America 2021: What Next on Climate?
The effort to address climate change stumbled with the failure to pass cap-and-trade. What should happen now? Five experts discuss the future of U.S. climate and energy policy.
To me, the open question is: Do the Administration and Senate Democrats actually reach a deal where they yield on EPA authority, but do so because they either move forward with the President’s clean energy standard or secure something else in the clean energy space?
Shultz: I have to disagree. I think when it comes to the EPA, fundamentally, it’s air, it’s water. And as long as it’s about those things, which come down to public health, it would be such a political nightmare for this President and even for Senate Democrats if the regulations were to go away, because the public overwhelmingly supports having the EPA clean up our air and water from all pollution—including carbon pollution. I think we’re going to end up with EPA power-plant regulations because of that.
Aldy: I guess we just disagree. I just don’t think the American people will fight for that.
Laskey: I don’t think it has to happen, and I’m hopeful that the environmental movement will get its act together to solidify a narrative here that the greenhouse-gas connection to health and economic viability is a real one. If we can do that, then in a second term, not only can we continue the authority of the EPA, the agency can actually start to regulate. I would hate to see us hand over that authority, particularly when even the Supreme Court said it’s legitimate.
One of the things that’s missing from this question of cap-and-trade, cap-and-dividend, or a carbon tax is that even if we are able to get these things passed, they are likely not sufficient to drive the innovation that we need. An MIT economist, Hunt Alcott, who did an evaluation of one of our programs, looked at demand elasticity, and essentially identified that the 3 percent reduction in consumption that my firm, OPOWER, is getting across households through better information is equivalent to the impact of raising the price by 16 to 30 percent. [OPOWER sends out regular individualized energy reports that help customers understand important aspects of their in-home energy consumption. The reports tell people how they’re doing compared to their neighbors—whether they’re efficiency leaders or energy hogs.] All to say, electricity demand is terribly insensitive to price, relatively speaking, and there are many other ways to motivate people. There needs to be more done to encourage innovation in this space, other than just price changes. And that can be accomplished through policy, primarily at the state level, and a commitment to government research and development.
Walsh: Certainly the President seems to have seized on R&D as part of his “Win the Future” idea. We talked about narrative, and some of the problems we had there. Is that innovation narrative something that could work better?
Arroyo: It’s a more upbeat narrative than just talking climate change. But it’s really semantics, because you still have to put a policy in place that helps to promote innovation. So you can say it’s great to innovate, but where’s the government policy? Right now, the government is broke, so it’s not really spending a lot on new incentives. And we seem unable to deal with the politics of setting tough requirements, whether legislative or regulatory.
Walsh: If you saw a vast increase for R&D on energy, something that really made energy research akin to the health and medical research at the National Institutes of Health (NIH), would that be effective?
Roy: I don’t think so, because I believe very strongly in the market. R&D actually has a problem that’s very similar to the problem with command-and-control, which is that in both cases you have government employees, whether they’re in Congress or an agency, deciding, “This is the right technology.” Sometimes they’ll guess right, sometimes they’ll guess wrong. Or maybe today’s right decision is tomorrow’s wrong decision. And one thing the government’s not very good at is identifying and liquidating its mistakes. The private market has a natural way of doing that.
Laskey: That said though, R&D and innovation, especially in this arena, even if they’re not directly government funded, are the result of government signals through regulation.
Arroyo: Or tax code.
Laskey: And tax code. Our business wouldn’t exist absent regulation in the states that demand energy efficiency from utilities. As a consequence of that regulation, this year we are going to be saving a third as much energy as the solar industry is supplying to the grid. And we’re just a small part of the solution. You look at the states where there are renewable portfolio standards [which require utilities to provide a certain minimum amount of energy from renewable sources] or energy efficiency standards, and there is private industry in those states, there’s plenty of venture-capital money, there’s plenty of investment dollars by companies like Honeywell and GE on top of small companies.
Shultz: There’s been a fair amount of R&D money spent already. I do think that standards are part of what’s really needed to diversify our energy sources, supply competition, and drive the market for renewables.
Walsh: Of course, that’s still picking winners to some degree as well. Looking beyond climate and carbon policy, every renewable energy subsidy is to some to degree trying to pick a winner. Is this avoidable? And is the renewable energy technology we have now sufficient to meet the kinds of goals we need? Do we need technological leaps? In which case, do we need some basic R&D, or is it a matter of making the market hospitable to those forms of energy and letting the businesses that exist now make that happen?
Roy: I think we do need some technological leaps. But as Vicki was saying, we need a combination of investment and incentives. Government-funded R&D alone won’t do it. We need to create policy that makes it absolutely compelling for the private market to jump in as well.
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