Acting in Time on Energy Policy

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Energy policy is on everyone's mind these days. The U.S. presidential campaign focused on energy independence and exploration ("Drill, baby, drill!"), climate change, alternative fuels, even nuclear energy. But there is a serious problem endemic to America's energy challenges. Policymakers tend to do just enough to satisfy political demands but not enough to solve the real problems, and they wait too long to act. The resulting policies are overly reactive, enacted once damage is already done, and they are too often incomplete, incoherent, and ineffectual. Given the gravity of current economic, geopolitical, and environmental concerns, this is more unacceptable than ever. This important volume details this problem, making clear the unfortunate results of such short-sighted thinking, and it proposes measures to overcome this counterproductive tendency.

All of the contributors to Acting in Time on Energy Policy are affiliated with Harvard University and rank among America's pre-eminent energy policy analysts. They tackle important questions as they pertain to specific areas of energy policy: Why are these components of energy policy so important? How would "acting in time" —i.e. not waiting until politics demands action —make a difference? What should our policy actually be? We need to get energy policy right this time —Gallagher and her colleagues help lead the way.

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Editorial Reviews

From the Publisher

" Acting in Time on Energy Policy makes the case for urgency in fostering energy technology innovation, policy innovation, and business model innovation so as to enable a public-private commitment to climate change risk mitigation. It also puts forward a suite of policy and political recommendations that deserve the attention of President Obama and his formidable energy/environment team." —Professor Ernest J. Moniz, Director of the MIT Energy Initiative, former Under Secretary of the U.S. Department of Energy

"This excellent book tackles the hardest questions in energy policy today, such as how to reconcile continued growth in energy demand with important challenges like global climate change. The authors insightfully identify sensible strategies for U.S. energy policy, taking into account the critical role of the private sector in the energy future of the United States." —James E. Rogers, Chairman, President, and CEO of Duke Energy

"For those determined to ensure that the United States acts in time on energy and climate imperatives, it is cause for rejoicing that Kelly Sims Gallagher has assembled compelling assessments that span a wide spectrum of issues and experts. She and her colleagues offer consistently constructive solutions, as distinct from scholarly hand-wringing, and they deserve a host of highly attentive and influential readers." —Ralph Cavanagh, Energy Program Co-Director, Natural Resources Defense Council

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Product Details

  • ISBN-13: 9780815702931
  • Publisher: Brookings Institution Press
  • Publication date: 5/6/2009
  • Edition description: New Edition
  • Pages: 194
  • Product dimensions: 5.90 (w) x 8.90 (h) x 0.80 (d)

Meet the Author

Kelly Sims Gallagher is director of the Energy Technology Innovation Policy research group at the Harvard Kennedy School and is the author of China Shifts Gears: Automakers, Oil, Pollution, and Development.

David T. Ellwood is dean of the Harvard Kennedy School.

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Table of Contents

Foreword David T. Ellwood

Introduction Kelly Sims Gallagher

1 Acting in Time on Climate Change Kelly Sims Gallagher

2 Making Carbon Capture and Storage Work Daniel Schrag

3 Oil Security and the Transportation Sector Henry Lee

4 Policy for Energy-Technology Innovation Laura Diaz Anadon John P. Holdren

5 Electricity Market Structure and Infrastructure William H. Hogan

6 Overcoming the Barriers to Acting in Time Max H. Bazerman

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First Chapter

Acting in Time on Energy Policy

Brookings Institution Press

Copyright © 2009 Brookings Institution Press
All right reserved.

ISBN: 978-0-8157-0293-1

Chapter One

Acting in Time on Energy Policy

Kelly Sims Gallagher

This book clarifies the urgent priorities for U.S. energy policy at the dawn of the Obama administration and recommends specific steps that the U.S. government should take to address the numerous energy-related challenges facing the United States. Government must play a prominent role to ensure that adequate supplies of various forms of energy are available to enable and sustain U.S. economic growth, boost the competitiveness of U.S. firms in the global energy marketplace, counter the extreme volatility in oil prices of the past few years, limit the political and economic vulnerabilities associated with dependence on oil and natural gas, adequately and cost-effectively address the global climate change threat, and develop, acquire, and deploy advanced, clean, and efficient energy technologies to meet all of the above challenges.

The book's title-Acting in Time-refers to the persistent problem in U.S. energy policy that typically just enough is done to satisfy the short-term political imperatives, but not enough is done to actually solve the underlying problems themselves. As a result, many of the fundamental economic, environmental, and security-related challenges arising from patterns of U.S. energy production and consumption have become more intractable. Some now approach a point of crisis.

The United States is hugely influential in global energy markets, and in turn, international energy resources, supplies, and prices are central to the economic and environmental health of the United States. As the world's biggest economy, the United States is the largest national energy consumer, largest electricity producer, largest oil consumer, largest oil importer (twice as large as the second-largest oil importer, Japan), largest refiner of crude oil (in terms of crude distillation capacity), largest natural gas importer, largest producer and consumer of nuclear power (it has almost twice as much installed capacity as France), and the largest emitter of carbon dioxide (the dominant greenhouse gas [GHG]) on a per capita basis within the Organization for Economic Cooperation and Development, together with Australia. The United States is the second-largest coal consumer, second-largest GHG emitter in aggregate terms, and fourth-largest producer of hydroelectric energy. As for renewable energy, the United States is the largest ethanol producer and ranks third in terms of new renewable energy capacity investment and overall capacity. Notably, U.S. wind installations in 2007 were not only the largest on record in the United States but were more than twice the previous U.S. record, set in 2006. Despite the widespread perception that the United States has fallen behind Europe in renewable energy development and deployment, no country in any single year has added the volume of wind capacity that was added to the U.S. electrical grid in 2007.

Internationally, 61 percent of the world's proven oil reserves are located in the Middle East. The global proven oil reserves controlled by nationally owned oil companies are estimated to range from 80 to 90 percent. Most currently economically recoverable natural gas reserves are located outside the United States, with 67 percent located in the Middle East and Russia. Rapidly growing industrializing countries are demanding increasingly more energy services. Between 2006 and 2008, for example, Asian oil demand grew on average 1.5 million barrels a day each year. Primary energy demand in India and China is projected by the International Energy Agency (IEA) to more than double by 2030 but only grow by 25 percent in the United States during the same time period. Already about two-thirds of India's oil imports and 45 percent of China's oil imports come from the Middle East, and their dependence on that region is certain to grow.

With oil prices set in a global market, the degree of U.S. economic vulnerability is proportional to its total oil dependence, not just import dependence. And the United States is by far the largest oil consumer in the world. Consumers must pay the market price increase on every gallon or barrel consumed, not just on the imported barrels, although the degree of import dependence certainly affects who gets the revenue. Lately oil imports have accounted for about one-third of the U.S. trade deficit. The U.S. transportation sector accounts for the majority of U.S. oil consumption and the largest and fastest-growing fraction of U.S. greenhouse gas emissions, so it is a ripe target for policy attention.

With the election of President Barack Obama, a window of opportunity to change U.S. energy policy has opened again. Each new presidential administration offers the possibility of change, a theme upon which President Obama himself vigorously campaigned. A cautionary tale can be told based on the history of promises made during presidential campaigns and subsequent energy policies enacted. Every presidential candidate since the oil shocks of the 1970s has campaigned on a theme of energy "independence," but every subsequent president left office with the United States more, not less, dependent on foreign oil. U.S. oil imports as a percentage of total oil consumption were 37 percent during the Nixon administration, and they rose to 66 percent during the Bush administration. On the subject of climate change, the record is no better. The Clinton-Gore administration entered office on the heels of the United Nations Conference on Environment and Development in Rio where the UN Framework Convention on Climate Change had been negotiated. Vice President Al Gore had just published his famous book Earth in the Balance (1992), which stressed the importance of action to tackle climate change. But despite the Clinton administration's initial proposal for an energy usage tax ("BTU tax"), subsequent negotiating of the Kyoto Protocol, and development of a voluntary domestic climate change action plan, no enforceable policies were enacted during its eight-year term. The Bush administration declined to support mandatory policies to reduce GHG emissions, and U.S. carbon dioxide emissions grew another 4 percent between 2001 and 2007. U.S. government investments in energy research, development, and demonstration are approximately half the level they were thirty years ago in constant dollars. Japan now exceeds the United States in total government investments in energy technology innovation as well as in government investments as a percentage of GDP.

During his campaign, President Obama made many noteworthy and important commitments, namely, that he would

-invest approximately $15 billion a year for ten years in cleaner energy, thereby creating approximately 5 million associated jobs;

-reduce oil imports by volumes equal to the imports from the Middle East and Venezuela within ten years;

-modernize the national electricity grid;

-commit to reduce carbon emissions to 1990 levels by 2020 and to effect an additional 80 percent reduction by 2050 via a market-based cap-and-trade system with a full auction, as well as to reengage in international climate negotiations;

-give every family a $1,000 energy rebate and pay for it from oil company profits;

-provide $4 billion in loans and tax credits to American auto plants and manufacturers so that they can retool factories and build fuel-efficient cars;

-put 1 million 150-mpg, plug-in hybrids on U.S. roads within six years and give consumers a $7,000 tax credit to buy fuel-efficient cars; and

-ensure that 10 percent of U.S. electricity comes from renewable sources by 2012 and 25 percent by 2025, as well as extend the production tax credit for renewable energy for five years.

Given the severe financial and economic challenges facing the new president, it is natural to wonder if energy policy should be a top priority at the beginning of the new administration. If this book does nothing else, it makes the case that the United States cannot afford to wait any longer to enact long-term policies for climate change, carbon capture and storage (CCS), electricity structure reform and infrastructure investment, oil security, and energy-technology innovation. Tempting as it may be to defer policymaking in the energy and climate domains, not taking prompt action early in the Obama administration will constitute a failure to act in time. In fact, acting early is clearly in the longer-term financial interest of the United States.

Some, including President Obama, have argued that the financial crisis presents an opportunity for investing in a "green" recovery. One can thus readily imagine that President Obama's commitment to invest $15 billion a year in the development and deployment of cleaner energy technologies will be acted upon because such investments are likely to create new jobs and enhance the industrial competitiveness of U.S. firms, which are increasingly at risk of arriving too late to the global marketplace for advanced energy technologies. Eight of the ten top wind manufacturers are European, none of the top five global producers of photovoltaic cells is based in the United States, and two Japanese producers supply 85 percent of the world's market for hybrid electric vehicle batteries. Numerous suggestions for how to best deploy and utilize these proposed funds are outlined in chapter 5, on energy-technology innovation. One likely source of these funds could come from the passage and implementation of domestic climate change legislation, which would generate revenues if carbon dioxide emissions are taxed or if permits are auctioned rather than given away.

There will be tensions as the Obama administration endeavors to tackle all the energy challenges. One consistent theme in this book, for example, is that higher energy prices would help achieve all the policy objectives in the longer term-improved oil security, lower GHG emissions, more efficient operation of the electricity system, more incentives for private sector innovation in energy technologies, and more incentives for consumers to purchase cleaner and more energy-efficient products. But, of course, higher energy prices have not been deemed politically palatable in the past, and there is the legitimate concern that they can unfairly burden low-income Americans. To address the disproportionate impacts on low-income families, rebates could be provided or social welfare programs enhanced. Policymakers need to break out of the trap of reinforcing energy problems by suppressing energy prices, and there is evidence to suggest this is doable. For example, there is substantially more support for carbon taxes, which increase energy prices, when they are presented in the context of other public finance choices, such as reductions in income taxes. Polling from 2006 shows that support for the same carbon tax level tripled and opposition fell by two-thirds when a large carbon tax was paired with a similarly large income tax cut.

Although there were many possible focuses within the realm of energy policy for this book, we chose to concentrate on six topics in particular: climate change policy, CCS policy, oil security policy, energy technology innovation policy, electricity market structure and infrastructure policy, and barriers to acting in time on energy policy and strategies for overcoming them. Each of these topics is the focus of one full chapter, and policy recommendations are provided at the conclusion of each chapter. These topics were chosen because they are arguably the six most important and urgent focuses for the Obama administration. Each is considered in turn below.

More than ten years have passed since the Kyoto Protocol was adopted, and since the turn of the century, 26 billion tons of C[O.sub.2] a year have been emitted from the burning of fossil fuels (with another 4-8 billion tons emitted from land use change and deforestation) on average. Given the large amounts of GHGs that are already in the atmosphere, some climate change is now virtually inevitable. Scientists estimate that about one-third of mid-twenty-first-century warming is already committed given the amount of GHGs already in the atmosphere, but the other two-thirds of projected warming is strongly dependent on how much more is discharged into the atmosphere during the next two decades. No matter which ultimate GHG concentration target is chosen, global GHG emissions reductions are necessary and inevitable, but the hard questions are when each country should begin, and how fast it should reduce its emissions. In chapter 2 on climate change, I argue that the world, and the United States specifically, must first establish a long-term GHG concentration goal. Once there is agreement on this goal, the required avoided emissions can be determined, and a long-term GHG "emissions budget" can be created. An emissions budget is no different from a financial budget in that it simply provides a quantitative limit on emissions (that is, spending) for a given time period.

Procrastination-or failing to act in time-results in much faster required rates of emissions reductions if a certain concentration target is to be met. The faster the pace of required emissions reductions, the more difficult and expensive it becomes to live within the budget. Too much delay and the budget is blown, meaning that our children and grandchildren must cope with much larger magnitudes of climate disruption. Therefore, the three most important steps the U.S. government must take with respect to climate change are to, first, set the long-term goal-recognizing that this goal may need to be revised in light of new scientific information-and thereby create a national emissions budget; second, place an initial price on U.S. greenhouse gas emissions, either through a cap-and-trade mechanism or a tax; and third, reengage internationally, especially with China-the world's largest and fastest-growing emitter-to devise an international solution to the climate change challenge.

With regard to both climate change and energy technology innovation policy, chapter 3 is purely devoted to CCS. Why focus on this technology rather than on technologies for renewable energy, nuclear energy, or energy efficiency? The answer is that there will be a desire to rely increasingly on the vast U.S. coal reserves, both because of their abundance and relative cheapness-if one excludes all the health and environmental costs associated with coal. The United States has a huge number of concentrated point sources of C[O.sub.2]. If a way can be found to economically capture and store the carbon from those factories and plants, they will not have to be retired prematurely at great economic cost, which is unlikely to happen anyway. There are more than 500 power plants that emit more than 1 million tons of C[O.sub.2] in the United States alone. In chapter 3 Daniel Schrag outlines the scientific and technical challenges for large-scale carbon capture (both precombustion and postcombustion) and carbon storage. Even though the technical challenges are significant, C[O.sub.2] is already economically captured, transported, and used for enhanced oil and gas recovery all over the world. Costs for the first set of capture and storage facilities appear to be high (too expensive to be motivated by relatively low carbon prices), but Schrag notes that these costs will come down through further research, development, and demonstration. He recommends that the U.S. government provide federal subsidies for ten to twenty commercial-scale CCS projects and argues that these demonstration projects should use different capture technologies, employ different strategies for geological storage, and be spread across different regions of the United States to have the biggest impact, both on knowledge gained and public perception. Schrag also recommends that new federal laws and regulatory policies should be created so that developers and operators of power plants and C[O.sub.2] storage facilities understand their liability, and know which environmental regulations will apply to CCS projects. Third, he contends that the federal government should encourage state and local governments to accelerate permitting processes for CCS projects. Finally, he argues that the long-term goal should be the adoption of CCS for all large stationary sources. Acting in time on CCS thus requires that a major research, development, and demonstration program for CCS be implemented immediately so that knowledge can be acquired about the viability of this technology during the next five to ten years, and so that costs can be brought down to a reasonable level by the time deep cuts in C[O.sub.2] will be required in the United States to meet our long-term climate goals.


Excerpted from Acting in Time on Energy Policy Copyright © 2009 by Brookings Institution Press. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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