ultimately, more important – to figure how to achieve those objectives within existing
political constraints<\/a>. <\/p>\n
<\/p>\n
That’s not to say we settle for half-measures. After all, the political challenge to reform is dwarfed only by the consequences of inaction. Rather, we need to insist that our politically-constrained actions pass two key tests:<\/p>\n
They have to matter. The fact that big reform is hard shouldn’t Of bricks and dams<\/strong><\/p>\n <\/p>\n An old joke: How fast do you have to run to outrun a hungry Recast all emissions standards on an None of these have obvious political opposition. None require picking a fight over states’ <\/p>\n Recast all emissions <\/p>\n At the simplest level, an output-based standard is just <\/p>\n Understanding why this simple tweak would unleash a flood of The first use of capital is on In my experience, this means that any efficiency project <\/p>\n This is a brick that unleashes a flood. Change the algebra and you will see a huge <\/p>\n It’s worth a final note on the politics of output-based <\/p>\n Institute a Clean <\/p>\n Lisa Margonelli wrote<\/a> recently in The Nation about the idea for a Clean <\/p>\n The creation of any new <\/p>\n To be sure, the federal government does have some limited guidelines <\/p>\n This sounds reasonable – except that we don’t tolerate it <\/p>\n Fortunately, laws can be changed. <\/p>\n <\/p>\n First, instead of mandating the purchase of power from <\/p>\n So what would this drive? First, the government consumes a lot of <\/p>\n Create a regulatory <\/p>\n This is arguably the least important change from a <\/p>\n It’s also got photo op written all over it. Remember when Clinton deputized Al Gore to <\/p>\n This committee should ideally not limit their scope to the <\/p>\n I’d argue that all three of these could be done – if not Related Links:<\/strong><\/p>\n On the one year anniversary of the Recovery Act, clean energy leaders celebrate jobs and savings<\/a><\/p>\n Why Bill Gates is wrong<\/a><\/p>\n
consign us to irrelevant actions. Getting a $100 million earmark in a $700 billion stimulus packages is
the same as getting a millionaire to write you a check for $142, and warrants about as much joy. The U.S. spends $360 billion
per year<\/a> on electricity in the course of consuming some 3.5 million
GWh<\/a> and releasing over 40 percent<\/a> of all U.S. CO2 emissions. By all means, let’s celebrate
small victories, but not lose sight of the challenge we face.
They have to maximize the ratio of societal gain to
political pain. Except in times of
immediate, tangible crisis, the safest political action is always to do nothing
– and even reform-minded politicians need to get re-elected. Politically viable, lasting reform has to give enough mid-term social gain to quickly offset the near-term political pain. <\/p>\n
bear? A: Faster than the other guy. Similarly, energy policy reform need not
out-run the bear – it simply needs to advance far enough to let others finish
the job. Our challenge
is not to remove every regulatory brick that holds back clean energy progress,
but rather to remove those few critical bricks so that the pent-up pressure
behind the dam can wash out the remainder. So which bricks? Here
are my three, in rank order:<\/p>\n
output-basis.
Institute a Clean Energy Standard Offer for
federal electricity purchases
Create a regulatory modernization committee<\/p>\n
rights, opposing powerful vested interests nor are they dependent upon economic
sacrifice. All could be just as easily
justified on traditional Republican or Democratic principles. And most importantly, each would unleash a
flood through the dam. <\/p>\n
standards on an output basis<\/strong><\/p>\n
algebra. Take an existing,
parts-per-million standard, multiply it by a few factors relating to the
stoichiometry of a combustion process and its fuel efficiency and you can get
an environmentally-equivalent standard framed in pounds-per-unit of useful energy
output (e.g., MWh of electricity, MMBtu of thermal energy, etc.) The math guarantees that the standard places
a standard for emissions at least as stringent as the existing regulations. But as the saying goes “what gets measured
gets managed.” Having historically ignored the efficiency
with which we convert fuel into useful energy, our environmental regulations
have unwittingly placed environmental compliance in direct opposition with
energy efficiency. I wrote here<\/a> about the key details to get output-based standards right so won’t repeat them
– but suffice it to say that the details are really important.<\/p>\n
clean energy investments requires first understanding how industrials invest
capital. Businesses have
fixed annual capital budgets. The simplistic view is that this capital is
allocated purely in terms of risk\/reward, with the most attractive projects getting funded first. The reality is more nuanced. Like Orwell’s pigs, some high-return capital
projects are more equal than others. And
some negative return projects are more equal than high return ones. This is because of the sequential prioritization of capital that businesses follow:<\/p>\n
government-mandated projects. From
environmental remediation to health & safety compliance, there are a host
of projects that are built not because of their economic return, but because
they are required. (And yes, one could
argue that they have a high return since they allow you to keep operating. But by that logic, Catherine Martin<\/a> had an economic interest to “rub the lotion on its skin”.)
The second use of capital (to the extent that
any remains) is to invest in core-business activities. Peter Drucker<\/a> has taught
a generation of managers to preferentially deploy scarce capital towards core
activities. This is very sensible, and
has led to the streamlining of American businesses; it explains
why so many paper goods companies no longer to own forests and why your
employer has (in all probability) long-since out-sourced its pension plan and
cafeteria. However, it also means that
lots of high-return projects don’t get built. A paper mill will invest in an upgrade to their paper machine that
delivers a 16 percent rate of return before they’ll invest in an upgrade to their
boiler that delivers a 20 percent rate of return – not because they see the latter as
more risky, but because they want their managers to stay focused on making
paper.
The third use of capital (again, to the extent
any remains) is for non-core investments. Unless you’re in the energy business, all energy projects fall into this
bucket.<\/p>\n
with more than a 2 year simple payback (about a 45 percent rate of return) is unlikely
to attract private capital. But an
output-based standard would jump clean energy from the third to the first
funding bucket. Better still, it moves
it to the top of that funding bucket since industrials will – for the first
time – have a way to profitably comply with environmental mandates. <\/p>\n
boom in the demand for clean energy. Rather
than prescribing specific pollution control devices (and hoping we prescribed
the right ones), industrials would have the flexibility to choose the mix of
cogen, solar, boiler controls upgrades, selective catalytic reduction and any
of a host of other technologies to meet the mandated emissions
level. This would also significantly
expand the financial resources available to the clean tech community – lowering
the investment returns required to get those technologies deployed will
necessarily induce more risk-averse investors to enter the space. And perhaps most important from a political
perspective, it would finally end the false debate between the economy and the
environment, by giving businesses profitable ways to meet (no less stringent) environmental objectives.<\/p>\n
standards. In talking about this idea with Congress, we<\/a>‘ve encountered one
opposed constituency: U.S. coal miners. Not to output-based standards specifically, but to any policy that
increases the efficiency with which the U.S. uses energy. That sounds like a big deal, but it’s really
not. The entire U.S. coal-mining industry employs about 80,000<\/a> people,
providing employment for about 0.06 percent of all U.S. non-farm employees. To put that in perspective, there are 280,000
people employed in “baking and tortilla manufacturing.” It’s a winnable fight.<\/p>\n
Energy Standard Offer for federal electricity purchases<\/strong><\/p>\n
Power Agency, tasked with buying clean power from high-efficiency and renewable
generation plants to create a market pull for clean energy. I love the idea, but suggest a few tweaks to make it more politically saleable. <\/p>\n
federal agency is bound to face political challenge. However, two points are unassailable: (1) the
federal government buys a lot of electricity and (2) the federal government
stipulates how it buys a lot of things. This latter point is particularly relevant – from EEOC requirements to prevailing-wage construction principles, the government
mandates that many of its purchasing decisions factor in broader societal considerations. Why not do the same with
electricity?<\/p>\n
for electricity purchases, most notably those associated with the 2005
EPACT<\/a>. But this law leaves a lot to
be desired. First, because it places
paths ahead of goals<\/a> (e.g., it stipulates that the government must buy power
from certain technologies, rather than from any technology that meets certain
standards of cleanliness.) Second,
because it includes those dangerous weasel words: “to the extent economically
feasible and technically practicable.” In other words, we’d like to buy clean energy, but not if it’s too
expensive. (And even then, this requirement is only imposed on a tiny percent of total government electricity purchases.)<\/p>\n
with respect to other government purchases. Should the government buy 3 percent of their office supplies from companies
that don’t discriminate, but only if “economically practicable”? Worse, “economically practicable” is in the
eye of the beholder. Getting rid of
child labor is economically impractical if you ignore the economics of the
kid. So should the government define
“economically practicable” without including all the externalities and
cross-subsidies innate to dirty energy? The law doesn’t say.<\/p>\n
specific technologies “if economically feasible,” mandate that the federal
government preferentially buy from any source that meets a goal-driven standard
of cleanliness under a Clean Energy Standard Offer<\/a>. For these purposes, define “clean” as
anything that is at least twice as efficient as the U.S. power grid on a fossil
energy in\/delivered electricity out basis. Renewables count, but so does high-efficiency CHP. Second, eliminate questions of economic practicality entirely by setting a pricing heuristic such that the all-in, delivered costs of electricity (inclusive of all externalities<\/a>)
sets a bogey, and the Clean Energy Standard Offer price is set to 80 percent of that
bogey. The price could be set by an
independent panel each year and – with this formulation – is politically
unassailable, since any power purchased under this program is saving the
country money. Obama has said that he wants to eliminate fossil energy subsidies<\/a> because they distort the market – this simply accelerates that elimination for federal purchases, turning brown energy’s weakness into green energy’s strength. Finally, rather than only applying this requirement to a tiny percent of purchases, stipulate that the
government buys up to the limits of their needs or the limits of supply at that
price.<\/p>\n
power. According to the Federal Energy
Management Program<\/a>, they buy about 55,000 GWh of electricity per year –
roughly 1.5 percent of all U.S. electricity purchases or – seen from another lens –
about 50 percent of all non-hydro renewable generation in the U.S. Shifting any significant fraction of those
purchases to cleaner sources would represent an enormous growth engine. But perhaps most importantly, this would force
a conversation about the true costs of energy. Like it or not, we are going to have to confront those Medicare
entitlements one of these days, and it can’t hurt to get the public (and
government) to better understand the linkage between clean energy and lower
healthcare costs. Finally, it’s got a
nice “what’s good for the goose is good for the gander” spin to it. If it’s good social policy to mandate that
utilities preferentially buy from clean energy sources, doesn’t the same hold
true for the government?<\/p>\n
modernization committee<\/strong><\/p>\n
market-reformation perspective, but perhaps the most important
politically. Changing environmental
regulations and changing the way the government buys energy will have huge
long-term impacts, but their results will only be visible as projects get
designed, financed and built. At best,
that’s a 2 year process. On the other
hand, it’s really easy to identify dumb, antiquated laws<\/a> that block efficiency,
and many of them are politically painless to fix. <\/p>\n
“streamline government”? Cue the
fileboxes of bad regulations, and the positive energy that always surrounds a
good spring cleaning. Hell, even
tea-partiers can cotton to this idea. <\/p>\n
laws on the federal register; a host of more local regulations (building
codes, fire-safety codes, etc.) also block the deployment of clean energy. Whether that means one really big committee
or 51 small committees though is a matter of tactics. (After all, the committee that identifies the problematic laws is still going to depend on legislatures to enact change.) The important thing is
the conversation. Re-align the public debate so that the body politic understands how
many dumb laws block clean energy deployment and we can get past the idea that energy markets are perfectly allocating capital in response to nothing but the purest of economic signals. Shift the conversation from “can
we afford to subsidize yet another technology?” to “why do we tolerate
subsidies that block our forward progress?”<\/p>\n
immediately – pretty quickly. None of
these are so complex that they require months of hearings and debate (see:
healthcare, CO2 regulation). All are
complementary with existing government programs. None have any strong constituency to
oppose. But if implemented, they would
unleash a flood of clean energy, finally starting to tear down the dam.<\/p>\n
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