The following is a guest essay by Ted Nordhaus and Michael Shellenberger, the latest in the ongoing conversation about their new book Break Through: From the Death of Environmentalism to the Politics of Possibility.
—–
Thank you to everyone here who has participated in this discussion. We are grateful to Grist to making the space for this debate, and to everyone who has chimed in. Through agreement and disagreement alike, it is inspiring to find this many people joining a conversation about how to achieve a common goal.
It is the argument of Break Through that we need to replace the pollution paradigm with one that is investment- and innovation-centered. Joe Romm of the Center for American Progress in Washington and David Hawkins of NRDC are just wrong in their claim that we have all the technology we need and that we just need to scale it up. Readers can contrast the consensus of expert opinions we cite below with the anecdotes and assertions by Romm and Hawkins.
It may be that there is simply disagreement over terminology. Romm and Hawkins misinterpret our call for major investment into non-incremental breakthroughs in price and performance as saying there’s nothing we can do now. Perhaps we are misunderstanding what they mean when they claim that all the technologies exist and just need to be scaled up. Whatever the case, we hope that both will weigh in again, hopefully with a bit less hysteria and more clarity about our position.
The truth is that there are many things we need to do at the levels of both technology and regulation. More than that, we need to understand how both are, in Muir’s lovely turn of phrase, "hitched to everything else in the Universe," especially global economic development and the politics of energy prices.
The Case for Both/And: Regulation and Technology
There remains some confusion about what we mean when we talk about things like technology breakthroughs, public vs. private investment, and basic R&D versus commercialization. Here we’ll attempt to shed a bit more light on these subjects, and trace what we believe is a path toward climate stabilization, one that requires the embrace of technology, public investment, and global economic development.
There are two challenges that must be addressed to achieve deep reductions in global carbon emissions, one regulatory and one technological. The regulatory challenge is the one that Joe Romm, David Hawkins, and the vast majority of environmental groups have focused their efforts on addressing.
This challenge involves creating regulatory and market conditions that drive energy use away from dirty, carbon-intensive sources of energy and primarily toward efficiency and less polluting conventional energy technologies. These policies are an important part of the solution and will allow us to achieve some significant initial reductions in carbon emissions in the U.S. and other developed economies. These policies will be accomplished primarily through establishing a cap and trade regulatory system or a carbon tax or some combination of the two and will, if all goes well, lead to emissions reductions in the neighborhood of 20 percent in the U.S. and other developed nations that enact similar policies.
If the costs of low-carbon alternative technologies — solar energy, along with complementary energy storage, transmission technologies, and alternative transportation fuels — come down dramatically, these policies could lead to deeper reductions.
But the potential of regulatory policies to reduce carbon emissions more dramatically depends upon our success in addressing the technology challenge.
The Technology Challenge
The technology challenge is fundamentally different from the regulatory challenge. The problem is that the technology innovation challenge will in large part determine what the regulatory challenge is, in the end, able to accomplish. "The key reason to develop and deploy advanced energy technologies," concluded James Edmonds at University of Maryland, one of the world’s leading experts on energy technology innovation, "is to control the cost of stabilizing greenhouse gas concentrations" (Edmonds et al. 2007: 9).
The right regulatory framework can help create market conditions that are more amenable to deploying alternative energy technologies. Thus, these two challenges, while different, are also interlinked and interdependent.
Environmentalists imagine that once a price for carbon is set, the market will drive private sector investment and innovation sufficient to overcome the technological obstacles to deep reductions in carbon emissions. As such, many environmentalists, including many of those who have responded here at Grist, conflate two distinct challenges: increasing the cost of fossil fuels and decreasing the cost of clean energy. Even some energy experts, wrote Dennis Anderson for the Stern Review, "frequently confound the aims of innovation policies with the aims of carbon pricing, which are to encourage the use of technologies that have already passed through their RD&D and commercial trial stages … By facilitating invention and reducing costs, such policies complement the pricing of carbon directly, and should pave the way to lower carbon prices in the long-term" (Anderson 2006: 41).
When people say that “we already have all the alternative energy technologies we need,” what they mean is that we have invented technologies that can produce energy without emitting carbon. This is true only insofar as these technologies exist, have been demonstrated in laboratory settings, and in the case of things like solar panels, have been deployed over a number of years at a relatively small scale. Other technologies, such as carbon capture and storage, are at an even earlier stage of development.
What we have not yet succeeded in doing is producing clean energy technologies at costs low enough to deploy widely, such that they might actually represent a real alternative to cheap, high-carbon conventional energy sources. "Many of the technologies needed are already available or close to commercialization," the International Energy Agency wrote in a major report last year. "But it will require substantial effort and investment by both the public and private sectors for them to be adopted by the market … Urgent action is needed to stimulate R&D, to demonstrate and deploy promising technologies, and to provide clear and predictable incentives for low carbon options and diverse energy sources" (Mandil/IEA 2006: 3)
When we say “breakthrough” technologies, what we are referring to are breakthroughs in the performance of current clean energy technologies and the cost of deploying them. Without these breakthroughs, the costs of these technologies are too high, and their performance and return on investment too low, to justify private sector investment in their widespread deployment. This will likely be the case even with the higher carbon prices that the many proposals currently being considered in the U.S. Congress would establish.
Moreover, even dramatically improving the performance of clean energy alternatives and decreasing their price relative to conventional energy sources such that, with help from a regulatory framework that increases the cost of conventional sources, they will be cost-competitive, will not be sufficient, alone, to see them widely deployed.
Clean energy alternatives like solar and wind will require significant improvement in the cost and performance of battery and other energy storage technologies, and probably a new electricity grid as well, to be deployed at levels that might allow them to displace conventional energy sources on a large scale.
Finally, even if environmentalists succeed in establishing a radically higher carbon price in the U.S. and other developed nations, a dubious prospect even with today’s environmentally friendlier Congress, China, India, and other developing countries, where almost all of the projected increase in energy use and carbon emissions are going to occur, appear unlikely to establish a significant price for carbon in the foreseeable future.
Given the likelihood of low to non-existent prices for carbon in the developing world for many decades to come, the technology challenge will require that we very quickly drive the deployed price of low-carbon alternative energy technologies not just down to levels at which they are competitive in energy economies with relatively high carbon prices, but down to levels wherein the real cost of those technologies are cost competitive with coal in developing economies with very low (or nonexistent) carbon prices.
For this reason we argue that, in the end, the most important objective of our efforts to address the climate crisis is to drive the real, deployed costs of clean energy technologies dramatically downward as quickly as possible.
Public Versus Private Investment
Several folks here at Grist have pointed out a key demarcation between what government does well in terms of promoting technological innovation and what the private sector does well. The standard distinction is that government is the appropriate funder of basic research while the private sector is much better and much more efficient at commercializing new technologies.
However, there is a vast chasm between basic research and commercialization, where many promising technologies, particularly energy technologies, die. This is known as the "technology valley of death." It represents critical early stage production and deployment stages of commercialization. At these stages the private energy sector has not, for a variety of reasons, done particularly well.
There are also a number of features particular to energy technology that further increase risk. Energy patents are notoriously difficult to defend and easy to reverse engineer. Fearing "knowledge spillover" — innovations that can’t be captured or monopolized by the companies doing the research — investors and firms avoid making big, long-term investments in emerging technologies. "Investors," wrote Stanford’s David Victor and Danny Cullenward in September’s Scientific American, "tend to focus on technologies that are nearing commercial application and potential profit.”
Finally, the commodified nature of energy (one electron is as good as another) makes it difficult to develop initial commercial products that can command a higher price. While Apple enthusiasts lined up to shell out $600 for an iPhone, very few consumers are willing to pay two to three times more for clean energy.
These challenges and others have resulted in huge barriers to the widespread commercialization of new clean energy technologies by the private sector. And it is for this reason that the vast majority of energy experts, as well as the large-scale reviews of the technology challenge as it relates to climate (such as the spring 2007 IPCC report, and the 2006 Stern Review), have called for exponential increases in public investment in research, development, and deployment of clean energy technologies.
The lack of investment is not a minor barrier — most energy experts view it as the primary barrier. "Probably the most significant barrier to ETI [Energy Technology Innovation] is inadequacy of funds, especially for R&D, in relation to the challenges that are faced by energy system" (Sims Gallagher et al. 2006: 221-222).
John Holdren, the current chairman of the American Association for the Advancement of Science, wrote, "Around the world, the energy sector’s ratio of RD&D investments to total revenues is well below that for any other high-tech sector of the economy … These investments will need to be boosted at least 2-3-fold if the world is to meet the energy challenges it faces in the decades immediately ahead" (Holdren 2006: 20). Others say it should be much higher. "Using emissions scenarios from the Intergovernmental Panel on Climate Change and a previous framework for estimating the climate-related savings from energy R&D programs (Schock et al.., 1999), we calculate that U.S. energy R&D spending of $15-30 billion/year would be sufficient to stabilize CO2 at double pre-industrial levels [550 ppm]" (Kammen 2006a: 4).
The efficacy of this kind of public investment is well-documented. In the roughly five years that the federal government guaranteed the market for microchips in the 1960s, the price of a microchip came down from $1000 per chip to $20. A similar federal effort in the 1980s saw similar improvements in price and performance. Here’s Stern and IPCC:
"Extensive and prolonged public support and private markets were both instrumental in the development of all generating technologies. Military R&D, the US space programme and learning from other markets have also been crucial to the process of innovation in the energy sector" (Stern 2006: 361)
"Government support through financial contributions, tax credits, standard setting, and market creation is important for effective technology development, innovation and deployment" (IPCC 2007: 20)
The dramatic price and performance improvements in wind technology occurred because Denmark guaranteed its market for wind energy in the 1980s and 90s. And the Japanese government saw similar breakthroughs in the price of solar panels as result of its intervention in the solar market in the 1990s.
This is the kind of public investment we desperately need to unleash the power of private sector investment and innovation. Without it, faith that the private sector will massively increase investment to deploy clean energy technologies is probably unfounded.
Setting a Price for Carbon Won’t Be Sufficient
Most energy experts do not believe a carbon price is enough. "Getting those new technologies on line will require more than price signals because no company on its own will invest in the necessary speculative and costly research and development concepts," wrote Victor and Cullenward. "Ultimately, the belief that prices alone will solve the climate problem is rooted in the fiction that investors in large-scale and long-lived energy infrastructures sit on a fence waiting for higher carbon prices to tip their decisions. In fact, many factors stifle the implementation of novel low-carbon policies."
It is for this reason that everyone from the Stern Review to the IPCC call for major public investment. "[T]he presence of a range of other market failures and barriers mean that carbon pricing alone is not sufficient," the Stern Review concluded. "Technology policy, the second element of a climate change strategy, is vital to bring forward the range of low-carbon and high-efficiency technologies that will be needed to make deep emissions cuts." (Stern Review 2006: 308)
Socolow and Pacala, who are frequently cited in justification for regulation-centric policies, agree. "But a price on CO2 emissions on its own, may not be enough. Governments may need to stimulate the commercialization of low-carbon technologies to increase the number of competitive options available in the future" (Socolow and Pacala 2006).
This kind of public investment will drive early stage innovation and commercialization that the private sector will by and large not engage in without a government push, and draw in greater private investment to commercialize and bring those technologies to scale. MIT’s John Deutsch writes, "Government support of innovation — both technology creation and technology demonstration — is desirable to encourage private investors to adopt new technology … Virtually every energy study recommends that the federal government mount technology research, development, and demonstration (R, D, & D) programs that require large and sustained budgetary support, of course, funded by the taxpayer."
Skepticism about federal coal and ethanol subsidies is reason to have, not eschew, a serious public investment strategy.
There has been a bit of schizophrenia among those who have attacked public investment or discounted its importance. On the one hand, the assertion is made that whatever public investment may be necessary will be relatively easy to get, and that the hard part will be establishing the regulatory system. On the other hand, everything that has gone wrong with federal energy investment in recent decades is invoked as evidence that public investment can’t be depended upon to address the crisis. But you can’t have it both ways.
It will no doubt be easy to allow pork-barrel Congressional politics and energy industry skullduggery to hijack or waste public clean energy investment. Similarly, it would be easy to allow Congress and the Bush administration to propagate meaningless carbon regulations. We should not allow the latter to occur and neither should we allow the former.
While the national environmental movement has invested enormous resources in thinking through its preferred approach to regulating carbon, and is expending enormous resources to advocate that approach, there is little evidence to suggest that the environmental movement has done much of anything to define a proper public investment strategy, to think through what kinds of investments will need to be made, how they should be made, how they should be insulated from pork barrel politics and energy industry sabotage, and how much we need to spend.
So what would a post-environmental global warming agenda look like and how would it differ from the present policy and political strategy? We’ll lay this out in part II on Monday.
—–
Bibliography
Aitken, Donald W. "Transitioning to a Renewable Energy Future," International Solar Energy Society, 2003.
Alic, John, David Mowery, Edward Rubin, "U.S. Technology and Innovation Policies: Lessons for Climate Change," Pew Center on Global Climate Change, November 2003.
Anderson, Dennis. "Costs and Finance of Abating Carbon Emissions in the Energy Sector," Imperial College London, White Paper Prepared for the Stern Review on the Economics of Climate Change, October 20, 2006.
Blyth, William and Hamilton, Kirsty. "Aligning Climate and Energy Policy: Creating incentives to invest in low carbon technologies in the context of linked markets for fossil fuel, electricity and carbon," Chatham House White Paper prepared for the Stern Review on the Economics of Climate Change, April 2006.
John Deutsch, "What should the government do to encourage technical change in the energy sector?" Center for Energy and Environmental Policy Research, March 2005.
Duke, Richard D. "Clean Energy Technology Buydowns: Economic Theory, Analytic Tools, and the Photovoltaics Case," Ph.D Dissertation, Princeton University, Woodrow Wilson School of Public and International Affairs
Edmonds, JA, Wise, MA, Dooley, JJ, Kim, SH, Smith, SJ Runci, PJ, Clarke, LE Malone, EL, Stokes, GM. "Global Energy Technology Strategy: Addressing Climate Change," Global Energy Technology Strategy Program, May 2007.
General Accounting Office, "Key challenges remain for developing and deploying advanced energy technologies to meet future needs," December 2006.
Grubb, Michael “Technology Innovation and Climate Change Policy: An Overview of Issues and Options,” Keio Journal of Economics, 2004.
Hoffert, Martin, Caldeira, Ken, Benford, Gregory, Criswell, David R., Green, Christopher, Herzog, Howard, Jain, Atul K., Kheshgi, Haroon S., Lackner, Klaus S., Lewis, John S., Lightfoot, H. Douglas, Manheimer, Wallace, Mankins, John C.
Mauel, Michael E., Perkins, L. John, Schlesinger, Michael E., Volk, Tyler, Wigley, Tom M. L., "Advanced Technology Paths to Global Climate
Stability: Energy for a Greenhouse Planet," Science, November 1, 2002.
Holdren, John P. "The Energy Innovation Imperative," Innovations, Spring 2006.
Jaffe, Adam B. Richard G. Newell, and Robert N. Stavins, "A Tale of Two Market Failures: Technology and Environmental Policy," Resources for the Future, October 2004.
Josefsson, Lars G. Vattenfall AB, "Statement given at the Ministerial Dialogue Meeting of the U.N. Commission on Sustainable Development," 2006-05-10
Mandil, Claude. "Foreward," Energy Technology Perspectives, International Energy Agency, 2006.
The National Commission on Energy Policy, "Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges," December 2004.
Karsten Neuhoff, "Large Scale Deployment of Renewables for Electricity Generation," Cambridge Working Papers in Economics #59, Cambridge – MIT, 2005.
William Nordhaus, The Challenge of Global Warming: Economic Models and Environmental Policy, forthcoming book, 2008.
Kammen, Daniel M. "Climate Change Technology Research: Do We Need a ‘Manhattan Project’ for the Environment?, Testimony before Congress, September 21, 2006.
Kammen, Daniel, "The Rise of Renewable Energy," Scientific American, September 2006.
Margolis, Robert M. and Daniel Kammen, "Underinvestment: The Energy Technology and R&D Policy Challenge," Science, July 30, 1999.
Nemet, Gregory. "Policy and Innovation in Low-Carbon Energy Technologies," Ph.D Dissertation, Spring 2007.
Richard Richels, Rutherford, Thomas, Blanford, Geoffrey, Clarke, Leon. "Managing the Transition to Climate Stabilization, AEI-Brookings Joint Center for Regulatory Studies, January 2007
Sims Gallagher, Kelly, Holdren, John P., and Sagar, Ambuj D. "Energy-Technology Innovation," Annual Review of Environment and Resources, August 25, 2006, pp. 193 – 237.
Robert H. Socolow and Stephen W. Pacala. "A Plan to Keep Carbon in Check," Scientific American, September 2006.
Stern, Nicholas. The Stern Review: The Economics of Climate Change, UK Treasury, October 2006.
Victor, David, and Cullenward, Danny. "Making Carbon Markets Work," Scientific American, September 24, 2007.
United Nations Intergovernmental Panel on Climate Change, "Summary for Policymakers," April 30 to May 4, 2007.
