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U.S. Technology and Innovation Policies

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

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

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

Introduction

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

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

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

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

The Role of Technological Change in GHG Control Strategies

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

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

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

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

A Taxonomy of Technology Policies

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

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

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

Lessons Learned from U.S. Technology and Innovation Policies

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

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

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

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

Regulatory Policies and Technological Innovation

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

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

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

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

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

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

Policy Guidance for Climate-Related Technology and Innovation Policies

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

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

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

Conclusions

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

 


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

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

3 Ibid.

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

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

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

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

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

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

10 Ibid.

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

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

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Press Release: Diverse Group of Leaders Outlines Framework for Mandatory Climate Change Action

For Immediate Release:
March 17, 2004    
                                                             
Contact:  Jack Riggs, Aspen Institute
(202)736-5820

Contact: Katie Mandes, Pew Center
(703)-516-4146

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

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

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

 

Press Release

Dowload the report (PDF format)

Attendee List (PDF format)

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

US Technology  Innovation Policies

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

Prepared for the Pew Center on Global Climate Change
November 2003

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

Press Release

Download Entire Report (pdf)

Foreword

Eileen Claussen, President, Pew Center on Global Climate Change

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

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

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

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

Executive Summary

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

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

A Summary of Technology Policy Tools

 

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

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

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

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

Support for Learning and Diffusion of Knowledge and Technology

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

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


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

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

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

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

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

Conclusions

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

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

Further lessons for climate change policy include the following:

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

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

About the Authors

JOHN A. ALICConsultant

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


DAVID C. MOWERY, University of California, Berkeley

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


EDWARD S. RUBIN, Carnegie Mellon University

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

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Eileen Claussen Statement on McCain-Lieberman Vote

FOR IMMEDIATE RELEASE:
Thursday, October 30, 2003


Contact: Katie Mandes (703) 516-0606


Eileen Claussen Statement on McCain-Lieberman Vote

Washington, DC — Today's Senate vote on the Climate Stewardship Act demonstrates strong and growing bipartisan support for real action against climate change. John McCain and Joe Lieberman have crafted a piece of legislation that is ambitious yet achievable and affordable. The bill couples strong environmental goals with a flexible market-based approach that allows business to reduce emissions at the lowest possible cost. According to an analysis by MIT economists the cost to the average U.S. household would be just $15 a year in 2010, a modest price for insurance against the very real risks of global warming. It may be some time before a bill like this can be enacted. But thanks to this bill, Congress is for the first time engaged in a genuine debate over climate solutions. This debate is long overdue. This is a beginning.

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The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States’ largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, non-profit, and non-partisan organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

Critique of the CRA Analysis of Lieberman-McCain Climate Stewardship Act (S.139)

Critique of the Charles River Associates Cost Projections of S.139 (as offered in 10/03)

On Wednesday morning, October 29, 2003, Tech Central Station released a Charles River Associates (CRA) analysis purported to analyze the version of the Lieberman-McCain Climate Stewardship Act (S. 139) to be voted on by the Senate on October 30.  The CRA analysis has neither gone through peer review nor been revised after comment and debate.  Among the most dubious aspects of the CRA analysis is that it projects a price per ton of greenhouse gas (GHG) emissions similar to that projected by the MIT model1 while projecting a much higher impact on GDP and household consumption. 


This is in part because CRA has not actually modeled the bill as it is being offered today.  In particular:

  • The CRA results are largely driven by an assumed hike in personal income taxes not included in the bill.
  • The CRA model does not include reductions of the five GHGs besides carbon dioxide covered by the bill2 which offer low-cost reduction opportunities.

In addition, the CRA analysis incorporates assumptions that further skew its cost estimates upwards.

  • The CRA analysis assumes, as the business-as-usual baseline, massive growth over the next 70 years in carbon-intensive fuels and activities.  This extrapolation exaggerates the reductions needed to meet the long-term targets imposed by their analysis.
  • The CRA analysis assumes that long-term technological change will be limited, ignoring U.S. industry’s long history of innovation in meeting major policy goals, whether related to defense, health, energy or environmental protection.

The CRA analysis assumes that the lower economic growth they project will lead to reduced tax revenue and result in other taxes being raised. But increasing personal income tax leads to greater distortions in the economy, resulting in a vicious cycle: the more the price of energy goes up, the less is consumed, so the personal tax burden is further increased, so less energy is consumed, etc. 

Without assumptions that are not reflective of the bill as written, CRA’s results become more comparable to MIT’s results3.  In CRA’s words, “When all three of these changes [foresight, future policy assumptions, and tax distortions] are combined, we are able to project consumption losses in the range of less than 0.06% or less than $70 per household per year.”


1 CRA projects carbon prices of $27/TC ($7/TCO2) in 2010 and $44/TC in 2020 ($12/TCO2), compared to $31/TC and $52/TC in the MIT study. 
http://web.mit.edu/globalchange/www/abstracts.html#a97
2 The six greenhouse gases addressed by S.139 are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).
3 MIT projects a 0.02% effect on consumption at an annual cost of roughly $15 per household.

 

 

Summary of MIT Analysis of the Lieberman-McCain Climate Stewardship Act (S.139)

Fact Sheet on MIT Cost Estimates of S.139 (as offered in 10/03)

The Massachusetts Institute of Technology (MIT), through its Joint Program on the Science and Policy of Global Change, has assembled a world-class collaboration of economists and scientists to model and analyze global climate change policies. Using their EPPA1 model, one of the world’s premier energy-economic models, MIT has undertaken the only analysis of the Lieberman-McCain Climate Stewardship Act (S.139) as it will be offered on the Senate Floor in October 2003 – i.e., Phase I only – achieving 2000 emissions in 2010.

  • MIT uses the same economic, energy use and emissions baselines as the U.S. Energy Information Agency (EIA), but has a much less pessimistic view of the future supply curve for natural gas, based on potentially available natural gas sources (federal lands, unconventional gas, Alaska, deep sea and LNG).
  • The strength of the MIT-EPPA model is its treatment of non-CO2 greenhouse gases2 (GHGs) and biomass sequestration – both these sources offer opportunities for low-cost reductions.
  • MIT finds considerable efficiency opportunities, including accelerated penetration of combined heat and power plants and distributed generation.
  • The use of efficiency, non-CO2 GHGs and sequestration means that much less switching in energy supply is required.
    - This allows coal use to remain consistent at around 24 Quads per year.
    - This also means that, although there is some fuel switching to natural gas, overall gas demand growth is less because overall, less energy is being consumed.

Year

Total consumption change
(billion $)

Consumption % change

Cost per household ($)

Natural gas % change from reference

Carbon price in $/tC [$/tCO2]

2010

-1.7

-0.02%

15

-4%

31 [9]

2015

-2.0

-0.02%

17

-8%

40 [11]

2020

-2.4

-0.02%

19

-7%

52 [14]

  • All prices are in $2001.
  • Consumption is the major component of GDP (the others are investment, government expenditures and imports/exports balance) and thus is a good measure of actual impact on the population.
  • In year 2000, US GDP was around $10 trillion with consumption at $6.3 trillion.
  • In year 2000, there were 108 million households in the US with a median income of $41,000, by 2020, there is projected to be 127 million households with a median income of $61,000.


1 Emissions Projections and Policy Analysis Model

2 The six greenhouse gases addressed by S.139 are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

 

Summary of The Lieberman-McCain Climate Stewardship Act of 2003

Summary of The Lieberman-McCain Climate Stewardship Act
(As debated in the U.S. Senate on October 30, 2003)

On October 30, 2003, Senators Joseph I. Lieberman (D-CT) and John McCain (R-AZ) brought a revised version of their Climate Stewardship Act of 2003 (S.139) to a vote in the United States Senate. While the measured failed by a vote of 43 to 55, the vote demonstrated growing bipartisan support for a genuine climate change policy.

The revised version of the bill would require the Administrator of the EPA to promulgate regulations to limit the greenhouse gas (GHG) emissions from the electricity generation, transportation, industrial, and commercial economic sectors (as defined by EPA's Inventory of U.S. Greenhouse Gas Emissions and Sinks). The affected sectors accounted for approximately 85% of the overall U.S. emissions in the year 2000. The bill also would provide for the trading of emissions allowances and reductions through a National Greenhouse Gas Database which would contain an inventory of emissions and registry of reductions.

Target: The bill would cap the 2010 aggregate emissions level 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. The Commerce Department would biennially re-evaluate the level of allowances to determine whether it was consistent with the objective of the United Nation’s Framework Convention on Climate Change of stabilizing GHG emissions at a level that will prevent dangerous anthropogenic interference with the climate system.

Allowances: An entity that was in a covered sector, or that produced or imported synthetic GHGs, would be subject to the requirements of this bill if it (a) owned at least one facility that annually emitted more than 10,000 metric tons of GHGs (measured in units of carbon dioxide equivalents – MTCO2E); (b) produced or imported petroleum products used for transportation that, when combusted, would emit more than 10,000 MTCO2E; or (c) produced or imported HFC, PFC and SF6 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 directly emitted. Each petroleum refiner or importer would be required to submit an allowance for each unit of petroleum product sold that, when combusted, would emit one MTCO2E. Each producer or importer of HFC, PFC, and SF6 would be required to submit an allowance for each unit sold that, when used, would emit one MTCO2E. The Administrator would determine the method of calculating the amount of GHG emissions associated with combustion of petroleum products and use of HFC, PFC, and SF6.

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.

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 net increase in sequestration registered with the National Greenhouse Gas Database established by the bill; (c) a GHG emission reduction by a non-covered entity registered with the Database; and (d) allowances borrowed against future reductions (as described below). A covered entity that agreed to emit no more than its 1990 levels by 2010 would be allowed meet up to 20% of its requirement through (a) international credits, (b) sequestration, and (c) registered reductions, but not (d) borrowed credits. An entity planning to make capital investments or deploy technologies within the next 5 years would be allowed to borrow against the expected GHG emission reductions to meet current year requirements. The loan would include a 10 percent interest rate.


National Greenhouse Gas Database: The EPA Administrator would be required to implement a comprehensive system for GHG reporting, inventorying, and reductions registrations. Covered entities would be required to report their GHG emissions and non-covered entities would be allowed to register GHG emission reductions and sequestration. The National Greenhouse Gas Database would be, to the maximum extent possible, complete, transparent, accurate, and designed to minimize costs incurred by entities in measuring and reporting emissions. The Commerce Department, within one year of enactment, would be required to establish, by rule, measurement and verification standards and standards to ensure a consistent and accurate record of GHG emissions, emissions reductions, sequestration, and atmospheric concentrations for use in the registry.

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.

Research: The bill would establish a scholarship program at the National Science Foundation for students studying climate change. The bill would also require the Commerce Department to report on technology transfer and on the impact of the Kyoto Protocol on the U.S. industrial competitiveness and international scientific cooperation.

The bill also would make changes to the U.S. Global Change Research Program, establish an abrupt climate change research program at the Commerce Department, and establish a program at the National Institute of Standards and Technology in the areas of standards and measurement technologies.

Legislation in the 108th Congress Related to Global Climate Change

As the scientific evidence of climate change has mounted, so has congressional activity. The number of climate change-related legislative proposals increased from seven introduced in the 105th Congress (1997-1998) to 25 in the 106th Congress (1999-2000), to over 80 in the 107th Congress (2001-2002), and 96 in the 108th Congress (2003-2004). Of the relevant bills, resolutions, and amendments introduced in the 108th Congress, focus primarily has been on global climate change research and comprehensive emissions cap and trade programs with additional bills concentrated on GHG reporting and power plant emissions of CO2.

The relevant legislative proposals - bills, resolutions, and amendments - for addressing global climate change and GHG emissions in this Congress are listed here in the following categories:

Of note, the 108th Congress enacted the following climate-relevant legislation in 2004:

  • Extension of tax credit for electricity produced from wind, closed-loop biomass and chicken waste.
  • Tax incentives for alcohol and biodiesel fuel.
  • Tax deductions for clean-fuel and electric vehicles.
  • Earmarking of appropriations for programs in developing countries and countries in transition that directly: (1) promote energy conservation, energy efficiency and clean energy; (2) measure, monitor, and reduce GHG emissions; (3) increase carbon sequestration activities; and (4) enhance climate change mitigation and adaptation programs. (H.R.2673, Consolidated Appropriations Act, 2004)
  • Establishment of the Congo Basin Forest Partnership program, recognizing, among other things, the role of Congo Basin forests in absorbing carbon dioxide. (H.R.2264, The Congo Basin Forest Partnership Act of 2003)

In addition, the following bills were acted upon, but not enacted into law:

As one can see, climate change measures are increasingly being offered by members of both the Democratic and Republican Parties (to which all but two members of Congress belong). The growing interest suggests that a bipartisan consensus is developing around the need to address climate change. Addressing climate change will ultimately require a more comprehensive set of approaches, including a mandatory program to reduce GHG emissions (such as a program to cap GHG emissions and allow trading of emission credits), and efficiency standards to promote the use of efficient products and technologies. The first such bipartisan bills were introduced in the 108th Congress. Enactment of such policy will no doubt be a longer-term proposition.

Press Release: New Report Discusses Importance of Climate Policy to Future U.S. Energy Picture

For Immediate Release
July 10, 2003

Contact:   Katie Mandes
703-516-0606

Future U.S. Energy Scenarios: New Report Discusses Importance of Climate Policy to Future U.S. Energy Picture

Washington, DC -Absent a mandatory carbon cap, U.S. carbon dioxide emissions are likely to rise across a wide range of possible energy futures, according to a new report released today by the Pew Center on Global Climate Change, U.S. Energy Scenarios for the 21st Century. The report, written by Irving Mintzer, J. Amber Leonard, and Peter Schwartz of Global Business Network, discusses three divergent paths for U.S. energy supply and use from 2000 through 2035, and the effect of climate policy on the three scenarios.

"This report suggests that technology research and development efforts coupled with voluntary measures cannot reduce greenhouse gas emissions, and it highlights the need for a mandatory climate change policy to address carbon emissions - regardless of how the future unfolds," said Eileen Claussen, President of the Pew Center on Global Climate Change. The Pew Center scenarios explore what might happen to U.S. energy supply and use in the future. They are not predictions, but they cover a wide range of possible energy futures. The scenarios are Awash in Oil and Gas, driven by cheap and abundant oil and gas; Turbulent World, in which energy supply disruptions and threats to energy facilities lead to aggressive energy policy measures; and Technology Triumphs, in which state policies, technological breakthroughs, private investment, and consumer interest push and pull climate-friendly technologies into the marketplace.

The question of how U.S. energy supply and use - which account for over 80 percent of U.S. greenhouse gas emissions - will evolve over the next several decades is critical to developing sound U.S. climate policy. To answer this question, the Pew Center convened two workshops with members of its Business Environmental Leadership Council and experts from the academic and NGO sectors to envision possible future energy scenarios and to draw policy-relevant conclusions from them. This report includes discussion of these three scenarios, as well as assessments of key energy technologies for the future. Three significant insights emerged:

Without a mandatory carbon constraint, the absolute level of U.S. emissions rises in the range of 15 to 50 percent over the year 2000 level in each of the Pew Center scenarios, despite the fact that the carbon intensity of the economy declines considerably. This result points to a key conclusion of this report - policy is necessary to stem these increases and to address climate change.

A second conclusion of the report is that no matter which direction the future takes there are technologies-with supporting policies and investments-that could address climate change, accelerate capital stock turnover, and enhance energy security. If U.S. decision-makers can implement the necessary policies and encourage appropriate investments during the next thirty years, the United States would be better positioned to achieve multiple public policy goals.

Finally, the scenarios indicate that energy policy and investment decisions made today affect the difficulty of implementing a climate policy tomorrow.
"With the appropriate set of policies and investments during the next thirty years, the United States could be better positioned to achieve its complementary economic, energy security, and environmental goals," said Claussen. The Pew Center now plans to turn to an exploration of what ought to happen, now and in the future, towards developing a national vision of policies, strategies and investments that will help achieve these goals.

Solutions Series
This report is part of the Solutions series, which is aimed at providing individuals and organizations with tools to evaluate and reduce their contributions to climate change. Other Pew Center series focus on domestic and international policy issues, environmental impacts, and the economics of climate change.

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The Pew Center was established in May 1998 by The Pew Charitable Trusts, one of the United States' largest philanthropies and an influential voice in efforts to improve the quality of the environment. The Pew Center is an independent, nonprofit, and non-partisan organization dedicated to providing credible information, straight answers, and innovative solutions in the effort to address global climate change. The Pew Center is led by Eileen Claussen, the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

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