO2 gases alike.
Stabilizing atmospheric concentrations of CO2 and other GHGs at a “safe” level, the international goal under the United Nations Framework Convention on Climate Change,6 would have profound implications for industrial and industrializing economies alike. Human activity now adds around 8 billion metric tons of GHGs to the earth’s atmosphere each year, a total that is growing approximately 4 percent annually.7 A widely discussed goal of stabilizing atmospheric CO2 at twice the pre-industrial level by 2100 (i.e., at 550 parts per million, 65 percent higher than today’s concentration) implies worldwide CO2 reductions on the order of 60 to 80 percent below projected “business as usual” levels for the remainder of the 21st century. Substantial reductions in U.S. CO2 emissions would require that the United States replace or retrofit hundreds of electric power plants and substantially improve the efficiency of tens of millions of vehicles. In addition, appliances, furnaces, building systems, and factory equipment numbering in the hundreds of millions might also need to be modified or replaced.
Technological change on this scale cannot happen immediately. Many of the technologies needed do not yet exist commercially or require further development to reduce costs or improve reliability. Technology policies, such as those outlined in the next section, can help spur technological change.
A Taxonomy of Technology Policies
Technological change is a complex process with multiple stages and feedbacks. These stages include “invention” and “innovation,” which are distinct activities. Invention refers to the process of discovery that leads to scientific or technological advance, perhaps in the form of a demonstration or prototype. Innovation refers to the translation of the invention into a commercial product or process. “Adoption,” or “diffusion,” occurs when these products and processes are actually used.
Although many types of policies affect invention and innovation, no universally accepted nomenclature or taxonomy summarizes or describes them. Economists often use the term “technology policy” to describe the diverse collection of measures that somehow affect technological development, and these are the focus of this brief. Taxonomies of technology policies seldom include regulatory policies, such as environmental regulations and antitrust enforcement, which have in the past catalyzed innovation and adoption and are discussed in a subsequent section of this brief.
Different policies influence outcomes at different stages of technology development. Table 1 on pages 4–5 lists fifteen common technology policy tools grouped into three broad categories, with comments on the strengths and weaknesses of each. The first category is direct government funding for R&D. The second category is a collection of policies that directly or indirectly support commercialization and adoption, or indirectly support development. The final group includes policies that foster technology diffusion through information and learning.
Lessons Learned from U.S. Technology and Innovation Policies
Although the United States has never had a coherent set of technology policies, government actions have profoundly influenced the rate and direction of technological change. Federal policies affecting technological change began with the codification of the patent system in the U.S. Constitution. Federal land grants supported the U.S. system of publicly financed colleges and universities, which became major players in R&D and innovation. In addition, government procurement during World War I transformed an infant aircraft industry that had produced only a few hundred planes; by the war’s end, U.S. firms had manufactured some 14,000 planes, learning a great deal in the process. Government-spurred innovation accelerated in the post-World War II period. Despite the heterogeneity in federal policies—or perhaps because of it, given the high levels of uncertainty that characterize innovation—government actions have been remarkably effective. Lessons learned from this rich experience are supported by a large body of literature in economics and other fields concerning innovation, and include the following:
- Technological change is a complex process involving invention, innovation, adoption, learning, and diffusion of technology into the marketplace. The process is highly iterative, and different policies influence outcomes at different stages. For example, the U.S. government spurred diffusion of know-how in microelectronics through policies including antitrust and defense procurement. In response to a federal government antitrust suit, AT&T released technical information about the transistor (which it invented), licensed the relevant patents at nominal rates to all comers, and refrained from producing transistors for outside sale. Texas Instruments then introduced the first commercially successful transistor, and the Department of Defense (DoD) and its contractors began to design the new devices into radar, sonar, missile guidance, and communications systems, stimulating further learning and cost reductions. In addition, DoD procurement contracts stipulating that the chips be available from at least two suppliers led to the sharing of design and process know-how, which encouraged new market entrants and accelerated inter-firm technology flows.
- Gains from new technologies are realized only with widespread adoption, a process that takes considerable time and resources and typically depends on a lengthy sequence of incremental improvements that enhance performance and reduce costs. For example, several decades of significant government and private sector R&D investments occurred before gas turbines derived from military jet engines improved in efficiency and reliability to the point that they were cost-effective for electric power generation. Today, gas turbines are the leading technology for new, high-efficiency power plants with low GHG emissions.
- Technological learning is the essential step that paces adoption and diffusion. “Learning-by-doing” contributes to reductions in production costs, and adopters of new technology contribute to ongoing innovation through “learning-by-using.” Widespread adoption, in turn, accelerates the incremental improvements from learning by users and producers, further fueling adoption and diffusion. For example, an entirely new class of products emerged as Intel (and soon, other firms) designed successive families of microprocessors, based in large part on feedback from users. When Intel began work on its 386 processor family, the lead technical and marketing specialist spent six months simply visiting customers to understand the features they valued most highly.
- Technological innovation is a highly uncertain process. Because pathways of development cannot be predicted, government policies should support a portfolio of options, rather than a particular technology or design. The unforeseen explosive diffusion of the Internet during the 1990s is illustrative. Both the Internet’s technologies and many of the formal and informal governance mechanisms that evolved to coordinate its standards and infrastructure sprang from DoD-sponsored networking research and trials.
In addition to these insights gained regarding the innovation process, lessons learned from U.S. experience with technology policies over the past several decades include the following:
- Federal investments contribute to innovation not only through R&D but also through “downstream” adoption and learning. For example, in the early years of computing, defense agencies made indispensable contributions to a technological infrastructure that propelled the industry’s rise to global dominance.
- Public-private R&D partnerships have become politically popular because they leverage government funds and promote inter-firm collaboration. Partnerships may have particular advantages in fostering vertical collaborations, such as those between suppliers and consumers of energy.
- Adoption of innovations that originate outside a firm or industry often requires substantial internal investments in R&D and human resources. Smaller firms may be less able to absorb innovations without government assistance.
- Just as competition in markets helps resolve uncertainties and improves economic performance, competition within government can improve performance in fostering innovation. The messy and often duplicative structure of U.S. R&D support and related policies creates diversity and pluralism, fostering innovation by encouraging the exploration of many technological alternatives.
- Because processes of innovation and adoption are lengthy and convoluted, effective policies and programs require sustained political support. Reliable political constituencies have been essential for the development of new technologies in defense and for research in the biomedical sciences. By contrast, technology policies for addressing climate change face a discordant political environment.
Regulatory Policies and Technological Innovation
In addition to the technology policies discussed above, environmental and other regulatory policies can strongly influence the process of technological change. Regulatory policies create an overall incentive and framework for innovation by mandating pollution reductions. Such policies have influenced the development and deployment of many technologies over the past 30-plus years. For example, environmental regulations drove innovations in automobile engines and electric power plants that have contributed to widespread improvements in air quality. Regulatory policies will likewise be required to stabilize atmospheric GHG concentrations because technology policies, while important, cannot by themselves achieve the GHG reductions necessary to mitigate climate change. Rather, technology policies should be part of a comprehensive approach that includes “non-technology policies,” such as a GHG emissions cap-and-trade program.
Environmental policies respond to market failures that leave economic actors with little incentive to reduce activities that have adverse effects on society as a whole, such as releasing harmful substances into the atmosphere or water. The design of these regulations plays an important role in the extent and quality of innovation. Poorly designed environmental regulations can significantly inhibit innovation, and the overall timing and stringency of regulations can determine the extent to which innovation occurs or is used. Moreover, environmental policies must provide regulatory certainty—that is, they must reassure investors that additional future regulations will not impair the value of near-term investments made to comply with the original environmental policy. To foster the greatest innovation, environmental regulations should be designed to provide incentives to firms to both prevent and reduce pollution, such as by:
- Reducing use of polluting technologies;
- Selecting cleaner processes when installing new technologies or capital equipment;
- Continually striving to improve the environmental performance of existing processes or technologies; and
- Placing control technologies on existing plants to reduce emissions.
Regulations can be designed to assist innovation by promoting the greatest breadth of pollution reduction alternatives at the lowest possible cost. Many past environmental policies have relied heavily on “command-and-control” regulations that compel polluters to reduce their emissions to specified levels. Greenhouse gas emissions, however, are more suitably controlled through market-based approaches—such as emissions fees, pollution charges, or emissions cap-and-trade programs—because GHGs are emitted across all economic sectors around the world, and mix uniformly in the atmosphere. Thus it matters little precisely where the emission reductions take place, so long as they are real and verifiable. Traditional rate-based or technology-based standards, for example, would create little incentive for ongoing improvements in operational techniques to address climate change. The more recent turn toward “market-based” approaches for addressing climate change has created better incentives for continuous pollution reduction and technological innovation by giving firms greater flexibility and permitting compliance with regulations at lower cost.
Patterns of capital investment by businesses also can have a major impact on the success and cost-effectiveness of climate change policies.8 Capital stock, such as electricity generation plants, factories, and transportation infrastructure, is expensive and firms are often reluctant to retire old facilities and equipment. Certain policies can stimulate more rapid turnover of existing capital stock. These include putting in place early and consistent incentives that would assist in the retirement of old, inefficient capital stock; making certain that policies do not discourage capital retirement; and pursuing policies that shape long-term patterns of capital investment. In addition, even a modest carbon price could stimulate investment in new capital equipment. Likewise, uncertainty is likely to impede investment in new capital stock until the rules with respect to climate policy and other future environmental regulations are clarified.
U.S. energy and transportation policies also have influenced technology innovation and adoption. U.S. energy policy has often incorporated familiar tools of technology policy, such as tax credits for adoption of renewable energy technologies. Although the United States has long avoided energy pricing policies and fuel taxes to encourage energy efficiency, a substantial boost in gasoline taxes would likely be a powerful stimulus for innovation in automotive technologies.9 Fuel economy for cars and trucks could be increased by 25 to 33 percent over the next 10 to 15 years using market-ready technology at a net savings, if fuel savings are taken into account. However, since fuel economy is undervalued in the marketplace, policies such as mandatory GHG standards and public information are needed to pull technological improvements into the market.10 Because the goals of U.S. energy policy and the most effective methods to achieve them remain politically controversial, future choices—e.g., to encourage conservation or encourage fossil fuel production—could either support or undermine the goal of achieving GHG reductions.11
Policy Guidance for Climate-Related Technology and Innovation Policies
Greenhouse gas emission reductions will require a broad portfolio of policies to foster technology innovation and adoption by stakeholders ranging from multinational corporations to households. The policy portfolio should combine technology policies as discussed in this brief with other policies to induce innovation and deployment.12
A climate change policy response must account for uncertainties in the pace and cost of innovation. Technological evolution is always accompanied by unknowns concerning the levels of performance that can ultimately be achieved, the technological attributes that will prove most attractive to adopters, and the costs of these technologies. Technical design and development are fluid, open-ended activities with multiple choices and tradeoffs and often-ambiguous selection criteria. Uncertainties can be resolved only through learning processes. These processes are often slow and piecemeal, studded with lessons from both successes and failures. Technology-oriented policies and non-technology policies alike must function in such settings. Additional lessons for climate change policy include the following:
- Because the benefits of technological innovation come only with widespread adoption, and because adoption and learning are mutually reinforcing processes, the policy portfolio should support diffusion of knowledge and deployment of new technologies as well as research and discovery. In short, R&D alone is not enough.
- Because private investments respond primarily to near-term market incentives, public investments are necessary to build a technological infrastructure able to support innovation over the long term. A key ingredient of such infrastructure is a vibrant community of technologists and entrepreneurs working in settings in which knowledge and information flow freely. Government financial support for education and training, as well as for research, enhances such infrastructure. Intellectual property rights are important, but excessively strong intellectual property regulations may weaken such infrastructure.
- Competition among firms contributes to effective selection of innovations, and competition among academic research groups contributes to discovery. Similarly, competition among government agencies and government laboratories contributes to policy success. Competition exposes ineffectual bureaucracies, out-of-touch government laboratories, poor policy choices, and project-level mistakes. It encourages diversity by opening alternatives for exploration by technology creators and technology users alike. For these reasons, policy-makers should channel new funds for R&D through multiple agencies and allocate funds to industry and other researchers on a competitive basis.
- Because there can be no learning without some failures, policy-makers cannot expect every government investment to pay off. They must be prepared to tolerate mistakes, and to learn from them, just as entrepreneurs in the private sector do. In addition, policy-makers must be willing to accept a balanced portfolio that provides sufficient and sustained funding for both short- and long-term R&D. This means avoiding the temptation to pick “winners and losers” too early in the development phase of new technologies. Nonetheless, tolerance for error is no excuse for sloppy management or ill-conceived policies and programs.
Much technological innovation will be needed to mitigate global climate change. The most effective way to bring about these innovations is through a combination of technology policy incentives that accelerate the deployment of climate-friendly technologies and help create new markets for these products and processes, and environmental policies such as a GHG cap-and-trade program that sets limits on GHG emissions. Implementing these policies in the near term is imperative. A well-balanced portfolio of government policies that stimulates innovation, incentivizes adoption, and avoids picking winners is the best path forward to meet the challenges of global climate change.
1 Alic, John A., David C. Mowery, and Edward S. Rubin. U.S. Technology and Innovation Policies: Lessons for Climate Change. Pew Center on Global Climate Change. Arlington, VA. November 2003. This brief draws heavily from this report.
2 As calculated using constant U.S. 1996 dollars in Margolis, Robert M. and Daniel M. Kammen. “Evidence of under-investment in energy R&D in the United States and the impact of federal policy.” Energy Policy 27: 575-584. 1999.
4 The principal GHGs are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and a range of industrial gases including hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).
5 From an environmental and economic standpoint, effective climate strategies should address CO2 as well as non-CO2 GHGs, and control of non-CO2 gases could be especially important and cost-effective in the near term. See Reilly, John M., Henry D. Jacoby, and Ronald G. Prinn. Multi-gas Contributors to Global Climate Change: Climate Impacts and Mitigation Costs of Non-CO2 Gases. Pew Center on Global Climate Change. Arlington, VA. February 2003.
7 Intergovernmental Panel on Climate Change. Climate Change 2001: Synthesis Report. Cambridge, UK: Cambridge University Press. 2001. This report includes a range of energy and emissions scenarios for the next century.
8 For a more complete discussion of capital cycles and their implications for climate change policy, see Lempert, Robert J., Steven W. Popper, and Susan A. Resetar. Capital Cycles and the Timing of Climate Change Policy. Pew Center on Global Climate Change. Arlington, VA. October 2002.
11 For a more complete discussion of the role of energy policy in addressing climate change, see Smith, Douglas W., Robert R. Nordhaus, and Thomas C. Roberts, et al. Designing a Climate-friendly Energy Policy: Options for the Near Term. Pew Center on Global Climate Change. Arlington, VA. July 2002.
For Immediate Release:
March 17, 2004
Contact: Jack Riggs, Aspen Institute
Contact: Katie Mandes, Pew Center
Diverse Group of Leaders Outlines Framework for Mandatory Climate Change Action
Washington, March 17 – A mandatory greenhouse gas reduction program for the U.S. could be both effective and politically feasible, according to a diverse group of business, government, and environmental leaders brought together by the Aspen Institute and the Pew Center on Global Climate Change.
The group, which included representatives of the energy, mining and automobile industries, environmental and consumer organizations and Congressional staff, did not debate whether there should be a mandatory policy. Instead, they started with the premise that all parties want to ensure, if mandatory action is taken, that climate policies will be environmentally effective, economical and fair.
“What is truly significant is that such a diverse group was able to reach consensus on several elements of what a mandatory national policy might look like,” said Eileen Claussen, President of the Pew Center on Global Climate Change.
Recommendations for a policy framework are detailed in a report released today on Capitol Hill by the dialogue’s co-chairs, Eileen Claussen, President of the Pew Center on Global Climate Change, and Robert W. Fri, Visiting Scholar and former President of Resources for the Future.
The group agreed upon a set of criteria to evaluate program design options, including environmental effectiveness, cost effectiveness and competitiveness, administrative feasibility, distributional equity, political feasibility, and encouragement of technology development.
Two principles guided the choice of recommendations. First, the desire for broad rather than sector-specific coverage, and coverage of multiple gases, not just CO2, guided the participants. This ensured long-term environmental effectiveness and distributional equity. Second, there was consensus that phasing of actual reduction targets would be important and that a modest start would be preferable. This would send a signal that reducing greenhouse gases was national policy. Deeper cuts could occur later, as technology evolves and capital stock turns over in response to early market signals generated by the policy.
After considering several possible designs, participants reached consensus on a hybrid program that combines elements of a cap-and-trade program with tradable efficiency standards. An initially modest but declining absolute national cap on greenhouse gas emissions would be placed on large sources such as electric utilities and manufacturers. Deeper cuts could occur later, as technology evolves and the economy responds to the policy. The group did not attempt to specify the level of the absolute cap on CO2 emissions, or the date it should go into effect.
A similar cap would apply to emissions from transportation fuel suppliers, coupled with tradable CO2-per-mile automobile standards. The group also recommended tradable efficiency standards for appliances and other manufactured products.
Manufacturers, utilities and other large emitting sources that fell short of or exceeded the new standard could buy, sell or trade emission credits in a nationwide emissions trading program, allowing emissions reductions to be achieved where it can be done most cost effectively. Emission credits would be awarded for removing existing CO2 from the atmosphere by verifiable means, possibly through land-use related carbon sequestration projects such as afforestation and energy plantations.
Participants also stressed the importance of a policy that encourages development and diffusion of new technologies, both to reduce emissions and to provide new market opportunities for U.S. business.
“The report represents a framework, not a fully developed policy – a starting point for further dialogue rather than a final product,” commented Fri. Nonetheless, he noted it should prove helpful to those seeking to balance policy and politics, environmental effectiveness and cost, and efficiency and equity in designing a mandatory greenhouse gas reduction program.
The Aspen Institute is a non-profit organization founded in 1950 to foster enlightened leadership and open-minded dialogue on contemporary issues in a non-partisan setting. The Pew Center on Global Climate Change is an independent, non-profit and non-partisan organization dedicated to providing credible information and innovative solutions in the effort to address global climate change.
The report “A Climate Policy Framework: Balancing Policy and Politics” can be found on the Aspen Institute’s and the Pew Center on Global Climate Change’s websites, www.aspeninst.org/eee and www.c2es.org.
"A Climate Policy Framework: Balancing Policy and Politics"
Proceedings from the joint Aspen Institute/Pew Center Conference, March 2004
A diverse group of business, government, and environmental leaders, brought together by the Aspen Institute and the Pew Center, recommends a framework for a mandatory greenhouse gas reduction program for the United States. The group started with the premise that, if mandatory action is taken, climate policies should be environmentally effective, economical and fair. After a three-day dialogue, the participants reached consensus on a policy framework that is both effective and politically feasible.