A little micro before midnight

Carbon, we are told, needs to have a price affixed to it for two fundamental reasons. One, it sends a market signal that investment in clean technologies is a smart move and, two, it internalizes the cost of CO2 emissions and other types of terrestrial/atmospheric pollution. That's one macroeconomic principle and one microeconomic one. Let's discuss the latter.

First of all, it is undeniable that the combustion of carbon fuels has external costs - we do not pay them when we burn and use the fuel, but we do pay for them in some way. Not to be too dramatic, but the biggest way we pay for them is with our lives - pollution, wars, extreme weather due to climate change, etc. These external costs of course also place a tab on our health care system, our military and really all echelons of society and the economy. So, naturally, we should simply internalize those costs - as with a carbon tax or cap-and-trade system - and pay them up front. This is a basic microeconomic approach to what's called a Pigovian effluence.

Here's the problem though, microeconomically speaking. Internalizing costs has a direct effect on the price and cross-price elasticity functions of any good or service. Since this is energy we're talking about, we could create a function describing its elasticity with basically every single good and service on the planet - agriculture, business, travel, bricks, clicks, everything. And, as you might have guessed, energy is not going to be very price elastic - we will use a similar amount of it no matter the cost. Why? Because we have to. The global economy has a momentum, and it is fueled by carbon energy. The buying and selling and consuming and disposing of all goods and services has evolved over the past couple centuries based on an energy infrastructure built almost entirely on carbon, and we ignored the external costs when we built it. To fully internalize them now would, as critics of a carbon price have said, slow the momentum of the global economy. We'd still, especially in the first few years, be using more or less the same amount of energy - we'd just be paying more for it. Since the marginal cost of clean technology is so much greater than that of carbon, we'd be stuck with more expensive energy no matter what. That leaves less money to spend on other things, and that's where macroeconomics comes in and shatters the consumer economy*.

Now we really don't want to keep paying these external costs, but to internalize them fully would put such a stranglehold on all economic activity so as to dramatically slow the pace of globalization, poverty alleviation and growth. What's the alternative, then, if the imperative is to decarbonize the economy? Well, the logical action if you can't make dirty energy more expensive is to make clean energy cheap**. I could (and will, in future posts) go on and on about this, but it essentially involves a suite of reforms and investments in technology, infrastructure, and education. These elements fall outside the realm of micro, so I'll stop here.

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*This logic game assumes some parameters that I have no business taking for granted. For instance, I'm assuming that we have perfect information on the external costs of carbon; that we can and do fully internalize them; that we do not couple a carbon pricing scheme with other, complementary energy policies to encourage the development of clean technologies; and that there is some legislative body/bureaucratic agency combination in the world that could effectively impose such a price on carbon.

**Also, it's worth pointing out that I am actually a proponent of carbon pricing, but only if it's done right - another topic for another post.

Cap-and-FAIL Roundup

A lot of smart people were less than thrilled following yesterday's slow and brutal bludgeoning of anything resembling good energy policy. Here are a few choice reactions:

• Andrew Revkin (NYTimes Dot Earth blog): "Obama has failed to challenge fossilized foes of meaningful action on energy and climate change, from Senator James Inhofe to the many conservative columnists - along with some liberals - who've distorted the American discourse on climate into an either-or debate over beliefs little different than that on abortion or gun rights."
• Jesse Jenkins and Devon Swezey (Huffington Post): "Cap and trade has repeatedly failed because it doesn't address the main barrier to the widespread deployment of clean energy technologies: the technology-based price gap between new clean energy and mature fossil fuels."
• Kate Sheppard (Mother Jones): "Obviously, there's no carbon cap, that much we already knew. But there's also no other major energy efficiency standards, and, perhaps most importantly, no renewable electricity standard - not even the weak one included in the energy bill last year.
• Michael Noble (Fresh Energy blog): "The President must do more than talk about energy. He needs to force action in the Senate by convening the kind of public conversation only the President can drive."
• David Roberts (Grist): "Big Coal is in trouble. Sooner or later, the industry will realize that the funding it can get from cap-and-trade, to support carbon capture and sequestration, is the only path to survival... By 2012, certainly by 2015 when many of the [EPA CO2 regulations] kick in, the industry will be forced to acknowledge this basic truth."
• Joe Klein (TIME): "Next year, the Environmental Protection Agency will begin regulating the hell out of CO2. The business community won't like that, nor will many Republicans."

Quote of the Day

In light of the final death blow dealt to cap-and-trade today...

The kind of technological revolution called for by energy experts typically does not occur via regulatory fiat. We did not invent the Internet by taxing telegraphs nor the personal computer by limiting typewriters. Nor did the transition to the petroleum economy occur because we taxed, regulated, or ran out of whale oil. Those revolutions happened because we invented alternatives that were vastly superior to what they replaced and, in remarkably short order, became a good deal cheaper.

- "Second Life: A Manifesto for a New Environmentalism" by Ted Nordhaus and Michael Shellenberger. September, 2007.

The Life and Death of Cap-and-Trade

Currently reading: Obama's Timid Liberalism (from Michael Lind in Salon, March 2009):

The fact that most of the left embraces cap-and-trade should not blind us to the fact that cap-and-trade is a classic example of an indirect, overly complicated, "market friendly" neoliberal approach, touted originally by conservatives and neoliberals as an alternative to the allegedly discredited "top-down, command-and-control" approach that gave us, among other things, the TVA, the Manhattan Project and the Internet.

Just a gentle reminder to my readers about the roots and realities of cap-and-trade. Not that it matters for the immediate, and likely distant, future; reports out of Senator Reid's office are indicating that Senate Democrats will separate any climate legislation from a now very limited oil spill response bill, that will also maybe possibly sort of contain some nice energy efficiency regulations. What, besides a cap, is missing? Just about everything, including any attempt at an RPS or subsidies/tax incentives for clean tech, let alone the much-needed energy tech innovation funding. At best, this bill gets us a band-aid for our tragically porous carbon infrastructure and maybe adds a slight kick of momentum towards continual Congressional debate on energy in the fall.

Now that Republicans, some Democrats and all environmental journalists have turned declaring the death of cap-and-trade into a hobby, let's think about why it was doomed in the first place. Cap-and-trade is a conservative policy, championed by Democrats and scorned by Republicans- a political fustercluck from the get-go. Its intended purpose is to make dirty fuels more expensive, ostensibly punishing consumers for using energy OR internalizing to society the full cost of the carbon economy, depending on your point-of-view. The most politically palatable form of such a program would probably have been cap-and-dividend, wherein the revenues accrued from the carbon price would be returned to ratepayers...which basically creates a small-to-huge financial and regulatory infrastructure to move money around while making it more expensive for consumers to work, live and consume. It would also have likely encouraged modest investment in some of the more mature clean energy technologies, but fallen far short of delivering the technological breakthroughs we need to decarbonize the economy - solar, wind, advanced battery technology, carbon capture, small modular nuclear reactors, et cetera. Another politically feasible, and my favorite, form would have directed carbon revenues towards clean tech innovation - polls always show overwhelming support for such policies - but that's a pretty moot point now anyway.

My point is, the heretofore failed effort to install a cap-and-trade into the American economy became a battle. A battle between Republicans and Democrats, between voters and politicians, between environmentalists and everybody else. "You can't win a war if you refuse to fight," an energy blogger opined earlier today on Twitter, directing his complaints towards President Obama and Senator Reid. But as I have said before, I do not believe that we will achieve the social, technological and legal breakthroughs required to decarbonize the economy unless we approach the challenge as a nation of driven, innovative, and competitive collaborators. My response to the above tweet was that we must stop calling the effort to [save the planet, reform our energy infrastructure, achieve energy independence, make clean energy cheap, etc.] a war, and start calling it a quest. As indicated in the above quotation from Michael Lind, Americans have done extraordinary things before when we approach technological, social and legal shortfalls as a nation united for a common purpose. We didn't find success in massive endeavors like the TVA, the Manhattan Project and the Internet by inventing complicated and expensive systems to end old behavior, but by finding innovative and brilliant methods to chart a new course to our future. The tactic of cap-and-trade proponents became one of excuses and apologies, not of inspiration and empowerment. This, moreso than the short-term political failures of Obama and Reid, proved the downfall of cap-and-trade.

Energetics Cliff Notes - Wednesday Edition

• Yesterday, Secretary Chu convened representatives from 24 countries forthe first Clean Energy Ministerial; here are 8 promises made at that confab.
• There's a study out there predicting that $200 billion in investment R&D money in solar could make the clean technology cost-competitive with coal. Well, China is forecast to spend $738 billion over the next ten years on clean technology.
• Google Energy yesterday purchased 114MW of wind power in Iowa.
• Van Jones rails against utilities trying to squeeze more sulfur and mercury out of their smokestacks under the potential new energy regulations established by APA.
• With per capita energy consumption still somewhere around 1/4 of that in the US, China has officially surpassed the States in overall energy consumption.
• Thought this was pretty cool - The Public Service Company of Oklahoma, a state utility, is offering ratepayers the opportunity to buy their energy from a wind farm.
• Peter Teague, in a must-read LA Times oped, adds his voice to the many calling for more investment in clean tech.
• Jim Woolsey, former CIA Director, spoke at Stanford recently connecting oil to terror and Islamic fanaticism.
• This is awesome.

On "Inception" and the climate bill

A tweet of mine from earlier today:

@atrembath: Starting to wonder if the #climate bill is in limbo within a dream within a dream... #Inception.

It was a joke, but the more I think about it, the more it makes a kind of vague, existential sense. Look at the many levels of climate/energy bills we've had in the past year (ignoring, for convenience's sake, the attempts made prior to them). We've gone from ACES to CLEAR to ACELA to KGL to K[G]L to APA, all which are some amalgam or response or "stone soup" of each other. Some have carbon pricing, some do not; some increase subsidies for fossil fuels, some eliminate them; some are politically feasible and at least decent policy constructions, others are not. At this point, it would be a circuitous and functionally pointless operation to trace back the current legislation to its counterparts in previous bills, drafts of bills, etc.

As in the film "Inception," the levels of climate/energy bills have pushed us deep into a strange, surreally litigious version of reality, and the hope is that whatever we construct in Congress so deep within the depths of the legislative process will make some kind of difference in the real world. This is especially true for cap-and-trade, the very definition of a "green dream," or carbon offsets, whose desired and planned effects - drafted deep in the layers of my shaky metaphor - will likely come up against bureaucratic and corporate nightmares in reality. Or, if the legislation has become so entangled in the deep layers of Congress that it becomes stuck in limbo, unable to free itself from a prison of its own making.

After seeing "Inception" last night, I told my friend that my own personal hell might be if my memory of the movie were erased and I was given all the pages of drafts of the script - out of order and unnumbered - and told to assemble them correctly. Ditto that for the climate legislation.

Quote of the Day

From David Appell's blog Quark Soup:

There are a lot of really important science news stories out there, it seems to me. The lack of regulation of new nanotechnologies. And especially what's coming to light about the role of environmental chemicals and and their impact on our ecology and (probably) our very own species.

The enormous and embarrassing question in physics that the public has not yet grasped: scientists do not know what 95% of the Universe is made of. What could possibly be worse, from a scientific point of view? Or more interesting?

So while climate science is interesting, I'm not sure it's any longer that relevant, news-wise. It's a done deal. There's no longer any scientific basis for criticizing it, just personal gossip type stuff. Kind of desperate, and kind of boring.

Intersolar

Tomorrow, I'll be attending Intersolar in downtown San Francisco. I'm actually very excited about the convention and I'm sure my friend and I will have an enjoyable and informative day there. From their website:

Intersolar North America, taking place from July 13-15 in San Francisco's Moscone Center West Hall, promotes the development of business opportunities throughout the U.S. solar industry. More than 580 U.S.-based and internation exhibitors and 20,000 trade visitors are expected across the more than 130,000 square feet of floor space. The conference, again taking place at the InterContinental Hotel, features over 30 tracks and 250+ speakers for the 1,600 expected attendees.

Since its establishment in 2008, the exhibition and conference have developed into the premier platform for the solar industry in North America. Intersolar North America, co-located with SEMICON West, focuses on photovoltaics and solar thermal technology and has quickly established itself among manufacturers, suppliers, distributers and service providers as a vital international industry meeting point.

I'll be live-tweeting my experiences all day tomorrow, and reflecting on it here afterwards. See you on the Interwebs...

Energetics Cliff Notes - Friday Edition

The week that was: (/climategate) and, yes, more oil.

• Dave Roberts was on Rachel Maddow last night talking about the oil spill and the climate/energy bill.
• Prop 23, a.k.a. the Dirty Energy Proposition, isn't doing so hot in the opinion polls.
• As you've no doubt heard if you're reading my blog, the Solar Impulse, a plane powered entirely by retrofitted solar panels, finished its 26-hour flight yesterday...meaning it flew through the night.
• Alexis Madrigal of The Atlantic asks: can the US innovate without manufacturing? Quick answer: NO. (Seriously though, read the whole piece.)
• Not that it really matters anymore (except maybe for the researchers themselves), but a British panel has cleared the East Anglia climatologists at the center of "climategate" of any wrongdoing.
• Michael Levi figures that a utility-only cap, while not raising nearly as much revenue as an economy-wide cap, would still reduce the deficit due to a correlatively diminished effect on business.
• Keep an eye on this: the EPA's new "transport rule" may place bureaucratic restrictions on cap-and-trade schemes for more than just CO2.
• Robert Cialdini, psychologist and author of the influential Influence, weighs in on energy conservation.

Cap-and-trade: the most conservative policy on the block

Once upon a time, cap-and-trade was a green's dream, a bright reality of a possible future -- indeed, it was the hope and expectation of many greens that cap-and-trade would eventually garner enough public and political support to become the patriotic and responsible policy they already believed it to be. But those greens probably didn't anticipate Congress drafting (I won't yet say passing) a climate/energy bill without cap-and-trade, or any explicit carbon pricing mechanism at all. Yet that reality very well may materialize over the coming months, with hopes for an economy-wide cap thoroughly dashed and plans for a utility-only program neither sure-footed nor overwhelmingly popular. So who killed cap-and trade? Without intending to come across as either partisan or simplistic, I think it's safe to say Republicans -- with considerable help from Conservadems like Blanche Lincoln and Ben Nelson -- are responsible for the death of cap. That's not really an accusation either; I'm sure Republicans in Congress would take credit for killing the policy in debate, and the more conservative citizens among us would celebrate its demise. Which is a funny thing, since cap-and-trade is the most classically conservative clean energy policy on the block.

Many (probably most) think of cap-and-trade as basically a dirty energy tax, and since only liberals want to raise taxes, it must be a liberal policy. But cap-and-trade doesn't so much create a tax on dirty energy as a price, and those are two very different things. Cap-and-trade is the neoclassical market-based approach to carbon emissions -- an efficient cap would internalize the full cost of generating energy and charge consumers for using it. After a cap is in place, the market would react like it always does to price signals, and American capitalism would be strengthened by a more confident energy market. And that's the policy that Republicans killed.

Now, any carbon pricing scheme is going to make dirty energy more expensive -- that's the idea. So I can understand Republicans' ideological opposition to a program that, you know, costs money. But relative to more popular programs within the conservative ranks of Congress, I think it's a little surprising. Where do Republicans put their support, if not in this market approach? Well, Republicans Senators Murkowski, Sessions, Brownback and Corker supported an RPS, or a requirement that utilities purchase a certain percentage of their power from renewable sources. Lamar Alexander and Mike Crapo are in favor of subsides, appropriations and loan guarantees for nuclear power plants. Alexander also supports electrification of the auto fleet. Other Republican plans include incentives for biofuels and other alternative energy technologies, and funding for clean energy research and development. (See Jesse Jenkins' post for more on this, plus sources.)

So, we've got a government-run RPS, subsidies and directed tax incentives, education and public research funding, long-term clean tech stimulus, and more government mandates for the operation of the utility and transportation sectors. Many of these are strictly command-and-control government programs for the economy, and those that aren't are clearly "pick-the-winner" policies typically rebuffed by Republicans in favor of market competition and ingenuity -- the kind of market behavior that would follow the implementation of a cap-and-trade scheme.

Now, I wouldn't want to accuse the Senators of being disingenuous, nor ridicule their choice of policies -- I'm a fan of each and every one of these programs, and I applaud the Republicans in Congress for drafting and supporting versions of them. But I do think that cap-and-trade, a once-worthy policy in its own right, deserves to be fully understood. It is not sufficient on its own to decarbonize the economy, and it has a strong negative political charge, but while Obama tries to put liberal and conservative minds together to draft replacement legislation after the death of cap-and-trade, it's worth pointing out that conservatives killed what should have been their ideological poster program.