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Just Published on Grist: Piece on “Bill Gates and Our Innovation Addiction” March 3, 2010

Posted by Michael Hoexter in Climate Policy, Energy Policy, Renewable Energy, Sustainable Thinking, Uncategorized.
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The environmental news site Grist, has just published a piece I wrote that is a response to Bill Gates’ recent entry into the climate and energy discussion.

Check it out at:


Enjoy and comment if you like!


My New Post/Article on Post-Copenhagen Ethics March 3, 2010

Posted by Michael Hoexter in Climate Policy, Efficiency/Conservation, Energy Policy, Green Activism, Renewable Energy, Sustainable Thinking.
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Frustrated with the state of climate action both here in the US and at the COP15 meeting in December, I have been focusing on how to distill thinking about climate action to some simple rules.  I came up with a longer piece that builds on the work of Donald Brown at the Climate Ethics Center at Penn State University.

Since this is a long piece I have posted it in my “Energy and Transport Policy” section as a three part post starting from this page :


I also have a PDF version here, which some may find easier to read or refer to.

Please read and comment!


Denmark Builds the Renewable Electron Economy: NOW on PBS.org Documentary November 15, 2009

Posted by Michael Hoexter in Energy Policy, Green Transport, Renewable Energy.
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A quick “hats off” to David Brancaccio and NOW on PBS for their well-researched and informative documentary on what Denmark is doing to attain energy independence and get off oil by building a version of the Renewable Electron Economy that is suitable for their resource base.

You can view the 23 minute show here:


This installment of NOW does a great job of connecting Denmark’s historical dependence on other countries for energy and their current drive to build renewable energy and electric vehicle infrastructure.  Denmark is one of the first countries/regions to work together with Better Place’s electric vehicle infrastructure.

While the show does a great job in tracing the policy environment which is unusual for a technology focused story, it does miss that Denmark used a feed-in tariff for wind in the 1990’s to jump-start the Danish industry.

Furthermore, I believe this show should be required viewing for all policymakers who will be attending COP15 or who are currently deliberating about climate legislation in the US Congress, because it is an example of how “things actually get done” in the area of emissions cuts.  There is NO MENTION of cap and trade or emissions trading.  The sole request of the CEO of DONG Energy is that out of COP15 that a (preferably high) price on carbon emerges.

Furthermore, the piece shows the people of Denmark moving quite rapidly (relative to the US at least) towards a much more energy efficient and cleaner energy economy over the past 20 years and into the near future by the application of what might called “Energy (and now Climate) Keynesianism”.  It is no mystery that the Western Europeans have taxed petroleum-derived fuels heavily to, among other uses, build and maintain public transportation.  What the NOW piece shows is that Danish tax policy is designed to relieve congestion, reduce oil dependence, and now to support the growth of renewable energy by bringing in more electric vehicles and therefore more energy storage.

While those readers who are convinced that a “carbon price = cap and trade”  or “carbon policy = cap and trade” will not be persuaded or will miss the signs, what the NOW episode shows that a truly conservative in the best senses of the word climate policy is a “Climate (and Energy) Keynesianism” with an international carbon price that is a dollar/euro/yen/renminbi amount.  We know that we can shape energy use and generation activities by tax policy and by incentives for private development of clean energy generators (feed-in tariffs).  As I have been documenting here in my series on Cap and Trade, we have many very good reasons to doubt with its 12 year history of middling results and expansive bureaucracy that the twisted emissions trading policy will be as effective.  Furthermore it is simply a political end run around the obvious “Climate Keynesian” solution, where government’s and business’s roles are differentiated and validated.   Cap and trade will interfere with or obscure the benefits of Climate Keynesianism.

Cap and Trade: The Tangled Web… A More Effective Alternative – Part 3 November 5, 2009

Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Green Building, Green Transport, Sustainable Thinking.
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In Part 1, I offered a critique of cap and trade in its existing implementations  and located key flaws which make it highly unlikely that it will achieve its emissions reduction goals, even if somehow it is strengthened.   In part 2, I highlighted two problematic aspects of cap and trade and then went on to examine what are the fundamental challenges of climate policy.  Then I offered a list of the general features of any effective climate policy.

Turning to positive solutions rather than criticsms, I will offer here two main options, the first one mainstream and the second heterodox and project-based;   both of which are easily configured for quicker and more certain emissions reductions than via cap and trade.

Comprehensive Climate and Energy Policy Package with Carbon Tax/Fee

Climate policy has emerged with a focus on markets and changing market behavior (ignoring infrastructure development to a large degree), so the “mainstream” approach below would also transparently give responsible parties control over the process.  While the “one-stop shop” aspect of cap and trade overextends this already misapplied policy, a package of interacting measures that are, with fairly straightforward calibrations, guaranteed to cut emissions quickly can easily be put together.  The below policy package avoids handing off climate and energy policy to an unaccountable carbon market and invite undue influence by financial traders. It also has the potential to be much more effective than a cap and trade centered policies.  On the other hand it is “market-based” in that it relies on the more accurate carbon tax/fee price signal to shape market behavior rather than cap and trade’s muddy signal.

1)      Emissions-Reduction Path with Targets:  Set an emissions-reduction path with target goal posts (2015, 2020, 2025, etc.):  Not the reassuring “cap” metaphor but an analog to the cap without the false reassurances that it contains.  The target or path could be expressed in terms of an average carbon-intensity for economic activity that yields the same path.  Using a carbon-intensity target allows adjustments to be made so efforts to cut emissions do not shut down industries before they are able to transition to lower carbon alternatives.  I would recommend the “emergency pathway” as defined by Greenhouse Development Rights that uses the 350 parts per million carbon dioxide target, though others may object to its ambitious goals.

2)      Carbon Fee or Tax:  Set a carbon price in the form of a carbon fee or tax fixed but rising year by year that will, according to at first estimates and then experience, reduce emissions along the path.  If the tax does not yield the necessary cuts, increases in the tax/fee levels will be accelerated.  A tax or fee enables companies to calculate the value of carbon emissions and make the actual investments that will cut emissions rather than deal with a broad range of expected carbon permit values, as would result from cap and trade.

  1. Calibration –  A carbon tax would be calibrated to achieve the emissions targets along the path in bullet “1” though overachieving will be encouraged.  If tax levels inflict damage on economic well-being or capacity, tax levels may be reduced, though it is to be expected that there will be periods in which some economic pain will be inflicted by the tax to encourage better economic decision-making and innovation.  Expectations need to be set from the outset that some pain is involved in transitioning to a more sustainable economy, though excessive pain is to be avoided.
  2. Revenue stream – There are arguments among tax/fee advocates (as well as cap and trade advocates for the revenues from permit auctions) about where the revenues should go.  Here are my recommendations:
    1. One third of the carbon tax revenues should be used to dampen the effects of the costs of rising energy prices on the poorest, preferably via energy efficiency upgrades to housing (modeled on weatherization programs).
    2. One third should be used to help fund infrastructure that enables a zero carbon future (electric trains, electric transmission)
    3. One third will go into a international carbon trust which will fund development products, changed agricultural practices, forest maintenance and growth efforts with strict performance standards and baseline assumptions.
  3. Exemptions and Credits – Some argue against any exemptions and credits, seeing a flat tax as simpler.  However, I, as an example, believe taxing certain activities that cut carbon is counterproductive.  Additionally I want to show that it is possible to develop and regulate cross-border certified emissions reduction credits in a tax system if such a credit sub-system ends up being desirable.  I believe however that these necessary accommodations to the complexity of the situation are much more transparent and can lead to more productive dispute resolution than via the arcana of the trading system.
    1. It makes no sense to levy the full carbon tax level on the very infrastructure projects that lead to carbon neutrality.  If a construction project embeds fossil emissions in a zero-emission technology (electrification of a train system, renewable energy infrastructure), then the emissions from construction equipment or concrete making for that project should be at least partially exempt.  Alternatively there could be a percentage exemption depending on the level of carbon reduction achieved (coal to natural gas conversions).
    2. Just as with the current offset market it might be made possible to sell certified emissions-reduction credits that represent emissions reductions in other areas or other countries.  These credits would need to be rigorously certified and limited to only a certain fraction of carbon tax liability.

3) International Agreements – Utilizing existing international institutions, nations around the world can come to agreements on both monetary fees for carbon emissions and overall emissions reduction targets.  The addition of a monetary amount will force action by governments and businesses more rapidly than the abstractions of the carbon market. Agreements will focus on:

  1. Worldwide Emissions Targets and Path
  2. International Carbon Price(s) – Calibrated to achieving emissions targets, the international carbon price will be closer to actual microeconomic decision-making than permit pricing system of cap and trade. Choices are either a unitary price or a development-adjusted price depending on level of development.  Some countries may be more “entitled” to pollute given their lesser historical contribution to total atmospheric concentrations of carbon.  On the other hand, despite an “entitlement” to pollute more, some developing countries may want to go “cold turkey” and use the higher carbon tariff of the developed countries to spur sustainable development at home.
  3. Carbon tariff regime – with differential taxation in different countries, countries would levy tariffs upon importation either up to the amount of the unitary international carbon price or up to the amount of the development-adjusted carbon price.  While this contradicts “free trade” orthodoxy, under an international agreement there should be no problem in levying this type of tariff.  The WTO can be outfitted to handle disputes and generating agreements carbon tariffs and integrating climate policy with trade.
  4. International Standards and Best Practices –  Agreement on standards, certifications, and grading systems for energy efficiency and low emissions technologies (see below)

4)     Zero-Carbon Infrastructure Development– While the Obama Administration has embarked on pieces of this, a full-scale climate policy would front-load spending, including deficit spending, on building zero-carbon infrastructure and energy generation.  The main source of funding would come from tax revenues and use fees.  This area is largely neglected by the cap and trade instrument.

  1. Renewable Energy Supergrids and regional grids –  Link high renewable energy areas with demand centers via development of a HVDC and where appropriate high voltage AC transmission.
  2. Renewable Energy Zones –  Expedite environmental impact studies for high value renewable energy zones with strong sun, wind, geothermal resouces.
  3. Feed-in-Tariffs – Funding of private, community and household investment in renewable energy generators via clean energy surcharges to electric bills.
  4. Electric Freight Transport System
    1. Grade-separate and improve existing freight railbeds
    2. Add additional tracks to high traffic railbeds to allow more rail freight
    3. Electrify all high and moderate traffic rail routes
  5. Electric Passenger Transport System
    1. Build high speed rail backbone
    2. Enable improved track-sharing between freight and passenger traffic for lower-traffic routes.
    3. Build electrified bus and tram routes in high density/high-traffic city environments.
  6. Electric Vehicle Recharge Infrastructure
    1. Trickle charge (220V and lower) public charge network
    2. Battery-swap infrastructure
    3. Fast-charge (480V and higher) public charge network

5)      Best Practices, Certifications, Standards and Rulemaking–  Develop for most economic sectors, a set of best practices and standards that are based on cutting emissions as well as other elements of sustainable development (conservation of the earth’s natural wealth).  Standards would be either voluntary or mandatory depending on the level of imposed costs of meeting these standards by market participants and the existence of alternatives to meet the overall goals of the standards.  Rigorous standards like the passive house standard should be encouraged as well as graded standards that represent a “path” to carbon neutral solutions.  In certain vital areas, standards may be come laws to rule out certain practices that are simply unacceptable.  An example of the latter could be a moratorium on new coal power plants.

6)      International Afforestation Program –  Using revenue streams from carbon fees and tariffs, generate local solutions to maintaining living biomass.  Carbon taxes or other disincentives may be levied on activities that release excess carbon into the atmosphere.

7)      International Agricultural Carbon Sequestration Program –  Using revenue streams from carbon fees, incentivize low-emission, high sequestration variants of agriculture and food practices.  In the future, once a baseline for carbon sequestration may be achieved, carbon taxes may be levied on high emission forms of agriculture.

8)      Black Carbon Reduction Program – One of the more tractable climate problems though still a challenge is to introduce existing emissions control technology or develop alternatives to combustion of hydrocarbons and biomass that produce soot or black carbon.  We already have  most of the technology to limit soot emissions from internal combustion engines and factories.  More challenging is coming up with culturally-acceptable solutions for cooking with wood in less developed countries.

9)      International Technical and Scientific Cooperation – Create the equivalent of an international energy and climate research fund that supplements the work being done on national levels towards specific technical solutions to emissions.  Could develop in conjunction with IPCC WG III.  One area of research should be emergency measures like geo-engineering.

If adopted as a package, the above measures address all 11 generic elements of carbon policy and have none of the 10 drawbacks of cap and trade.  This approach transparently identifies governments as the responsible parties for reducing carbon emissions.   This comprehensive climate and energy policy does not interfere with their ability to respond to changing climate circumstances and removes unaccountable financial markets from the core of climate policy.

Cap and Trade: A Tangled Web of Good Intentions and Bad Policy – Part 1 October 26, 2009

Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Green Transport, Renewable Energy.
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I favor some of the more aggressive actions to avert climate catastrophe, actions which nevertheless do not compromise the continuity of human life and well-being. The climate which enabled our evolution as a species and the societies upon which we depend has almost no price attached to it. Averting this calamity, if we can, is the moral equivalent of war. As such it deserves the investment and political priorities that are accorded the military during a war, though the necessary moral and climate-science arguments for this level of investment have not been made clearly by leaders, especially in the US.   In our Great Recession, a forward-looking policy to counter climate change would have much needed economic benefits and lay the foundation of the new economy that we are supposed to be building.

Unfortunately, the mental “real estate” of climate activists and politicians has been captured by a monumentally bad idea, a misapplication of an environmental regulatory system that encourages delay and irresponsibility in climate action rather than changing the course of our society’s use of energy and land. Whatever urgency is felt popularly or by leaders, the institutions that will arise from the cap and trade policy framework have a good chance of actually blocking more effective action on climate (more straightforward system of rules, incentives, disincentives, and direct investment), which makes the work of exposing its flaws not simply the matter of my or someone else’s political or economic preferences but one of life and death for future generations and the ecosystems upon which we depend. An unquestioning herd mentality has taken over and encouraged even some of our best social scientific minds, including Nobelist Paul Krugman, to issue statements of support for a policy inspired by an outdated political and economic fashion of which Krugman is himself one of the leading critics.

Somehow a connection is not being made between the monumental collapse of our financial systems over 13 months ago and the design of the twenty-year-old policy instrument to which so much unearned credence has been given. Fundamental to cap and trade is the hand-off of key responsibilities and agency (the ability to act) for cutting carbon emissions to a carbon derivatives trading market, an unnecessary gift to the hyper-caffeinated and overgrown trading sector of finance. Just this week, critics of the Obama Administration’s earlier weaker financial regulatory efforts are now feeling somewhat vindicated in seeing that the Administration is now stepping up its efforts to rein in financial engineering and trading-dominated finance. It is utterly baffling that people who are intelligent enough to design or just understand an over-complicated policy instrument like cap-and-trade have not made the connection between the origins of cap and trade and the vagaries of our financial system. For them, the cap and trade instrument is still wrapped in the mystique of trading-based markets, which outside the climate community have lost much of their appeal.

It is an open secret among people who actually work now in cutting emissions by implementing energy efficiency and renewable energy projects that cap and trade is at best a holding pattern if not a monumental roadblock to pushing ahead with deployment, investment and research in emissions reductions themselves. These voices, generally excluded from the political discussion, contradict the “line” that, for instance, the upcoming legislation from the US Congress centered around cap and trade is a “clean energy jobs bill” and is the very heart of a green economy. While cap and trade is complex, these criticisms come not from a lack of economic or even political understanding but from a realistic appraisal of how actual lower-carbon technology implementation decisions get made, an elementary business process which seems to have escaped study by the policy’s designers. Cap and trade is not too stringent or too effective but not nearly effective enough.

The fundamental problem with cap and trade is that it placates government leaders and activists with manifest good intentions while undermining the effectiveness of the only instruments which could realize those good intentions. Cap and trade inserts a layer of obfuscation and indirection into governments’ ability to make rules, implement programs, build public works, and levy taxes in a fair and transparent manner.   On another level, it has a faulty microeconomics, inserting uncertainty about the value of emissions reductions to the businesses that will actually cut emissions via responding to the policy.  While working with ineffectual or superficially “P.C.” policy instruments might be acceptable in other matters, in climate policy the massive open-air experiment that has been cap and trade over the past 15 years is an unfolding catastrophe. It is not unlike the Trojan Horse, in that cap and trade appears as a gift, yet gives the vandals or just climate do-nothings command of the citadel. Tragically, the barrage of criticism and invective from the loony political Right or from professional contrarians who have lost a sense of proportion, distracts well-intentioned lawmakers and their supporters from seeing the flaws of their chosen policy.

Cap and Trade in Summary

Briefly, the cap and trade systems under discussion are permit trading systems that attempt to limit emissions of greenhouse gases by allowing polluters to emit greenhouse gases to the amount for which they possess permits. Permits are either given away or auctioned off up to the amount of a society-wide or economic sector-wide “cap” determined by regulators, which is supposed to be “tightened” (meaning reduced) over the years, leading to the decades long equivalent of a game of musical chairs. Regulators, as is planned, will in the future remove “chairs” by reducing the number of permits available to the point where by 2050 there would only be permits for 20% of 1990 greenhouse gas emissions. The “trade” part happens when companies have excess permits, because of having polluted less or owning unneeded permits. They can sell these excess permits for a profit to companies that pollute more than the amount of permits that they own. There have been various attempts to re-brand cap and trade with a name that sounds somewhat less shady, like “market-based cap” etc..

Derived from the speculations of the economists Ronald Coase (1960) and Martin Weitzman (1974), cap and trade, also called emissions trading, was invented in the US in the late 1980’s and early 1990’s during the first Bush Administration as a way to avoid issuing  so-called “command-and-control” environmental regulation by government (telling industry exactly what to do and monitoring it) or direct monetary penalties like pollution taxes. The original cap and trade system for acid rain pollution which is still in place in the US, has been declared responsible for reducing by 40% sulfur emissions (SOx) by coal-burning power plants in the period 1990-2004. However, during the same time period, European and Japanese regulators have been markedly more successful using traditional regulations in cutting the emissions of these same pollutants (65%) from power plants, revealing the cap and trade system to be the equivalent of a regulatory stunt: “See! Look Ma…no hands!”  In a 2007 review of  the results of emissions trading, Gar Lipow has led the way in calling into question the sales pitch for cap and trade.

As an example, the highly coal-dependent, heavily industrial Czech Republic went from in 1990 emitting two times the amount of SOx per capita as the US to in 2004 emitting approximately one-half the amount of SOx per capita as the US (UNECE report page 68).  While most post-Communist societies have decreased all types of emissions substantially due de-industrialization, economic hard times, or adoption of modern emissions controls, the Czech Republic had in 2006 twice as much industry as a percentage of GDP and uses as a percentage of total energy supply twice as much coal as the US, revealing the US to be far from a leader in reducing acid rain pollution.   Furthermore, the cap and trade system’s success has been aided in America by the accessibility of low-sulfur coal at an equivalent price to coal with higher sulfur content; Wyoming’s Powder River Basin coal deposits have been the “wind beneath the wings” of the US anti-acid rain program such as it is.   From the perspective of these results, holding out the SOx regulatory system of the US as the pivotal policy to save the planet stretches credulity.

Cap and Trade and Greenhouse Gases

The road to applying cap and trade to climate change had a number of twists and turns. Before implementing a climate policy, in 1993 the newly-formed Clinton Administration had attempted to institute a BTU energy tax as a means of raising revenue but was rebuffed by Congress. The Administration considered this experience along with its frustrated health care reform effort a major early defeat that shaped later thoughts on policy and political strategy; these fateful events 16 years ago unfortunately have had inordinate effect on US and world climate policy since then.

The Clinton Administration subsequently in the negotiations surrounding the Kyoto treaty to limit greenhouse gas (GHG) emissions favored “flexibility” and helped engineer a consensus in favor of cap and trade and cross-border emissions swaps.   While a “wonky” intellectual interest in emissions trading may have played a role, the Clinton Administration also thought that this policy would have domestic political benefits as a means to circumvent a policy that had the “tax” label or appeared to tell industry what exactly to do (direct regulation).   Using cap and trade also was an effort to “reach across the aisle” as the first cap and trade system had been implemented under the Presidency of the first George Bush.  In other areas of the economy, in tune with economic fashion of the 1980’s and 90’s, the Clinton Administration was as fascinated by markets as its Republican predecessors and, additionally, had a penchant for policy complexity, within which the notion of using a market to regulate other markets seemed almost commonsensical.

In 1998, despite pressing for cap and trade as the international GHG regulating instrument, the Clinton Administration compromised with an intransigent US Congress by not ratifying the Kyoto treaty, insisting that the developing world must be included in the regulation of greenhouse gases.  The elaborate political ploy in using cap and trade failed as far as US politics were concerned.  Other industrialized nations, most notably Europe and Japan, and the relevant UN bureaucracies continued developing the carbon market and cap and trade concept without direct US involvement during the later Clinton and Bush years.  The Protocol went into effect in most industrial countries in 2005 after a lengthy period of negotiation and set-up.

While emissions have been cut in some countries, the experience of the first four years of international carbon regulation via cap and trade have not shown the instrument to be particularly capable of effecting meaningful reductions in carbon emissions. In the European Union Emissions Trading Scheme (EU ETS), affiliated with Kyoto, the effects of the economic downturn or a future upturn are making any evaluation of the effect of cap and trade on emissions a near impossibility.   The use of carbon offsets originating in developing countries will further cloud the data.    In its initial 3 year period (2005-2007), GHG emissions in the EU ETS went up by 1.9% with wide nation by nation variation ranging from Sweden (-20%) to Finland (+28.5%).   Multiple reasons are possible for the wide span between countries and more generally many self-issued excuses are rampant because of the acknowledged complexity of the system; this was a “run-in period” etc.  In 2008 there is missing data but it appears that a combination of the economic downturn and high energy prices (not necessarily attributable to a carbon price) led to a fall of GHG emissions of 3% from 2007 in the EU, which the managers of the EU-ETS attributed to the carbon “price signal”  generated by the trading scheme.   In the same period (2007-2008) without a national GHG cap and trade system, US emissions fell 2.8% for similar reasons, contradicting the claims of EU ETS managers that cap and trade had an effect in 2008.   The net contribution of carbon trading to emissions reductions is still, 12 years after Kyoto, indistinguishable from “noise” in the data.

While it is universally agreed that “errors” were made in giving away too many permits in the initial round of Kyoto/EU-ETS, it is a strange repeat of these supposed errors that the now proposed US cap and trade system being debated in Congress will as of this writing also give away most of its permits for about the next decade. Furthermore the use of offsets, the (supposed) emissions cuts by others that are purchased on an international market because they are cheaper than internal investments, has been controversial both in design and in implementation.  Whatever one’s view on carbon arbitrage (shopping around for the cheapest reductions around the world), it is universally agreed that offsets reduce pressure on the biggest polluters to take action now in reducing their own emissions. The notion of cap and trade being a system of indulgences for fossil fueled economies is further reinforced by this disturbing propensity of real-existing, as opposed to theoretical-ideal, GHG cap and trade systems to undermine themselves or soften their impact on the biggest sources of emissions.

In Copenhagen in December at COP15, the successor to the Kyoto process (2005-2012) is to be designed and most of the climate community is moving towards a new cap and trade-based treaty that activists hope will be more vigorous than the previous one. Yet the trenchant criticisms of cap and trade systems that emerge from economists, most notably William Nordhaus, and concerned economic actors on the ground are brushed aside by those congregated at these events who seem to feel that their good intentions can substitute for conscientious analysis. For instance, almost every economist, including cap and trade supporter Sir Nicholas Stern, has had to agree at one point or another that carbon taxation is more efficient than the baroque emissions trading systems we have built.

Furthermore, we in the US are put in the difficult position of being a laggard in a process that is based upon our own bad idea, and upon which we really never followed through in its original form. In a way, the Obama Administration is, as it may be doing with its Afghanistan policy, put in the position of fighting the last Democratic President’s war rather than designing a more future-looking policy; having defined the political choice as cap and trade or, as the Republican opposition to Obama would have it, no strong action on climate change, the Democrats and Obama should instead be looking for the way to a more effective climate policy. The cap and trade framework, a product of some tortured political logic from the Bush and Clinton years, has “captured” the discussion, limiting thought and discourse on what are the available instruments to avert this catastrophe.

In its defense, permit trading may be appropriate as a distribution mechanism though not a magical cure-all in certain environmental arenas, most particularly the regulation of fisheries. In many nations now “catch-shares” are allocated to fishers who can trade these shares with other fishers. However, the ultimate success of even this appropriate use is achieved by the government setting limits on the fishing industry, not by yielding to some invisible hand of a fabricated market: the total amount of the permits allowed would need to be determined beforehand with reference to study of the fishery by biologists unaffiliated with industry and fishing limits would need to be enforced by government regulators, albeit according to the number of permits that the fisher owns. The appropriateness of permit trading as a distributional mechanism in this instance is that

  1. one is trying to calibrate exploitation of a natural resource at a particular level rather than reduce it in one direction (lower is almost always going to be better with GHG emissions for the foreseeable future.
  2. The permit trading is a just a new layer inside an existing historical market for fish which have an intrinsic positive economic value for people but are not arbitrarily created by people (it’s “inelastic”).  Pollution permits are on the other hand entirely an arbitrary creation of government(s), so the determination of a pollution price via the market is similar to playing a game of “guess what’s on my mind.”
  3. A simple intuitive equation can be made by all fishing market participants between a permit and a tradable object of recognized economic value, i.e. the fish.

All types of permit trading, whether of emissions or other, have provoked ethical controversy with regard to the selling of ownership shares to a public or natural common good. Despite these reservations, in the case of fisheries, fishers already have a longstanding tradition of claiming ownership of what they catch so permit trading represents not much of an innovation in resource ownership in fishing.

Why Cap and Trade is Bad News for Our Climate’s Future

There are a number of fundamental problems with cap and trade systems that are deeply embedded within the policy or its likely implementations, which suggest that working towards alternatives, even if they too are imperfect, is preferable. Remember, we do not have as many shots as we would like to deal with this problem, perhaps only one or one and a half, so a decades-long experiment with third-best policies is a foolish game. As Bill McKibben points out in a recent article, we cannot negotiate with non-human nature, unlike some other areas of policy.  So we need to put in policies that are either “right” or that do not install roadblocks that would stand in the way of better solutions.

  1. Cap and trade puts a newly formed financial derivatives market (the carbon permit market) with all its potential for boom and bust cycles and manipulation by powerful and unaccountable players, in a position to distort the real market for low-carbon technology and land-use changes; the stimulation of this real market is the reason for its existence in the first place. Within the fabricated permit market, the profit-seeking activities of permit traders from the financial markets and industry will be able to exert a substantial amount of unintentional control over the real technology choices and solutions implemented to curb our emission and sequester carbon. These traders, as do all traders, have a vested interest in opacity, price variability, and information asymmetries that would enable them to achieve the highest profit levels for their firms. Permit trading may offer some of the highest returns on investment in a cap and trade-dominated climate action world, so financial players will defend these profit streams with all the considerable means at their disposal. These are the most likely candidates for the “Greek raiding party” in the belly of the Trojan Horse, though climate activists and bureaucrats wedded to cap-and-trade are co-responsible for opening up the “citadel”.
  2. As trading looks to be one of the more profitable areas of the carbon business but in itself does not cut emissions, the incentives in the policy are misaligned: the most profitable business within a carbon policy framework should be those lines of business that cut the most emissions either through selling new technologies or processes or implementing them. An unfortunate echo of the go-go 90’s in which it was conceived, activity of trading is given a role far beyond any real value it offers.  On the level of businesses with real polluting assets, cap and trade will also reward those economic actors who are better permit-buying “game-payers” rather than those companies that invest most in emissions reductions.  This type of reward structure has no place in climate policy.
  3. Non-cap-and-trade policies that determine a fixed price for carbon have the advantage of having as an “output” an acknowledged decision-making tool (a monetary amount) that is already historically integrated into every economic transaction.  In permit trading, permit prices are only applicable to large economic actors and have only a “reflected” (and variable) monetary price after the net costs of the cap and trade outcome for that economic actor have been integrated into the pricing of their goods and services.
  4. A variable, uncertain carbon price that arises from market fluctuations and artifacts of the permit auctioning and trading system is not a clear, easily quantifiable incentive for firms and other real economic actors to make the long-term investments in capital equipment required to cut carbon emissions. A predictable carbon price (in the form of a tax or fee) over the long-term, albeit steeply increasing, would provide a much better incentive to make long-term investments that pay off over years. The “net present value” calculations that are the bedrock of investment decision-making depend on the projection of costs and benefits out into the future, which is nearly impossible using the rapid fluctuations and uncertainties of a carbon market.
  5. The salespeople of cap-and-trade claim falsely that the system gives policymakers “certainty” in terms of the amount emitted as compared to a price instrument like a tax/fee.  As the study of  existing cap and trade systems shows this certainty is illusory and gives leaders a false sense of security.  To get this type of certainty in a cap and trade system, regulators would have to engage in some very harsh and disruptive administrative actions, like shutting down a power plant during the last 3 months of a year if its owners ran out of permits.  Alternatively, the owners of the power plant could “borrow” permits from the next year’s allotment, only to create a direr threat for the next year, but the cap for the current year would have been broken.  Again this is punishing players for not playing the permit “game” as smartly as others though not necessarily being the gravest offenders in terms of carbon-inefficiency or overall emissions.
  6. Buying permits from other firms at a higher cost will impose an undue burden on companies or organizations that need to scale up their operations and increase their emissions in the middle of a year in response to an increased demand for their products.  A carbon tax will have no such punitive effects for unplanned growth as its cost will remain constant throughout the year and per unit produced.
  7. The carbon market does not differentiate between upstream and downstream emissions mitigation. “Upstream” means at the source of emissions, while “downstream” means either increasing efficiency of carbon-emitting energy use or absorbing emissions via land use changes. The efforts to make carbon emissions reductions appear as cheap as possible have tended to emphasize downstream solutions or projects in developing countries. However ultimately the main solution to slowing global warming is to eliminate emissions upstream which is currently more expensive, though downstream mitigation is always going to be necessary as well. A carbon policy that addresses upstream emissions immediately is preferable to one that waves a hand of resignation at business as usual in power generation and transport fuels because of initial cost issues.
  8. Cap and trade, because of its complexity, indirection and somewhat mystical faith in markets, has become the lingua franca of the climate action community and in so doing has shut down that community’s ability to critically examine the instrument itself or alternative, more effective instruments. The collective mental bandwidth that this instrument occupies has helped it to “suck in” many of the good intentions and attentions of politicians and activists, drawing their efforts away from other measures.
  9. Cap and trade obscures the vital role of government leadership, responsibility, regulation and direct investment from the public, the climate action community, and the leaders of government themselves. The successes of cap and trade systems such as they are, depend on either external factors independent of policy (economic downturns, low-sulfur coal deposits) or governmental actors setting stringent targets, operating the permit auction and trading system, and enforcing emissions goals. Yet, cap and trade’s sponsors and advocates continue to promote the fallacy that government is only playing an indirect role in its workings, as if this were a strength of the program. According to most of the expectations that have developed about government over the past millennium or so, there’s nothing wrong with governments taking a leading role in averting one of the greatest calamities we have ever faced. Government is the only institution that can represent and press for the realization of our society’s intention to save itself and the climate via implementation of low-carbon technologies and abstaining as a society from using up fossil fuels all at once. Attempts to hide the role of government paradoxically reinforce the position of advocates of a smaller government who can then point to the attempt soft-pedal as supporting evidence for their claims that government, especially “Big Government”, is “bad”. An honest assumption of responsibility by government would enable clearer, more transparent and more decisive policy moves and educational efforts about the dangers and opportunities for taking a sustainable path to economic development associated with climate change
  10. Instituting a cap and trade system because we, pro forma, must put a policy called a climate policy in place now or by December’s Copenhagen climate conference is worse than delaying a few months or a year to put in a better policy once our leaders have examined the alternatives with a more complete understanding of where they are going. The cap and trade systems now and soon to be developed already create considerable institutional and bureaucratic inertia and their own set of interest groups which are not so much incentivized to cut carbon emissions but to manage and justify the cumbersome system.

Any policy will have its strengths and weaknesses but cap and trade creates an economic, social scientific and political lattice-work at a distance from or interfering with the actual climate tasks ahead of us while blocking the way to better climate policy.

[In part 2 I will highlight what I think is the “fundamental challenge” of climate and energy politics and policy, look at the generic tasks that climate and energy policy is supposed to accomplish and suggest alternate route(s) that are more practical and will be infinitely more effective than cap and trade]

“Picking Winners”: Policy Blunder or Necessity? December 12, 2008

Posted by Michael Hoexter in Energy Policy, Green Transport, Renewable Energy, Sustainable Thinking.
Tags: , , , , , , , , , , , , , , , ,
Governor Schwarzenegger and the California Air Resources Board once publicly supported hydrogen, "picking a winner".  The current California Low Carbon Fuel Standard would avoid the appearance of doing such but would not speed the focused building of either a public electric quick-charge nor another post-petroleum fueling network.

Governor Schwarzenegger and the California Air Resources Board once publicly supported building a Hydrogen Highway, "picking a winner". The current California Low Carbon Fuel Standard (LCFS) would avoid the appearance of favoritism, despite a history of direct support for hydrogen. Advocates of plug-in electric vehicles believe that the merits of EVs warrant government support for a public quick-charge infrastructure, that would not necessarily be the outcome of the LCFS.

Listening to Science Friday on PBS recently, there was an interesting exchange between Dan Sperling, an influential member of the the California Air Resources Board (CARB) and Professor at the University of California at Davis, and Sherry Boschert, Vice President of the EV advocacy group, Plug In America.  Sperling has been known to advocate hydrogen fuel cell programs at the California state level, a stance that has historically had the backing of Detroit automakers until very recently.  Boschert and Plug-In America have been highly critical of the degree to which CARB has supported hydrogen to the detriment of battery-electric cars (BEVs) or other plug-ins (which includes EREV or PHEVs as well).   This is a version of the conflict that became part of the influential documentary “Who Killed the Electric Car”.

While Sperling in this exchange was presenting himself as an advocate of “electric drive transportation”, he mentioned a number of times hydrogen fuel cell vehicles (HFCV), which use an on-board hydrogen fuel cell to generate electricity for an electric motor to drive the wheels (a.k.a. electric drive).  Boschert pointed out that HFCV option has been used to delay and stymie efforts to deploy the much “readier” technology of plug-in battery electric vehicles for the last ten years in California and therefore around the nation.  The essence of this accusation, also popularized by the “Who Killed..” film, is that policy support and advocacy of HFCV’s blocks the implementation of any clean fuel vehicles short and medium term as HFCV technology is always ten years away from commercialization.  Boschert advocates a positive support policy for battery electric vehicles, like an embrace of public charging infrastructure for EVs by municipalities and state governments.

Sperling, though he claimed not to be opposed to supporting government EV programs, said that you didn’t want to “pick winners” in the technology derby to replace petroleum, citing the apparent disaster of corn ethanol.  Boschert countered that winners were always being picked, pointing out that HFCVs were funded by government and industry to far higher levels than battery research and battery electric vehicles.  She suggested that short of a government sponsored BEV roll-out program that there should be equal research funding for HFCVs and BEVs, though the first option was the preference of Plug-In America.

Efforts NOT to Pick Winners

The UN's climate change efforts, continued at the Bali Conference in 2007 and now at Poznan, has centered around a the market-like cap and trade system.  This is an effort, following the economic vogue of the 1990's for government to act as referee but not to pick winning technological solutions to climate change.

The UN's climate change effort, continued at the Bali Conference in 2007 and now at Poznan, has centered around a the market-like cap and trade system. This is an effort, following the economic vogue of the 1990's for government to act as referee but not to pick winning technological solutions to climate change.

In California’s debates around a number of pioneering pieces of clean energy and climate legislation and regulation, the notion of “picking winners” comes up on a regular basis as an unquestioned taboo for any measure or program.  When in a discussion, someone suggests that policy be used to promote one technology or initiative and someone else in the room opposes that technology or the type of support, the accusation that one would be “picking winners” is thrown at the advocates of a prescriptive policy.  While California has many technology specific support programs, there are also important central pieces of climate and energy regulation that are designed not to “pick winners”.  The Assembly Bill 32, (AB 32) process which is California’s Global Warming Act of 2006, has almost inevitably gravitated towards a cap and trade system, which as is the Kyoto process, an effort not to pre-determine the price of carbon, nor commit California to a particular set of technological solutions to global warming.  Accompanying this process, the CARB is also working on a “Low-Carbon Fuel Standard” (LCFS) which tries to group all reduced-carbon fuels for transport together, including electricity, mandating certain reductions in carbon content occur regardless of which fuel is discussed.  Again, no “winning” fuel is picked in the LCFS.

Designers of these policies feel they are reducing government involvement to its intent while removing arbitrary rules and decisions from the process.  In theory, the idea of “not picking winners” sounds great but, as in all things, between the conception and the realization reality intrudes.

The Theory: Government as Referee

The most influential economist of the past four decades has been Milton Friedman, who did not even believe that government would referee the marketplace.  Friedman, in the tradition of von Hayek, believed that the only legitimate role that government had was to defend the nation, protect private property and regulate the money supply.

The most influential economist of the past three decades has been the late Milton Friedman, who moved the economic profession away from advocacy of government regulation or involvement in the economy. Friedman, in the tradition of von Hayek, believed that the only legitimate role that government had was to defend the nation, protect private property and regulate the money supply, therefore his "monetarist" label.

The economic profession and economic modeling in business settings are right now at a watershed moment, where those individuals and theories which foreshadowed the precipitous downturn of the last few months are given a great deal more credence than the orthodoxy of only a few months ago.  In this period of flux, it is reasonable to think that some old assumptions may no longer hold water, at least during the period of crisis if not thereafter.

In the last three decades, economic policy and influential parts of the economics profession have tended to hold up the ideal of an almost entirely unsupervised market, where individual and corporate economic choices in aggregate would dictate the direction of economic life.  Expressing a belief in the individual or corporation as consumer and entrepreneur, these supply side or libertarian economic theorists believed that only unregulated market forces arrive at the optimal outcome.  By contrast, government is considered by advocates of this approach to be necessarily a hindrance to economic success and growth.  This view has remained largely unchallenged in both the Democratic and Republican parties until the recent financial system near-collapse and sharp economic downturn.

While the ideal of self-regulating markets has inhibited efforts at regulation in many areas of the economy, not everybody gave up on regulation even in the heyday of this ideal.  In those environments where regulation has been accepted as a necessary evil or even a desirable economic tool, there have been attempts to incorporate the ideal of the market into economic policies.  In California, which has a history of state-level energy regulation that has continued through the last few decades, policies that interfere less in the market are considered more desirable than those that dictate to private businesses what should happen.  The latter is termed “command and control”, which sounds less desirable than a “market-based” regulation scheme.

In the ideal market-based regulation, legislators, regulators, and the government executive branch develop rules that express a desired social outcome in its broadest, most abstract form and then allow private actors to try to fulfill those desired social aims in any (legal) way they can.  In the case of a cap and trade system, the notion is that the intended goal is a set amount of global warming gas emissions that will be reduced in subsequent years.  The auction system for pollution permits is the means by which businesses acquire permits to emit a certain amount of greenhouse gases.  When there are no more permits, the business can no longer pollute or face harsh fines.  As another example, California’s Low Carbon Fuel Standard, the amount of carbon in the fuel is regulated but there is no selection of which fuel is necessarily or potentially that with the lowest carbon content.

So in a market-based regulatory system, once the rules have been set in place, the government acts as a referee, enforcing the rules but otherwise allowing market actors to make their decisions within the constraints of the system.  In the case of cap and trade, there are two levels of market mechanisms built in:  one is through the bidding on pollution permits and the other is allowing businesses and individuals to figure out by themselves how they are going to reduce their carbon emissions.  The competing carbon tax concept is not an “un-market-based” solution though it removes the first level of market mechanisms as compared to cap and trade, instead allowing businesses and individuals to figure out on their own how they are going to avoid emitting carbon and therefore paying more carbon taxes.  So cap-and-trade is doubly market-based, while a carbon tax would be a more conventional regulation where government determines a social goal and shapes the market through a disincentive.

The Other Theory: Prescriptive Policies, a.k.a. “Picking Winners”

The history of nuclear power is very closely entwined with the intentions of government leaders and officials to demonstrate the peaceful uses of atomic power.  The further development of nuclear energy and the management of its legacy will continue to require strict government oversight and direct government funding.

The history of nuclear power is very closely entwined with the intentions of government leaders and officials to demonstrate the peaceful uses of atomic power. The further development of nuclear energy and the management of its legacy will continue to require strict government oversight and direct government funding.

While there is no hard and fast line between the market-based and a prescriptive policy, there are many policies in the area of energy where government expressedly prohibits or promotes one activity/technology or another.  The longstanding US tradition of research funding for particular energy technologies is, in a way “picking winners” though the federal government has tried to spread this funding around to some extent.  In the area of lighting, for instance, certain inefficient fixtures (probe-start metal halides) will be prohibited by the US DOE for sale as new fixtures as the first of January.  The criticism by Sherry Boschert of hydrogen policy holds true:  hydrogen fuel cells have received inordinate funding in comparison to battery technology, an imbalance that historically has had the support of Detroit automakers.   Biofuel mandates in combination with the enormous subsidies for corn production and corn ethanol are prescriptive policies.

While to a self-regulating market theorist prescriptive government policies are always inefficient and, adding some rhetorical inflation, “disasters waiting to happen”, defenders of a prescriptive policy would counter that scientists and political leaders reflecting scientific and common wisdom have found that one solution is, along one or more desirable dimensions, better or substantially worse than others.  Cigarette smoking was found to cause cancer.  You didn’t wait until individual effected people discovered that they were getting sick and dying sooner if they had smoked:  government put in laws that make the sale of tobacco more difficult and mandate public warnings of smoking’s hazards.  There was a statistical relationship between smoking and cancer which market actors alone could not perceive, especially given the socially reinforcing and addictive nature of smoking.  In lighting, probe-start metal halides use more energy than pulse-start metal halides or linear fluorescents for the same light output:  this black and white finding by engineers led to an eventual step-wise ban on the sale of probe-start fixtures.

A prescriptive policy then depends on scientific knowledge to determine, before the market can discover the difference, that one course of action is more helpful than another course of action.  The trust in scientific knowledge is key for most prescriptive policies, though prescriptive policies could also rest on the consensus of political leadership or polls and perceptions of popular sentiment.  It is no wonder that declines in the authority that people attribute to scientists in the US has led to a drift away from prescriptive policies, at least in the public presentation of policy actions.  Despite the diminished prestige of science in the US pantheon of values over the past few decades, the US government is the largest funder of scientific research in the world and also, still continues to operationalize that knowledge when it comes to implementing policy.

Beyond Prescription:  Government Sponsorship

The Tennessee Valley Authority was an New Deal economic stimulus plan for the Southeast which involved the building of, among other things, hydroelectric dams on a number of rivers in the region.  Still operated by the federal government, the TVA through fossil, nuclear and hydroelectric plants sells power to local private utilities and industrial power customers.

The Tennessee Valley Authority was an New Deal economic stimulus plan for the Southeast which involved the building of, among other things, hydroelectric dams on a number of rivers in the region. Still operated by the federal government, the TVA through fossil, nuclear and hydroelectric plants sells power to local private utilities and industrial power customers.

A “stronger” version of a prescriptive policy is one in which the government not only prescribes a particular solution but pays in part or in full for the realization of that prescription via taxpayer dollars.  The proposed economic stimulus packages including the much-discussed Green New Deal ideas, would be government sponsored programs by definition.  Bailouts of or support packages for individual firms or industries are government sponsored prescriptions for how the economy should remain or change in the future.  Public education is a prescriptive policy that is also government sponsored:  not only should children be educated but taxes will provide the means by which they can be educated.   Most highly industrialized countries outside of the United States have more government sponsored programs than the US, particularly in the area of social welfare.  By contrast, the US government has sponsored a very large, expensive, and technologically sophisticated military relative to other countries.

In the area of energy and transport, a government sponsored program could range from a rebate program for electric vehicle purchase to as large as the building of new power plants like the Hoover Dam or TVA projects or a system of long-distance power transmission lines for renewable energy.   These facilities could either be managed by the government as part of a public power authority or be sold off to private investors to manage.  Tax credits for oil and gas exploration or renewable energy projects are also a form of government sponsorship as to pay for these credits, taxes need to be levied or programs cut in other areas.  In any case, government sponsorship contradicts even more the ideals of advocates of the self-regulating market in the tradition of Friedrich von Hayek and Milton Friedman, as government would have a hand in setting prices or enlarge its role as a provider of services.

Real Dangers of Picking Winners

Corn ethanol is now almost universally recognized as a "false" winner, that had many powerful political friends but little scientific basis for support.  Leaving aside the ethical issues of having fuel compete with food production, most scientific studies have shown that the production of ethanol from corn only nets at most 30% more energy than is input in the process.  Furthermore intense water and soil usage contribute to its overall negative picture as a fuel for mechanical devices.

Corn ethanol is now almost universally recognized as a "false" winner, that had many powerful political friends but little scientific basis for support. Leaving aside the ethical issues of having fuel compete with food production, most scientific studies have shown that the production of ethanol from corn only nets at most 30% more energy than is input in the process. Furthermore water usage and soil nutrient depletion involved in growing the corn contribute to its overall negative picture as a fuel for mechanical devices.

While in tone this piece would seem to be critical of the categorical rejection of “picking winners’,  there are some real dangers in picking winners, especially when the process is itself wrapped in an ideology of doing the opposite, i.e. NOT picking winners.  The list below are potential real dangers of picking winners keeping in mind that these are not nearly the exclusive property of this decision making system; other forms of decision making including more market-based ones share some of these drawbacks.

1)    Corruption – Picking winners if done non-transparently and without full attention to democratic principles can lead to and/or be the product of corruption.  Picking winners involves collaboration between government and industries or professions that can shade into collusion if not pursued in a deliberate fashion with full public justification.  Bribes in various direct and indirect forms can influence the selection process.

2)    “False” Winners –  Picking winners can lead to a self-justifying selection of a technology or system that ends up being of lower quality and service than another option.  Corn ethanol, with only hope and little scientific justification, became a false winner.

3)    Economic Inefficiency – As per “2”, the government or other authority that is vested with the power to pick the winner could pick a technology or system without regard for the ultimate costs of implementing that technology.  Government officials may have no mechanisms that hold them responsible for cost overruns or other inefficiencies.  The potential for inefficiency may need to be balanced against the desirability of the goal.

4)    Lack of Accountability – related to “1” and “3”, the selection of winners may occur in ways in which those who make the decisions do not experience the effects of those decisions.   Government officials, representing the people of the US, may not be able to be held individually responsible in some circumstances.

5)    Foreclosure of future technological developments – picking a winner can narrow the market opening or close it entirely for an emerging or future technology that may turn out to be superior.  Monopolistic or oligopolistic control of markets can have the same effect.

6)    Decision-making without scientific backing – A winning technology or system may be selected without access to or utilization of the best scientific knowledge available; as we shall see below the success of “picking winners” is heavily dependent on high quality science.

7)    Decision-making without Socratic wisdom – Decision makers may feel empowered without knowing what they don’t know.  Without knowing where and to what degree they are ignorant allows decisions to be made that may ultimately be short-sighted.

8)    Arrogant self-justification – in a further development of “7” decision makers may attribute to themselves the cloak of infallibility or may downgrade the wisdom and perspective of those who are outside their coterie.  These attitudes may spring from the privilege of being able to make crucial decisions in combination with a wealth of information and resources at their disposal.

9) Economic and Political Despotism – the worst case scenario upon which much criticism of state-led policies are based, is that “picking winners” is the leading edge of authoritarianism.   Despite the tendency recently in our politics to dwell on this worst outcome, government initiative in the economy does not NECESSARILY lead to despotism as we have seen with the New Deal, WWII mobilization, the Marshall Plan, the Interstate Highway System, etc.

As we shall see below, these dangers are not necessarily an ultimate condemnation of all efforts to pick winners.

Infrastructure as Prescription

Republican President Dwight Eisenhower, building on the precedent of the New Deal and the WWII mobilization, initiated the biggest public infrastructure program in American history, the Federal Aid Highway Act of 1956.  The resulting Interstate highway system has underlain much of the economic growth of the last 4 decades though has also contributed to suburban sprawl and dependence upon the automobile.

Republican President Dwight Eisenhower, building on the precedent of the New Deal and the WWII mobilization, initiated the biggest public infrastructure program in American history, the Federal Aid Highway Act of 1956. At the time, the use of tax dollars to support a government infrastructure plan was relatively uncontroversial. The resulting Interstate highway system has supported much of the economic growth of the last 5 decades though has also contributed to suburban sprawl and dependence upon the automobile.

While the ideal of the self-regulating market can be helpful in describing how consumer choice shapes truly competitive markets, a strict adherence to this ideal leaves a gap in our understanding of how energy and transportation infrastructure gets built.  Infrastructure is a good or service that underlies basic social functioning as well as the use of other goods and services.  “Infra” means “under” and infrastructure does in general support a variety of other structures or institutions that are more visible to us.  Elements of infrastructure are usually a means to other ends. In most cases, to build competing pieces of infrastructure is economically inefficient, as the label is usually applied to physically large objects linked together into a large system.  There are also only a few actors that have the resources to build infrastructure, most notably governments and some very large corporations that often operate in markets that tend towards monopoly or oligopoly. Infrastructure then tends to be a natural monopoly, either being managed entirely by the government or highly regulated by the government to prevent private companies from exercising monopoly power over consumers.  People in advanced industrialized societies have come to view a functioning infrastructure as a (free per use) entitlement or at least a relatively affordable service that operates in the background.

A mixture of social and natural scientific analysis plus educated guesswork by a few leaders in the public and private sectors is involved in planning, proposing and building infrastructure.  Likely demand for a new or existing technology is estimated and then plans are made for the necessary infrastructure to be built.  Sometimes at some point in this process, a bond measure or other financing instrument is submitted either to a legislative body, a corporate board or stockholders meeting, or to the electorate for approval, thereby engaging in a democratic or deliberative process.  As deliberative or democratic as one or another stage of the process may be,  many potential competing infrastructure concepts are not placed into a market-like competition, a process for which we have no precedent and would seem to be prohibitively time-consuming and expensive.

Financing can be arranged either through the issuance of bonds or for infrastructure built by the private sector, stock offerings may be employed.  In the end, a “prescription” for what the society needs is devised that it is difficult to shape through the iterations of consumer buying behavior that is the ideal case for a competitive market.   Once infrastructure is being built, market actors then often devise their own plans to take advantage of the new or improved infrastructure (new housing developments, businesses etc.).  The market then accommodates itself to and/or exploits the infrastructure which has been justified based on sound engineering, transport and urban planning principles.

The route of the now California voter approved high speed rail line from San Diego to Sacramento/San Francisco has been largely determined by geography and settlement patterns.  The ultimate choice of how to link the three population centers of the Bay Area to the trunk line in the Central Valley has not yet been determined.

The route of the now California voter-approved high speed rail line from San Diego to Sacramento/San Francisco has been largely determined through an analysis of geography and settlement patterns. The ultimate choice of how to link the three major cities of the Bay Area to the main line in the Central Valley has not yet been determined.

Recently there were two large public transit infrastructure project proposals that won electoral approval in California:  a San Diego to Sacramento high speed rail project and an extension of the popular BART system south from San Francisco and Oakland to San Jose.  In a society committed to life after petroleum, reducing GHG emissions, and de-congesting the roadways, it made sense to the planners and then to a majority of the voters to provide more electric passenger rail lines for both long distance and local use.  In the extension of the BART, one can project that transit-oriented residential and commercial development will be built around the new stops of this16 mile commuter rail extension.

In terms of the current discussion, in each of the California measures, a “winner” proposal was picked by a coalition of political leaders, campaign funders and transit planners and then submitted for approval to the electorate.  While there was no market competition between different alternative infrastructures, there were opponents of each of the plans that sometimes backed up their opposition with alternative ideas in various stages of elaboration and detail.  Ultimately, it is assumed that if leaders and experts put together a compelling proposal that appears to serve voter/human needs that the infrastructure project will be “good enough”.  The process of putting together a marketplace of these ideas and proposals would for both the producers of the proposals and the consumers of these proposals represent many multiples more of effort and money in just the initial stages of the projects.  To build infrastructure often requires that an operational concept of “need” be available rather than simply see infrastructure concepts as a competition of “wants” or desires, as is typical in market competition.

It would then seem that in the world of infrastructure projects, a prescriptive approach has advantages over experiments in building a market ideal or competition between proposals.  Perhaps through improved cybergovernment initiatives a more interactive proposal generation process could be designed, yet this more democratic approach is not identical to the real-world interactive nature of markets where real products and services are offered and chosen among by consumers.  Then, there may very well be something in the nature of infrastructure projects, their uniqueness, site-specificity, high expense and long duration that lends itself to leader-driven and prescriptive decision making, even as certain aspects of that process can take into account the preferences of the end users.  The changing whims and trends of markets operate on a different timeframe than persisting on over a period of  a decade or more building immense physical objects and systems.

Advantages of Prescription/Picking Winners

Here then are some of the advantages of prescriptive or government sponsored programs:

1)    Potential for rapid implementation – There are fewer stops between design and construction start if a winner has been picked.  If there is a clearcut winner why take additional steps?

2)    Potential to be oriented towards long-term viability – local, more immediate economic concerns can be balanced against any number of different factors that may represent a longer view of social value than voters or consumers can typically calculate at the voting booth or turnstile.

3)    Expense of generating multiple proposals short-circuited – In addition to time costs, there are monetary costs to generating multiple ideas for submittal to the public or to regulatory boards.

4)    Potential to be based more directly on scientific findings – As considerations of a market-based competition can be, at least in the design, avoided, more elements of scientific understanding that have no bearing on current market concerns can be considered.  Scientific findings may at times stand counter to wishes of a consumer market, as with smoking cessation or beyond the current perception of market actors, like global warming.

5)    Government can insure higher risks – with some massive earthworks and higher risk technologies government endorsement and insurance is an absolute necessity.

6)    Government can use directive policies – Some infrastructure projects require the use of public lands or eminent domain.  While there have been questions lately that notions of the public good can play a role in economic life, government and its representation of the popular will or sentiment can more legitimately represent these wishes than private corporations.

7)    Integration of varying technologies – a prescription can contain as few or as many elements as needed to fulfill the mission.  The interdependence of different technologies and roles can be contained within the infrastructure plan.

8)    Multi-factor Systemic approach – diverse factors or organizations can be added or subtracted from a prescription, externalities can be internalized and vice versa.

9)  Concrete expressions of intent – The hand of the market or the setting of abstract rules, such as those that limit emissions, do not concretize popular sentiment or support as much as the building of physical objects.

For those who are committed to an economic model that sees good coming only from the interaction of independent economic actors, the above advantages will pale in comparison to the previously listed dangers of picking winners.  However, in building infrastructure, there seems to be no way to avoid risking those dangers if we want to arrive at the physical outcomes that increasing numbers of analysts are saying are necessities.
Integrated Energy and Stimulus Plans:  Unthinkable without “Picking Winners”

Project Better Place, a Palo Alto based electric vehicle infrastructure start-up, hopes to increase the use of electric vehicles by creating a public quick-charge and battery exchange infrastructure.  Concomitant with its ambitions, this small firm must court large automakers like Renault and Nissan and governments like Hawaii or Israel to help build the appropriate vehicles and stationary infrastructure.

Project Better Place, a Palo Alto based electric vehicle infrastructure start-up, hopes to increase the use of electric vehicles by creating an integrated public quick-charge and battery exchange infrastructure. To realize its ambitions, this small firm's designs need to be selected by major industrial corporations and governments. So far, PBP has developed agreements with Renault and Nissan and Israel, Denmark and Hawaii.

The Repower America plan might be called an “integrated energy and economic stimulus plan”.  The similar proposal I have been putting forth over the past year or so, the Renewable Electron Economy, based on the engineering analysis of Ulf Bossel, that we should shift most of our energy demand to electrical devices and use renewable energy as much as possible to generate electricity is another example.  In an integrated energy plan, the general types of energy conversion devices are prescribed as are the types of energy extracting or generating devices, so there is an integrated match:  if you are proposing an “electron economy”, you want to make sure that there will be a coordinated hand-off between the demand for electricity and its supply.  Electricity, as it is difficult to store, requires a more tightly integrated system than the trade in and consumption of the stable molecules that compose fossil fuels.

The call for planning has come from a number of political quarters.  T. Boone Pickens, not previously known as advocate of economic planning, has recently promoted that the US develop a plan to get off foreign oil, bemoaning, in passing, the lack of such planning over the past 3 decades.  Pickens’ plan serves his economic bets on particular technologies but he has been public-spirited enough to suggest that planning itself was necessary and lacking in our political discourse. Plans can also emerge independent of government involvement: manufacturers of electric cars are now considering creating a standard high voltage quick-charge interface for their cars, so that all quick-charge capable vehicles will be able to use a future standard high-voltage charger.  This is analogous to standardizing the size of the aperture of fuel nozzles and gas tank mouths. In getting together on a standard, the manufacturers are picking a winner.

The Repower America plan is largely, in the terminology I use, a renewable electron economy plan.  Its ambitious goal of converting the US electrical energy supply entirely over to clean sources within a period of 10 years leaves little room for experimenting with different high-level physical or policy instrument designs.  For one, deciding that electricity should be the clean energy carrier of choice is “picking a winner”, though it is based on a growing consensus of engineers, advocates and experts on energy. Furthermore, reflecting a growing consensus, the plan suggests that there are some clear winners in the area of clean generation technology that should immediately receive government and industry support:  wind, solar thermal with storage, and geothermal energy, along with sufficient transmission infrastructure to integrate these into the existing grid.  Additionally, and in this technology choice is left more open, 28% of energy demand will be reduced through the adoption by end users of energy efficient technologies.  Along with the Repower America plan, Al Gore has supported a carbon tax yet, I believe, he has no illusions that this tax alone can drive the building of the infrastructure required to achieve the Repower America goal.

Renewable Energy Payments:  Prescribed Markets

One accusation leveled at the now ever more widely implemented feed-in-tariffs a.k.a. Renewable Energy Payments that support renewable energy is that they “pick winners”.  This is partially true in the sense of picking a broad category of clean energy technology but not true in the sense of picking individual private firms as winners.  A renewable energy payment system, like that proposed by Rep. Jay Inslee or like those now in use in many European countries, sets wholesale prices for renewable generators of a wide variety of types and sizes.  The idea is to provide investment security for builders of renewable generators that we know will generate a certain amount of clean electricity: the guaranteed wholesale, generally above current electricity market, price per kWh allows the builders to recover their investment plus a reasonable profit.  The system of cost plus reasonable profit is used frequently in the construction industry when large scale one-of-a kind projects are commissioned for a particular buyer.

The designers of renewable energy payment systems counter claims that they are not competitive or market based by pointing out that they displace competition from the deployment of generators to the manufacture of generation technologies.  In a feed in tariff system, project developers want to purchase generators that will maximize their profit, so the intended effect will be to drive the cost of renewable generators down.  A renewable energy payment system then picks certain technologies as winners but not the actual implementation of those technologies by different manufacturers. Feed in tariffs can be justified in economic terms as a prescription of payments by the consuming public for a positive externality; carbon pricing is a payment by emitters to the public for a negative externality.

A renewable energy payment system could be designed that drives the implementation of a plan like Repower America.  In this case payments would reward the building of some of the wind, solar thermal and geothermal generators required by offering higher tariffs for the desired generators.  Thus a prescriptive plan can contain within it markets for the technologies prescribed.  The infrastructure of the Unified National Smart Grid can provide a framework for multiple smaller markets for building generators and generating electricity.

Exercising Leadership with or without Carbon Pricing

If we know what is “right” in a scientific sense, given a certain goal and the constraints of reality, why not proceed to do it with necessary but deliberate haste in consultation with popular representatives?  If we are facing a potentially very deep economic crisis and are largely convinced that infrastructure projects can function as fiscal stimuli, why not charge ahead?  The aversion to “picking winners” that we have developed over the preceding three decades would seem to say:  “no, find a regulatory framework within which profit-driven economic actors will discover that there is a market for something like this and build something like it”.  The focus on carbon pricing schemes as the main motive force in transforming our economy is one more example of our aversion over the last few decades to government and to a lesser extent corporations taking a leadership role.  We, luckily or unluckily, may be at a watershed moment where leadership is now desired or even highly prized.

Carbon pricing schemes, whether cap and trade or a carbon tax, attempt to circumvent the process by which government actors and leaders in the economy would take responsibility for building large projects.  Instead they could say:  “the cap and trade system or carbon tax made me do it”.   While having an ingenious policy framework which compels actors to act both in their long-term and short-term good is desirable, it is highly unlikely that such a system will by itself initiate and finance the building of all the Repower America/Renewable Electron Economy infrastructure we will need.

To embark on a path, such as building a Repower America-like clean energy infrastructure, will require leadership, a quality that is much praised but in its actual manifestations is often controversial.  To build a Unified National Smart Grid, for instance, will require leaders or a leader, perhaps President-elect Obama, to explain to congress and the American people why we should build this piece of infrastructure now.  This also means taking responsibility for both the “upside” of this large project (jobs created, energy independence, climate protection, new technologies) and the “downside” (costs, use in certain areas of eminent domain, appearance of electrical transmission towers).  Too often, advocates of complex policy instruments seem to want their policy instrument to remove all of the ambiguities and ambivalences associated with the leadership role.

Likewise, a renewable energy payment (REP) system will require political leaders and electrical grid regulators to commit themselves to support renewable energy generators like wind turbines, solar thermal electric power plants in the desert, and photovoltaic installations on the ground and on rooftops.  Not only would the institution of such a system attempt to benefit from the virtuous appearance of clean renewable energy generators but also offer direct financial support to those generators via guaranteed and premium wholesale electrical rates.  While many support schemes sidestep the price of renewable energy by using indirect means like tax credits or carbon pricing, the REP systems name the prices and therefore require leadership to be exercised by declaring in public both the benefits and the costs of clean energy.

As recent announcements by President-elect Obama suggest, we have reason to hope that our next President will grasp the opportunity to lead the building of the necessary infrastructure we need to emerge from this economic crisis and to meet the challenges of the 21st century.

The Renewable Electron Economy XVII: On-Grid and Grid-Optional Transport, ”Parachute” for a $140/Barrel Oil Society July 2, 2008

Posted by Michael Hoexter in Energy Policy, Green Marketing, Green Transport, Renewable Energy, Sustainable Thinking.
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TGV high speed electric trainCurrently, vehicle-makers, researchers, investors and green technology analysts are involved in a high-stakes game of developing and investing in various battery chemistries and designs which may yield the result of more energy dense, longer-lasting, and less toxic batteries or ultracapacitors. It’s a good thing that more and more social and financial resources are pouring into electric transport and energy storage solutions. Still others are investing in and legislating in favor of solutions that have a more limited future, the biofuel and hydrogen fuel cell options, which unfortunately still have public and political support out of proportion with their short and medium term ability to drive a sustainable transport system. As other analysts and I have already highlighted, these liquid fuel solutions are highly inefficient in converting renewable energy into a fuel. They require vastly more natural resources and man-made instruments to capture an equivalent amount of usable renewable energy than does a electric generation/electric storage/electric drive solution.

But, in actuality, we don’t HAVE TO have better batteries to build the infrastructure for a livable, sustainable society. Sure it’s going to be nice but we should spread out our electricity-driven transport investments and development efforts. Before transport planners and consumers gave themselves over completely to fossil-fueled transport, we used to build electrified rights of way for trains and trolleybuses, which now look all the more attractive in an era of rising petroleum costs. Using electrical energy from the grid to power moving vehicles is an established technology that has received too little notice in our efforts to exactly reproduce the conveniences of the now closing fossil fuel era.

Thus, while better batteries are going to continue to be developed, on-grid and grid-optional vehicles will be a key component of a petroleum-free, carbon-neutral transport system. Grid-powered vehicles are already a mature technology so no breakthroughs are required. Thus, if we are serious about getting off petroleum and cutting our carbon emissions, developing a system of transport attached to a grid increasingly fueled by renewable energy sources can function as a “parachute” until more compact, durable and cheaper systems of mobile electrical energy storage can be developed.

On-Grid Transport and Renewable Energy

Transport of people and goods is now precariously dependent upon the output from oil fields and to a lesser extent natural gas deposits, which contribute to climate change. Building out our existing transport infrastructure with tested and easily modified grid technologies, allows us to use the limitless energy of renewable energy sources to generate electricity and drive land-based transport starting today and extending into the indeterminate future. While there are drawbacks to tying transport to the grid, these disadvantages are dwarfed by the mounting problems and expense associated with oil-based transport fuels.

In addition, predicating our transport future solely on the development of mobile energy storage (batteries/ultracapacitors) is putting all our eggs in one, albeit a promising, basket. The batteries are here, sort of, but we have not yet mass-produced battery electric vehicles in quantities that we will require to address our transport needs. There is no question, on the other hand, that we have the technical capacity to build and use on-grid vehicles to address many of our transport needs with no breakthroughs and no exotic materials. On-grid vehicles are already doing much of the heavy lifting in the area of transport in many industrialized countries. Why for the sake of embracing the “latest” or the “new” should we turn our backs on success?

The more developed and economical battery or ultracapacitor technologies become, the less we would need to depend on on-grid vehicles. On the other hand, I don’t believe we are in a position right now to only choose one “perfect” seeming future solution to the massive climate and energy challenge facing us. The challenge is too great and there are multiple excellent alternatives that will enable us to move beyond fossil fuels.

Already, zero emission vehicle and energy systems are here and functioning, often without much fanfare. The trolleybuses and light rail system of San Francisco’s Muni use hydroelectric power to power them. Calgary’s C-train system (pictured above) buys wind-generated electricity to power its light rail cars. Other electric train systems may not draw power from such clean sources, but it is only a matter, then of building renewable generators and energy storage systems to power these systems as well.

Who’s Buying?

The publicity that battery developed and battery-dependent vehicles have generated relative to on-grid vehicles has a lot to do with the fact that we live in a society and economy that has been moved in the last 60 years towards individual and familial consumption and away from public infrastructure investment. In absolute terms, battery-based solutions deserve substantially more media attention than they get as, for example, the New York Times, the US “newspaper of record”, has been functioning essentially as a public relations arm for automakers marketing hydrogen vehicles. In the consumer market, powerful interests supporting biofuels and hydrogen fuel cells have overshadowed battery electric and plug-in hybrid electric vehicles (PHEVs/EREVs) in the media beauty contest to date. Still, in the world of electric transport, autonomous battery vehicles are the way that people prefer to imagine the future, as a battery electric vehicle, perhaps with quick-charge capability, will mimic what a fossil fueled vehicle would do.

If we rank the amount of media attention that the various electric transport alternatives receive, we put battery electric and PHEVs/EREVs first, then a distant second are new battery electric utility vehicles like trucks and, in last place, are electrified trains and trolleybuses, which, I suppose for the novelty-hungry press are considered “old hat”. This post, I hope will be one attempt to remedy this balance.

One element that reduces publicity for the on-grid alternative is that there are relatively few actual buyers for a massive transport infrastructure in even the best circumstances. Only governments or large private companies will invest in an electrified right of way for obvious monetary reasons as well as possess the legal right to build over or transform a route/road/railway of any length. There are also no giant companies that are yet significantly invested in building the electrical infrastructure, at least enough to suggest to the general public, governments or corporate buyers that this is an important solution for our energy and transport challenges.

While the existing grid-tied alternatives have not been fully brought into public consciousness, a fan-base exists for the sole new monorail-based technology called Personal Rapid Transit or PRT. Because of PRT’s newness and some other potential benefits, there are occasional articles that discuss this technology that will be installed at London’s Heathrow Airport to transport travelers to parking from Terminal 5.

Electrified Rail

The electrification of railways has for a century been the sign of the maturity of a rail route or railway system; the highest traffic routes in the world all tend to be electrified. If given the budget, most designers of rail systems would choose electrification over diesel. The electrification of a rail line costs more initially than simply building a non-electrified line but electric locomotives or “multiple unit” electric motorized trains (with motors in rail cars distributed throughout the train like many commuter trains and subways) are much longer lasting and energy efficient than train propulsion units that rely on internal combustion. Electric motors are simply more durable than internal combustion engines, which must endure millions of internal explosions throughout their lifespan. Electrification also allows for railways to use regenerative braking by returning electrical energy to the grid while braking; one train going down a hill can help power another train going up a hill. Electric locomotives are quieter, can be much more powerful, and, of course, do not emit any pollutants at the point of use.

Beyond the world of strictly electric locomotives there has been an interesting convergence of internal combustion engines and electric motors, that predated the recent convergence of these two types of traction in automobiles. Most fossil fueled locomotives are “diesel electric”, using a diesel generator to make electricity that drives the electric traction motors that turn the wheels. Some locomotives are “dual-mode” allowing the train to operate on either an electrified track or a nonelectrified track. Diesel electrics are the equivalent of a “serial hybrid vehicle,” while less common dual-mode locomotives are the equivalent of plug-in hybrids, using either a liquid energy carrier or electricity for locomotion.

There are two predominant systems for electrifying a railway: overhead wires and a third rail. Overhead wires are usually used for long-distance trains and for higher power applications while commuter and urban rail systems sometimes use the third rail. Other than higher voltages/power, overhead wires have the advantage of putting some distance between the electrical circuits and ground-based challenges including flooding or human interference. Third-rail systems are more compact and avoid the visual effect of overhead wires and towers over the railway. In the future, it may be possible to also use track-embedded linear induction motors that can propel railcars through the use of magnetic fields. An advantage of linear induction motors is that they would not pose the same electrocution danger as a third rail system, as electrical contacts are not exposed.

High speed rail, where trains travel in excess of 120 miles per hour (200 km/h) and as high as 200 miles/hour (320 km/h), can compete in terms of convenience and speed with airplane trips of up to 400 miles when all legs of a journey are considered. Europe and Japan now have fairly extensive high speed rail networks and there is now a proposal in California to build a high speed line from San Diego to San Francisco and Sacramento that at least theoretically could reach a maximum speed of 220 mph. High speed rail requires the building of special rail routes with very slight turns, low grades, smooth railbeds with welded rails. The fastest scheduled rail segment (of the French TGV) averages 173 mph (279 km/h) while the railed speed record also belongs to a specially prepared TGV that achieved 357 mph (574.8 km/h) in 2007 on an ordinary high speed route in France.

In America, where most areas are starting from a deficit of passenger rail options, the cachet of high speed rail projects may distract from building a functioning (electric) regional and commuter rail system where appropriate. With a wider dispersion of population such as in the West or between major business centers like New York and Chicago, high speed rail projects will be a more feasible and practical option. One could imagine, for instance a high speed line that ran from New York to Chicago with stops in Pittsburgh and Cleveland. On the other hand such a route would benefit from coordinated regional lines from surrounding cities, as well as a local train system. Because of the low friction of rails, ordinary express trains can maintain speeds of well over 100 mph on well maintained tracks which are fairly straight.

A systemic approach to rail is preferable to a sole focus on single marquee projects that advertise an intention but may overshadow equally useful regional and local rail projects. California’s High Speed Rail initiative is a good start but it is only the starting point for improving rail infrastructure in the West.

The electrification of trains does not in itself solve the multiple problems associated with transferring more people-moving and freight tasks from the roads onto rails. A railway can typically carry more freight or passengers per unit area than a road system yet a bi-directional dual track corridor is less flexible than a multilane highway, which can carry both passenger and freight vehicles. In the United States, railways are oriented mostly towards freight while in Europe, passenger rail predominates to the detriment of freight. As anyone who has traveled on Amtrak outside the Northeast knows, heavy freight and passenger traffic do not mix well on rails, so a stable solution would be to have separate passenger and freight tracks in most situations. High speed rail adds an additional set of tracks on routes where this is feasible. A high volume of rail traffic can also interfere with road traffic and interfere with surrounding communities unless grade separated and with pedestrian overpasses or underpasses.

Building more sets of rails, reviving existing rails, grade-separating road and rail and then electrifying those rails are all projects that require large public and/or private investment. The extent to which the United States or for that matter other advanced industrialized countries will pursue a strategy of pushing most transport onto rail will depend, in part on both the commitment to rails as well as a cost accounting of the alternatives and the need for immediate action on climate, energy and transport.

Magnetic Levitation (Maglev) Rail

While the land speed record for passenger rail is still held by the TGV, magnetic levitation rail holds out the possibility of trains that can cruise at a higher rate of speed than ordinary rail. While ordinary trains on well-maintained rails encounter very little friction as compared with wheeled transport on roads, magnetic levitation reduces to practically zero the friction of the train with the track by lifting the train up over the surface of a specially prepared track through the force of electromagnets that repel each other. It is not yet clear whether the additional expense and energy requirements of a maglev system have a significant enough advantage over a high speed rail system to warrant those one-time and on-going expenditures. The only maglev train in operation is a shuttle between Shanghai city center and Pudong airport, a 30 km (18 miles) trip that is covered in 7 minutes, 20 seconds, reaching at one point 267 miles per hour (421 km/hr). There is a controversial proposal that a maglev line be built between Disneyland in Anaheim California and Las Vegas, though such a project seems designed more as a tourist attraction than a replacement for either road or high volume air traffic. Maglev is yet another step into the realm of high profile newer technologies that while potentially promising, are even longer-term prospects than building a functioning rail network of any description.

New Electrified Urban and Commuter Rail

Even in the United States during the cheap fossil fuel era, some urban and commuter rail projects were built as a sign of urban revitalization and smart development efforts. While subways were usually built in the pre-1970 era of massive infrastructure projects, surface rail projects, sometimes called light rail have been built more recently in cities like Portland that were modeled on European street rail systems. These rail projects can operate both above and below ground, thereby blurring the distinction between subway and surface rail. Los Angeles’ Metro light rail system with underground and surface segments, which initially was considered by critics to be an expensive feel-good project, may start to become more useful to Angelenos as high oil prices start to take their toll.

While light rail is popular with commuters, there are controversies associated with it, including whether to grade-separate light rail from automobile traffic and pedestrians. While the initial selling point of light rail was its lesser expense than subways, grade separation adds considerable additional expense. A controversy in Los Angeles about a new line to the West Side, now splitting formerly allied transit advocates, illustrates some of the tough issues associated with the degree to which streetcars are integrated or separated from traffic.

The implementation of regional or suburban commuter rail on existing tracks would seem to be less expensive, though coordinating and balancing passenger traffic with freight traffic remains a challenge. The electrification of stretches of rail will require coordination between private freight companies that own the rights of way and the public agencies that now run US passenger rail.

Electrified Roadway Systems


Trolleybuses are one of the “sleeper” solutions to our climate and energy concerns in urban, suburban and even medium-sized towns. Almost any bus route can be turned into a trolleybus route with the installation of overhead wiring, making them substantially less expensive per mile to build than rail-based systems. Trolleybus systems were most popular in the middle of the 20th century and remain particularly widespread in cities of Central and Eastern Europe. The advent of cheaper and more flexible diesel bus systems led to a decline in trolleybuses which of course require the greater initial capital expense. In the US, trolleybus systems are operating in San Francisco, Seattle, Dayton, and Boston. Dayton has used electric public transport for now almost 120 years continuously.

Trolleybuses are ordinary buses with an electric motor instead of a diesel engine and twin trolley poles on top that connect the bus to the electric grid. Because electric motors have greater torque than equivalent diesel engines trolleybuses are well suited for very hilly cities and are equally good at flat stretches with excellent acceleration and high power-to-weight ratio. Negatives for trolleybuses, as for all transport systems using overhead wires, are the visual appearance of wires and designing the system to enable buses to pass each other. Transit riders also prefer riding smoother railed systems and while trolleybuses avoid the smell of diesel buses still share the ride quality of other buses. Also trolley poles can come off the wires requiring manual or automatic pole replacement. As climate and energy concerns rise in importance, the drawbacks of trolleybuses start to seem trivial or mere technical challenges.

Bus-Rapid Transit and Trolleybuses

Bus Rapid Transit (BRT) is a system that segregates bus traffic from other traffic, allowing buses to achieve average speeds closer to 20 mph including stops rather than the more typical 8 mph in regular traffic. BRT can be applied to any buses but if combined with Trolleybuses, BRT allows trolleybuses to achieve faster travel speeds through crowded urban and suburban streets than when intermingled with traffic. The much studied transit system of the Brazilian city of Curitiba makes extensive use of BRT.

Grid-Optional Road Vehicles

A very exciting area of growth despite little attention has been the development of “dual-mode” or hybrid road vehicles that can travel attached to the grid or can use a battery or diesel engine to travel independently of the grid for a few miles or many miles. Newer trolleybuses now have a battery pack that allows these buses to travel a few miles on battery power alone. Currently in operation in Boston is a dual mode diesel and electric trolleybus called the Silver Line, which travels from Logan Airport as a diesel bus then attaching within a minute to overhead wires to traverse a dedicated BRT/subway into the center city. While currently something of a novelty, this type of re-attachable vehicle will have a vast set of applications in a world of diminishing oil and rising climate concern. One can imagine long-distance trucks that take advantage of grid electricity on stretches of highway, detaching from the grid to make deliveries and then returning to use grid electricity on truck routes.

Electrified Highways

With grid-optional road vehicles that can detach and reattach to the grid either in staging areas or on the go comes the possibility for road-going dual mode trucks and buses to use the grid to travel long distances just as do trains but with greater flexibility. An electrified highway with overhead wires allows all-electric or dual-fuel large road-going vehicles to travel long distances without carrying large batteries. A challenge in such a set up would be maintaining voltage levels in such a wire as demand for power would be unscheduled unlike that experienced in a closed train or trolley system. The power management system as well as the attachment and reattachment devices for such vehicles would require some development and testing. Electrified highways could enable the continued usage to something approaching their capacity of existing highway infrastructure in tandem with railways in an era of ever more expensive fossil fuels.


As suggested above, a trolley or pantograph can be mounted on any vehicle with a electric motor as a means to connect the vehicle to the grid for energy. Trolleytrucks have been used in urban delivery and in mining operations. If electric wires can be strung over or next to a field, tractors could use trolleys rather than batteries to do work in the fields. 18-wheelers and other long-distance trucks would be naturals for using a trolley, if catenary wires are strung over highways. An energy storage medium, either a battery or an electric generator using liquid fuel, an electric motor, and a trolley to tap into electric can allow any vehicle with tires to become a grid-optional vehicle.

Personal Rapid Transit

A new system of public transport has been under study for the last 20 years that seeks to combine the best of private vehicle use with public transport. Personal Rapid Transit or PRT uses advances in computer control and satellite navigation to create a system of automated 4-6 person lightweight vehicles or “pods” on an elevated or ground-based track that can be entered by passengers at a number of stations around a network-like system. Passengers then select a destination and the vehicle then takes them to the selected end-station. Personal rapid transit has, at least in theory, the potential to be one of the most energy efficient means of transporting people in suburban or dispersed urban areas, as vehicles are only activated and use energy when there is demand for them. By contrast scheduled mass transit can usually only achieve at best a load factor of 20-30%, meaning that on average 70-80% of seats are empty on buses, trams, and subways. Especially at off hours, mass transit will generally operate at low load factors.

By contrast PRT in theory offers the possibility for higher load factors and lower energy use, especially at off hours, as each “pod” might contain only 2 to 4 seats. PRT also offers the possibility for a variety of sizes of “pod” depending upon the size of the group, though this variety would add to the complexity of PRT stations. Theoretically PRT could approach a load factor of 50% and lower overall system energy use with 24 hour availability.

PRT however is a controversial concept as its advocates have often portrayed mass transit in pejorative terms that confirm the prejudices of individual vehicle owners that riding with strangers is a dangerous and unpleasant affair. In Austin, TX, advocates of a light rail system and those of a PRT system were diametrically opposed and highly critical of each others’ plans. The lack of experience especially with rush hour conditions make PRT plans seem at the moment more theory than practice. The idea that PRT would require a new system of suspended guideways at height of approximately 20 feet over ground might be more intrusive than the ground-level transit options it attempts to replace.

It may be that in a post fossil fuel age that mass transit and PRT might both have a place in an electric transit system. PRT’s strength at off hours may complement mass transit’s strengths at rush hours.

Pulling the Ripcord

Battery electric vehicles are coming and will enable a new age of sustainable automobility. However, it will be a long time before we can store anything close to the amount of energy in diesel fuel in the same weight and volume in a battery. To enable electricity and eventually renewable electricity to power transport as soon as we need it, an electric transport infrastructure that directly powers trains, trolleybuses, streetcars, and perhaps other work vehicles from the grid will enable commerce to continue without a dependence on scarce fossil fuels.

To do this, governments and large companies involved in transport need to start planning for and investing in the post-fossil fuel world. It requires a leap but, given the chaos that fluctuations in oil markets can deliver to our economy, the leap to an electric transport infrastructure is a necessary one. In California, we have an opportunity this fall to the take the first step, but this is only a first step on a long road. Government should take the lead, as building the transmission and distribution infrastructure for electric transport requires the reach and authority of government. On the other hand, supplier firms can help create markets for their products and services by alerting government officials to current and near-future technical possibilities.

20 Technologies to Save the Climate: Are Breakthroughs Mandatory or Icing on the Cake? April 9, 2008

Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Green Building, Green Marketing, Green Transport, Renewable Energy, Sustainable Thinking.
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(With this post I’m skipping a little ahead of my series on the Renewable Electron Economy but policy debates are starting to heat up as we head into the election year. )

A recent controversy has sprung up around the criticisms of the UN’s Intergovernmental Panel on Climate Change (IPCC) by a group of fairly well-known analysts, who say the IPCC has severely underestimated the need for heavy investment in basic technology research to solve the climate crisis. In a piece called “Dangerous Assumptions” written for Nature magazine’s Commentary section, Roger Pielke Jr, Tom Wigley and Christopher Green say that “enormous advances in energy technology” will be needed to stabilize carbon levels in the atmosphere at somewhere near the target 450 ppm or below. This contradicts assertions by the Nobel Prize winning body of climate scientists that in fact we already have or soon will have the technology we need to reduce our carbon emissions to acceptable levels. Al Gore, who is due to expand upon his ideas for global warming solutions in upcoming months, has reiterated recently that we already have the technology that we need to meet the climate challenge.

In response to the Nature piece, Joe Romm, on his blog, Climate Progress, has written that Pielke Jr et al. are an example of a species that he calls “delayer-1000s” by which he means that these are people who would allow carbon dioxide concentrations to slide up to 1000 ppm or more than double current levels. Romm, a former Deputy Sec’y of Energy in the Clinton Administration, whose current mission is to popularize climate science and solutions to climate change is not averse to painting a vivid picture of what might happen under various climate scenarios. One would expect no less from the author of “Hell and High Water”, a view of what climate change has in store for us.

Romm has pointed out that Pielke and the physicist Marty Hoffert who has staked out a similar position are both affiliated with the Breakthrough Institute. As readers of this blog may remember, the Breakthrough Institute is the brainchild of controversial critics of the environmental movement, Michael Shellenberger and Ted Nordhaus who declared the “Death of Environmentalism” a few years ago. Romm has been critical of Shellenberger and Nordhaus for their propensity to attack the environmental movement and to advocate, long term research projects in ways that at least divert attention from taking immediate action on global warming. Their institute, after all, is named “BreakThrough” the point being they want to inspire government to invest heavily in long-range scientific research that they hope might lead to those technological breakthroughs.

The Big Question: Do We Have the Technology?

All personal disputes aside, the main question that is dividing Romm, Gore, the IPCC on the one hand and Pielke et. al. Hoffert, Shellenberger & Nordhaus and perhaps Google in its RE<C form on the other, is whether we, with our current technology or technologies that are in the research pipeline, can build essentially carbon neutral societies the world over within a period of approximately three to four decades. Three decades is a long time, so the notion that technology might be “frozen” at the current state of development is perhaps the first red herring that this controversy generates; within three decades new technologies will emerge in some form or other whether we have a policy for it or not. No one is suggesting that we NOT invest in research and development, though we are starting in the US at a point where much can be improved upon in the area of clean technology research.

The “Dangerous Assumption” that these critics of the IPCC are decrying is that a normal rate of technological improvement is inadequate to the task of cutting GHGs by 80% or more. Their favored policy recommendation is to have the (US) government invest massively in long-range research projects that contrasts with their critics’ emphasis on policies that speed the deployment of existing technologies. They make little positive mention of policy tools like carbon pricing or feed-in tariffs that are designed to speed the development of existing technology. The implication is that those who suggest policy drivers for deploying current technology are naïve and operating under a “dangerous assumption”. Another favored criticism that Shellenberger and Nordhaus tend to level at their opponents is that their opponents are acting/talking like the (tired, ineffective) environmental movement. Romm believes that those who support the Breakthrough concept are devaluing if not opposing immediate policy recommendations that target current technologies and current technology use.

What then is the current set of technologies that we already have or can expect to have within the next decade? I will give my account below of current and emerging technologies and list what their advantages are for reducing carbon emissions. The analysis below is represented in chart form <== or here. Following the Renewable Electron Economy scenario that I believe has the highest probability of success, I have ordered these in approximately descending order of overall carbon emissions reduction potential. Note that the order of these is approximately the reverse of the famous Vattenfall-McKinsey chart which lists the least expensive options first; here the keystone technologies of a completely carbon neutral economy come first, some of which are currently more expensive. (I am italicizing technologies in this list that overlap with previous listings in terms of their GHG reduction potential; I am putting those technologies that can act as carbon sinks in bold):

1) Combination renewable energy power plants – emerging technology that coordinates intermittent and periodic renewable electric generators (wind, wave, tidal, and solar photovoltaic or CSP without storage) with dispatchable renewables (biomass, hydroelectric, CSP with storage, and pumped hydroelectric) to serve electric load. (59% GHG reduction potential)

2) Concentrating solar thermal power (CSP) with 6 to 18 hours of thermal storage – existing and emerging technology can reduce coal use for electricity generation by 85%-90% in areas up to 2500 miles away from the world’s deserts. (45% GHG reduction potential)

3) Photovoltaic cells – existing and emerging technology that is deployable in distributed energy, remote settings. (25% GHG reduction potential)

4) Forest preservation, restoration and expansion – existing and emerging technology to fix atmospheric and newly emitted carbon dioxide; reduce emissions from deforestation. (>18.2% GHG reduction potential)

5) Wind turbines – existing technology that may be able to cover as much as 33% of electricity demand with appropriate grid integration. (15% GHG reduction potential)

6) Modularized construction of buildings with ultra-high efficiency/Passivhaus concept – reduction of 85% of space conditioning energy use. (12% GHG reduction potential)

7) Electrification of Rails and Roadways – Rail and road electrification is an existing technology that can be extended to more large vehicle traffic in regional and intercity routes (11% GHG reduction potential)

8 ) Biomass pyrolysis and biocoal burial – an emerging technology that generates a bio-oil and carbon rich “bio-coal” or charcoal that when buried fixes carbon for hundreds of years. Reduces production of energy from biomass in exchange for fixing carbon. Biocoal can act as a soil enrichment. (>10% GHG Reduction potential)

9) Batteries/Ultracapacitors with 200 Wh/kg energy density or greater/variety of chemistries – allow 90% of local and regional traffic to be electrified reducing transport energy use by 70% or greater (>9% GHG Reduction potential)

10) Biomass-fired power plants– an existing technology that with carbon capture could act as a carbon sink; dispatchable and can back up wind or solar generators. Require policy regulation to ensure non-competition with agriculture for food. (6% GHG Reduction potential)

11) Vehicle Recharge Infrastructure – existing infrastructure in detached houses, emerging in public areas; emerging quick charge infrastructure. Enables battery electric vehicles or plug in hybrids to extend all-battery range indefinitely (4% GHG Reduction potential)

12) Voluntary Veganism – vegans eat no animal products so if people go on a vegan diet for 5 days/week or more we would reduce a massive amount of GHGs. The figures from WRI I used attribute 5.1% GHGs to livestock but I have seen figures as high as 18% of global GHGs are attributable to livestock. Numerous environmental benefits are attributable to plant-only agriculture though there is and will be massive resistance to forgoing meat and milk products (including from me). I quite like meat and cheese though I did have a pretty tasty vegan meal at Café Gratitude not too long ago; this technology can be further developed by chefs and by consumers. (>4% GHG reduction)

13) High efficiency lighting/daylighting – High efficiency fluorescent lighting, daylighting, tubular skylights are here, LEDs and fiber optic daylighting are emerging cutting >75% of lighting energy over incandescents (4% GHG reduction potential)

14) Sustainable biofuels – Cellulosic ethanol is an emerging technology – because of our current liquid fuels paradigm much touted and over-hyped. To be sustainable require strict policy oversight or voluntary certification – in the Renewable Electron Economy would fuel air and sea transport along with bio-oil. (3% GHG reduction potential)

15) Wave and tidal power – Existing and emerging RE generation technologies (3% GHG reduction potential)

16) Electric Arc Heating/Biocoal – Electric arc furnaces already are used in melting steel scrap and a similar principle or biomass substitutes could be used in high temperature industrial applications in place of coal and natural gas (2% GHG reduction potential)

17) Magnetic Induction Heating – Existing technology allows for hyperefficient stovetop cooking with electricity; future applications may allow for more efficient electric ovens. (1.75% GHG reduction potential)

18) Syngas waste to energy – Generation of a syngas from municipal waste avoids the formation of dioxins and other toxins; emerging technology can reduce waste by 95% entirely avoiding methane emissions (substituting less potent carbon dioxide) and reducing the need for landfill space except for separated toxic metals, producing dispatchable electricity from the combustion of the syngas in a gas turbine (>1.5% GHG reduction potential).

19) Methane harvest from sewage – capturing methane to generate power or fuel vehicles from sewage (CH4 to CO2) (>1.0% GHG reduction potential)

20) Enhanced telecommunication technologies/holographic presence – reducing business travel by 75% – extension of Internet/videoconferencing capabilities. (>0.5% GHG reduction potential).

These by the standards of 2008 exciting but in no way futuristic technologies deployed on a global scale have the potential to reduce our GHG emissions by at least 93.7% with little effect on end user “utility”. The most significant change in end use, and perhaps the most challenging, is the voluntary (or incentivized) reduction in the use of animal products.

The conclusion then to be derived from this analysis is that we do not NEED radical new technologies to reduce GHGs very substantially, especially if we follow the Renewable Electron Economy model and are willing to invest as a government AND a society in clean technology. Such innovations might be nice to reduce costs or ease the transition but they are not necessary.

Therefore it would seem that Pielke et al. and their supporters’ assertions would seem to be more lobbying for gee-whiz science projects rather than scientific analysis.

Potential Criticisms of This Model

1) I am using year 2000 data that may be no longer reflective of current emissions or future trends.

a. Response: These technologies are mostly highly scaleable so that more or less of them could be deployed in response to changes in GHG emissions profile

2) Veganism is a substantial sacrifice for most inhabitants of the developed and rapidly developing worlds

a. Response: If this is a planetary emergency, some sacrifice of personal utility may eventually seem like a rational response. Even if people choose a reduced meat/dairy diet, which will have substantial GHG benefits, they will not lose the taste experience or dietary benefits of these foods. This remains by no means a high tech or inaccessible solution and culinary giants might even improve the technology through inventive use of vegan ingredients.

3) The numbers I am using for GHG reductions are guesstimates.

a. Response: Each of these technologies substantially reduces GHGs in each of the major acknowledged GHG sectors; most can be scaled up or down with fairly wide latitude, even accounting for a 30% increase in global population.


Do These Roads Diverge?

If what I have laid out here is anywhere close to being a realistic assessment of existing and emerging technologies, the course of action is pretty obvious: get as many of these technologies in deployment as soon as possible. Pricing may be higher in the beginning, which could be shouldered by richer countries but then economies of scale in manufacture will bring many or all of these within reach of some of the rapidly developing countries that are the focus of concern.

I believe the strongest policy combination is some form of carbon pricing with the addition of performance based incentives, such as feed in tariffs to promote key technologies more rapidly than the politically acceptable carbon price will allow.

Research and development is not excluded from any policy recommendation but the emphasis on technology investment almost to the exclusion of contemporary policy drivers is a curious phenomenon. Research and development, be it at current levels or at levels 50 or 100 times as high, is a traditional role for the US government and is no departure from business as usual.

Will an Emphasis on R&D Lead to Delay?

Rather than resort to name-calling, there is a very serious issue here that has been lent extra urgency by the publicity lent to Pielke’s/Breakthrough’s position through its publication in the prestigious Nature journal.

As I state above, Breakthrough/Pielke are packaging their position as heterodox and daring when in fact it is a simple restatement of a very common position that the US government has occupied throughout the last half century: the funder of basic and applied research in the sciences and energy. Maybe the AMOUNTS that Pielke/Breakthrough are asking for are larger and are applied to a new theme (solutions to climate change) but the format and relationship of government to constituency are the same.

The folk at Nature may have felt that as it is a plea for more money for research it is a natural fit for their science journal. However, they may not have been in a position to evaluate how uninspired the Pielke piece is in terms of its actual policy recommendations.

Nordhaus and Shellenberger, the founders of BreakThrough, seem to be laboring under the belief that their advocacy of more money for research is a break from the past and perhaps it is a break from THEIR past. They have made a great deal of their differences of opinion with leaders of the environmental movement and, in a way, are more likely to discount anything that agrees with the consensus of that movement. Thus they are able to occasionally get publicity from the wider media world as they “turn state’s evidence” against their former colleagues. In a way, Joe Romm, by attacking Nordhaus and Shellenberger is continuing to play into this game.

Whatever their motivation, if someone were to consult Nordhaus and Shellenberger as policy experts, they would get the distinct sense that all the action is with R&D investment and carbon focused policy instruments are at best dull necessities.

If a policymaker came away with that impression, I believe there would be a lost opportunity to create policy drivers that incentivize accelerated deployment of existing technologies.

Apollo Project or Liberty Ships?

Furthermore, there is a tiresome formula into which the S&N recommendations as well as the public face of Google’s RE<C fall into: that technology advances are about what might be called ecstatic gee-whiz moments of wonder, of dramatic breakthroughs. The microelectronics and the biotechnology revolutions have, I believe, spoiled the public, investors and commentators into thinking that innovations occur in an accelerating crescendo. A study of renewable energy flux, along with its synchronization and storage problems leads us to the conclusion that the creation of large industrial scale operations to build large numbers of renewable generators and install them more efficiently will be a much bigger portion of the renewable energy revolution than the micro-world of molecules and atoms. Yes, there are admirable and elegant designs and inventions that have already occurred and that will occur in the future, but there will also need to be large scale deployment and manufacturing in a way that hasn’t been seen here since the second world war.

In a way, the beguiling high-tech metaphor of the Apollo Project, which Nordhaus, Shellenberger and others drew upon in founding the Apollo Alliance, is a little misleading. Apollo rockets were one or two of a kind, though obviously some of the technologies were later commercialized in larger numbers. What we are talking about more is the far more profound and economically stimulative wartime mobilization of WWII where one had both a Manhattan project going on and the broad participation of the population in accelerated wartime production. In fact, as impressive as some of the achievements of the Apollo project were, the manufacturing techniques that enabled shipyard workers to build a complete Liberty Ship, on average in 42 days through pre-fabricated assembly of ship parts will be just as or even more crucial than more glamorous inventions of the past half century.

To drive this scale of production, there will not only need to be government involvement but also stimulation of private actors through regulation and market incentives to move this process forward. To push all of the action off on R&D and government spending is not to grasp the need to drive change, in the most effective and forward-thinking way, in the entire economy.

With adequate information about the dangers AND opportunities we face both economically and ecologically, more and more people will realize that cleaner and better energy and energy services will need to be paid for. While Romm seems to shy away from embracing the fundamental break with what I call the Cheap Energy Contract, Nordhaus and Shellenberger are still obeisant to the assumption that people in the US will not be willing to pay more for energy in order that it become both a source of employment and profit for them and their neighbors and free us from some of the geopolitical problems we have blundered into.

I believe this attitude of remaining entirely supine in front of our own wishes for cheap stuff is unsustainable for us as an economy; eventually we will need to be willing to or required to pay each other for our work and pay for a cleaner environment rather than continue to pay more and more for our fossil fuel addiction.

The Renewable Electron Economy XIV: Renewable Energy Finance and Feed In Tariffs March 17, 2008

Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Renewable Energy, Sustainable Thinking.
Tags: , , , , ,

In the last couple posts in this series, we’ve established that in industrial economies, price expectations for energy are low for fundamental economic reasons (mechanical work must displace human labor or animal work) but that in the US and Canada, these expectations are further depressed by low population densities, in many locations extreme ambient temperatures and temperature swings, and a preference for “big” vehicles and buildings. All of the latter mean that more mechanical or thermodynamic work needs to be done by energy-consuming machines to reach a desired outcome. As petroleum prices soar, we are starting to feel the pinch of an economy based on exhaustible fossil fuels, priced well below their actual costs for too many years. The direct and indirect subsidies to fossil fuel extraction and overuse were part of the now somewhat outdated Cheap Energy Contract that holds governments and energy regulators responsible for keeping energy prices much cheaper than actual costs, especially if we take into consideration the environmental and climate costs of fossil fuel combustion.

The expectation that energy be cheap and our heavy reliance on these massively subsidized but polluting forms of energy, present special challenges for the building of a new clean energy system. Transforming the energy business involves building large amounts of infrastructure that must be financed either through tax revenues (thereby subsidized by other parts of the economy) or private investment that is paid back through consumer payments for energy or energy-related goods or services. If the prices of the latter must be low, private investment will not be commensurate to the task as investors will have few chances to see their money again with a reasonable return. If additionally there is an anti-tax bias in the country, there will be few funds available from public coffers to finance infrastructure.

The major costs of renewable energy, especially renewable electric generators, are the initial capital costs of the generators, transmission lines, and the clean energy storage devices we will eventually need to balance energy flow on the grid. The fuel is free renewable energy flux but as we have learned, that flux is, in the case of the most plentiful forms (wind and sun) not of such a high power density, so renewable energy technologies must take in a wide cross section of that flux to come close to matching the output of conventional generators using more compact fuels. This means building many capture devices and large storage devices. “Many”, “large”, and “new” mean a greater initial capital investment to match our current power needs, front-loaded costs that must be paid over time.

The critical importance of increased energy efficiency in this equation is reducing at some point in the future the overall societal need for capital investment in future clean generators as well as being able to throttle back now on existing fossil generators and the development of new polluting generators.

Existing Clean Energy Finance Mechanisms

If the Cheap Energy Contract is becoming difficult to sustain for a whole host of reasons, alternative society-wide economic agreements about energy finance are still in flux. There are a number of contenders, none of which have fully established themselves in an era of dwindling fossil resources and increasing carbon constraint. Many are “end runs” around existing social agreements about energy pricing and the building of new infrastructure.

No (Energy) Social Contract, No Subsidies

Some players on the energy market (many of whom believe they represent the lowest cost producers) claim that regulations and government subsidies raise the cost of energy. These energy free marketeers echo sentiments of libertarian (a.k.a. neo-liberal) economists who believe that less regulation automatically leads to markets determining the least expensive price for energy by competition. A totally unregulated market in energy would not price in the cost of pollution including carbon emissions. Some green-inspired market advocates then would allow a cap and trade system to assign a cost to carbon emissions without other new regulation or government subsidy.

Carbon Pricing

After Kyoto, groups of regulators and activists worldwide have been working towards assigning a price to carbon emissions that may have the effect of driving energy markets towards cleaner solutions. Within this general model there are two contending groups: one that believes the carbon price should be set by a cap-and-trade system that determines the carbon price by the balance of supply and demand for pollution permits and the other that believes that a carbon tax or fee set by regulators is more efficient. In either case, the price on carbon will at least start driving energy users towards more efficient use of expensive energy. It is doubtful that at this point in time, regulators will set or engineer the carbon price to be so high as to advantage some of the currently more expensive renewable energy solutions in a purely economic comparison. At very high carbon prices, great economic pain would be inflicted for a number of years as low carbon alternatives to our current energy conversion system would take a while to develop and represent singly and together large capital investments. Those who hope to rely solely on carbon pricing tend to downplay the historical benefits that fossil energy producers and fossil electric generators enjoy representing and benefiting from as they do decades of sunk costs and subsidies that most carbon pricing systems are not designed to account for; therefore they can act as a catalyst but only at very high levels will switching to renewable fuels appear high on the agenda.

Tax Credits

The American renewable energy industry has some large wind, geothermal and solar projects on the ground because of tax breaks that large institutional energy investors have benefited from on and off over the past couple decades. The ITC or Investment Tax Credit allows investors to write off 30% of their investment from their taxes while the PTC or Production Tax Credit provides investors in certain mostly renewable generators a few cents tax credit that adds up to a substantial incentive. The ITC and PTC were cut out of the Energy Bill of 2007 and are now again up for a vote and potential veto by President Bush. As a form of renewable energy finance, the ITC and PTC have been effective for those renewable energy projects that have won power contracts with utilities and can otherwise compete on cost inside US utilities’ generation portfolios. The tax subsidies have worked best as supplements to other forms of subsidy and pro-renewable regulation.

Tax subsidies have proven to be politically vulnerable because they are a form of indirect subsidy that are difficult to understand or empathize with for the average voter. Furthermore the benefit of these subsidies has accrued in the US disproportionately to larger renewable projects. The current funding plan to reinstate the ITC/PTC pits the renewable energy industry and its Congressional supporters directly against fossil fuel companies and their allies that has led to the current political fight over reinstating the tax credits, the outcome of which will be decided soon.

Direct Subsidies

US, Japanese and European governments have long funded research into renewable energy through various national labs and grant programs. In addition, some demonstration or early commercialization stage power plants have received grants as a way to reduce risk and help obtain additional private funding. While the US has not under the current administration directly funded the building of new power plants, the European Commission has issued grants to help build new solar power stations in Spain.

As I noted in my post introducing the Cheap Energy Contract concept, there are green energy supporters who believe that massive pre-commercialization subsidies either from the side of government or grants/investments from private sources will create revolutionary cheap renewable energy technologies. Shellenberger and Nordhaus see government investment in renewable energy research as key to what they have named their book and think tank, a “breakthrough” in clean energy generation costs. Google’s RE<C strategy sees private investment as a partial or complete replacement for government subsidy to the same end.

Both direct and indirect subsidy by government requires at some point tapping into revenue from taxes, either revenue diverted from existing budgetary items or revenue from new taxes.


Some financial subsidy to renewable energy takes the form of upfront payments upon the purchase of a renewable generator, mostly small generators for homes or businesses. The California Solar Initiative is the largest example of a rebate program but other US states have had similar rebates. Funds for these payments usually come from the electric rates paid by all ratepayers within a region or they could also be paid through tax dollars. While these programs in combination with tax breaks have been able to stimulate solar development, there are reports that these programs are overly bureaucratic and are not stimulating enough renewable energy development. The advantage of a rebate program for residential customers and small businesses is that it lowers the upfront payment and lessens “sticker shock”.

Renewable Energy Quota Systems

Certain states in the US and various European countries have adopted requirements that utilities generate a certain percentage of the electricity they sell from renewable sources by defined target dates. Renewable Portfolio Standards or RPS laws assess fines to utilities that do not achieve these goals. With the RPS, a utility is supposed to find the “least-cost” renewables though there are some RPS laws that stipulate carve-outs for particular local resources, requiring that a certain percentage of the RPS be wind, solar, etc. By arrangement with regulators, utilities should be able to recover any disparity in cost between the renewable resources and regulated generation rates though this is not necessarily a part of the RPS law’s intention: the notion being that in the requisitioning and bargaining process the cost of the renewable generator will be brought down in price to levels close to the (mostly fossil) market rate. RPS laws are present in some US states, varying from levels such as California’s 33% by 2020 to as low as 5% in some states. Some states are allowed to fulfill their RPS requirements by buying green energy certificates from outside the state.

Without carve-outs for particular resources or technologies, RPS statutes drive utilities to buy energy from the currently most mature, least expensive technologies, usually onshore wind. The quota does not place the positive motivation for achievement within the actors who make the crucial decisions, the utilities, who are put in the position to avoid a penalty rather than gain a reward. Some leaders of utilities with a better regional energy mix, with a keener business sense, or with ethical motivations have taken a somewhat more inspired and creative approach to the RPS mandates than others. As RPS’s are based on achieving a standard level, overcompliance is not necessarily rewarded.

Renewable Energy Certificates/Green Power Marketing

RPS’s and voluntary carbon offset programs are often backed by “green tags” or REC’s (renewable energy certificates). These certificates are a way for investors in renewable energy to make additional money in excess of the wholesale electric rate they earn by selling the green “attribute” of generated power to third parties not involved in the power sales transaction. RPS standards that allow the purchase of RECs are big stimuli to what is called sometimes “Green Power Marketing”, i.e. the selling of RECs. These tradable certificates are the closest thing to a “free” market in renewable energy; notably they are a derivative of the energy itself, traded on an auxiliary market rather than a payment for energy delivered.

Feed-in Tariffs: A New Energy Contract?

With the exception of carbon pricing, in the US system some combination of the above are currently operative, yet there is growing interest in feed-in tariffs, a system that operates on different principles than each of the above. The reason for this interest is that for most concerned policy makers and renewable energy activists who take the threat of global warming seriously, transition to a Renewable Electron Economy is not happening fast enough. Many states are lagging in achieving RPS goals. The general agreement that a move to renewable energy is advisable has not been backed up with policies that enable effective action. Because of rapid rates of installation of renewable generators, people are looking to the example of Germany and Spain, where feed in tariffs have been most successfully established. Germany more than doubled the amount of renewably generated electricity on its grid from 2000 to 2007 (6% to 14%) while Spain has moved up to become the number two producer of wind electricity and is leading the fast growing solar thermal electric industry.

Feed-in tariffs represent a “New Energy Contract” in that they are a social agreement that re-prices energy to allow a transition to a higher proportion of renewables in the electric system. Feed-in tariffs are performance-based incentives that pay premium per kilowatt-hour rates to renewable generators to compensate them for early adoption of new cleaner technologies. Feed-in tariffs in their most successful forms are priced to reflect the cost of generation plus a reasonable profit. The point is to help jump-start the renewable energy industry by rapidly creating economies of scale in the manufacture of technologies like solar panels, wind turbines, solar thermal collectors or geothermal exploration and well-drilling. Furthermore the stable return on investment for generators reduces the finance costs for projects, which ordinarily are very high for new riskier ventures. FITs are a form of open 10 to 20 year power purchase agreement for qualified generators in distinct categories. Grid access and payment are guaranteed for generators that meet whatever the qualifying criteria that are set in the feed in tariff law. The costs of the feed-in tariffs are borne by all ratepayers in proportion to their electricity use and in Germany currently account for 3% of electricity expenditures by consumers. A rate-pooling mechanism across the widest possible rate-base is desirable to spread the costs among the beneficiaries as we all benefit from increased use of renewable generation.

As an example of a FIT menu of tariffs, in Germany the 2009 onshore wind tariff is 8 eurocents/kWh, offshore wind 14 eurocents, large solar PV farm 35 eurocents, small roof-mounted PV 45 eurocents, hydroelectric 4 to 7.5 eurocents depending on size, biomass 8 to 10 eurocents with a 2 eurocent bonus for innovativeness or district heating, geothermal ranging from 7 to 15 eurocents depending on size. Tariffs can vary depending on the strength of the renewable resource as well as on the size of the generator itself. A full menu of feed-in tariffs can extend one or two pages at most, detailing distinct classes of generator by size or location.

One difference between feed-in tariffs and other policy instruments is that feed-in tariffs can operate almost entirely as a standalone policy alternative, depending on a few social institutions for their effective growth. Feed-in tariffs benefit from a financial system that recognizes feed-in tariffs, is prepared to offer low interest loans based on the security of the tariff, and also allows mutual fund-style joint investment in renewable generators, allowing small and large investors to participate. Unlike tax based systems in the US, the funding for feed in tariffs runs largely through the private economy; emphasis is placed on the bankability of a project under the tariff system. Funding for a solar installation on a home or apartment building can become as simple as getting a car loan, while funding a large renewable installation will after financial due diligence enjoy the interest rates usually accorded the lowest risk business loans. Feed-in tariffs are successful because when priced right they are a strong incentive and design the electricity market to prioritize increasing the proportion of renewable generators. They also incentivize the project builders and owners themselves, those who make the decisions to site and buy renewable generation technologies. Yet they also put pressure on plant developers to efficiently design, situate and maintain their generators as payment is contingent upon producing electricity.

Historically feed-in tariffs of any sort were actually first formulated in the United States in 1978 with PURPA which required utilities to buy energy from renewable generators at the “avoided cost” of fossil generators. PURPA was implemented differently state by state and had a mixed history of success in helping the US renewable energy grow. PURPA also was criticized by some as expensive in an era of low natural gas prices as well as lack of acknowledgement of the cost/benefit ratio of renewable generators. In California, the first generations of wind turbines and some early solar installations have their roots in California’s implementation of PURPA.

German legislators from Left and Right in the 1990’s arrived upon feed-in tariffs as a way to promote local and regionally produced green energy and protect it from lowball pricing by the German utility industry. A product of the collaboration between the very conservative CSU and the Greens, the original tariff was a guaranteed per kilowatt hour wholesale price to small hydroelectric plants, wind generators and solar installations. In the year 2000, the pricing formula of cost plus a reasonable profit was instituted in the first German Renewable Energy Law (EEG) to further promote the development of economies of scale in a wider range renewable technologies. The new law introduced the concept of “degression” which means that future manufacturing efficiencies are forced by reductions in the per/kWh cost each successive “class year” of generators. The German law is considered an unqualified success for the German renewable energy industry that now employs approximately 210,000 people in a country of 82 million people. In a country without the traditional large hydroelectric resources of its more mountainous neighbors in the EU, Germany now generates 14% of its electricity from renewable sources with the goal to reach 25-30% by the year 2020.

Some critics of feed-in tariffs claim that they are not competitive or market-based but analysts of these tariffs point out that they are just different market design mechanisms than other renewable promotion mechanisms. Feed-in tariffs shift competition from between merchant generators or project builders to competition within each technology type between technology companies. The lowest cost/highest return technology will get more business as projects built with that technology will be able to make more money.

The nomenclature “feed-in tariffs” is considered to be not very descriptive nor euphonious, so people have suggested a number of alternatives. A leading US feed-in tariff advocate and consultant, Paul Gipe prefers “advanced renewable tariffs” which distinguishes older “feed-in” arrangements to the grid from the second generation of tariffs. U.S. Representative Jay Inslee has called them “Clean Energy Buy Back” in his recently introduced national legislation.

Spanish Innovations

Both Germany and Spain have had a great deal of success with feed in tariffs but actually implement them differently. Germany have fixed tariffs that are determined using the formula average project cost plus reasonable profit and a fixed reduction of the tariffs for each generation of generators to pressure the industry to become more efficient. The Spanish have added to this a market option that can allow generators to make more or less money than a fixed tariff depending on the momentary demand for electricity and therefore its market price.

In many countries now with partially or completely deregulated electricity systems, wholesale electricity generation prices are determined either in anticipation of or by the minute-by-minute balance of supply and demand. There are also markets for additional services that help stabilize the grid. In Spain renewable generators are being encouraged to participate in these markets by being able to opt into these markets while still enjoying some bonus for their clean, renewable attributes.

In the Spanish system then, every year generators can choose whether they want to be compensated with a constant, German style tariff or operate by what they call the premium tariff system. In the premium tariff system, a generator can be compensated either a little less than or somewhat more than the fixed tariff for their technology depending on the market price of electricity at the time of generation. In the case of concentrating solar power or solar thermal electric, in Spain a generator can chose to be compensated at a fixed rate of 27 eurocents per kWh or be compensated somewhere at a rate between 25 and 31 eurocents depending on the market price of electricity at the time of generation. The latter scheme is more remunerative for a solar technology and may also incentivize the use of thermal energy storage to take advantage of late afternoon and evening peak demand. Most generators in Spain opt for the market option as it generally pays off. The Spanish system also allows the tariffs in existing agreements to be adjusted by as much as 2% a year to reflect inflation or changes in cost. Furthermore, in Spain, generators over a certain size are required to forecast their output to grid operators or be penalized.

The Spanish premium tariff system is then designed through successive generations of installations to gradually bring renewable generators into a wholesale electricity market where time of use and other services to the grid and electricity consumers will become the basis for payments in the future once cost parity between conventional and renewable generators has been reached.

Pre-conditions for a Successful Feed in Tariff System

If feed-in tariffs are the most successful system for accelerating renewable energy deployment, what conditions need to be present for these policy instruments to actually work?

1. Social acceptance and enthusiasm needs to be widespread for transitioning from fossil to renewable sources of energy, allowing marginal increases in electricity cost in exchange for cleaner energy. Some social and political patience will be essential in meeting inevitable challenges and adjustments required to work out the nuances of any new program.

2. The tariffs should be set at a price that compensates plant builders for their costs plus a reasonable profit

3. The tariffs need to be guaranteed for a period of time (10 to 20 year contracts) that assures return on investment and the law itself should be in effect for as much as a decade or longer to create a more stable investment climate for renewables. If some technologies no longer require this protection they can be phased out of the coverage of the tariff sooner than other technologies.

4. A tariff law that encompasses a wide variety of technologies helps balance the strengths and weaknesses of each generating technology. Including residential, community and wholesale generation technologies will help push renewable energy development on all fronts.

5. Tariffs should “degress”, go down in price, with each successive class-year of generators to encourage early action and increases in industry efficiency. A feed-in tariff system will become obsolete when costs are brought down and prices for fossil fueled generation inevitably rise.

6. A pooling mechanism for sharing costs of the tariffs should be instituted and spread across as wide rate base as possible. Within that rate base, costs need to be shared equitably.

7. Resolving physical or social barriers to energy development such as transmission or assessment of environmental impacts should be standardized, transparently negotiated with all stakeholders, and compressed in time given the urgency of increasing the proportion of renewably generated electricity in the generation mix.

8. Energy investment should be open to and remunerative for all types of investor through both cooperative and large corporate investment vehicles. In deregulated markets, barriers to utilities investing in generation directly need to be amended to allow utilities to profit from feed-in tariffs alongside other investors.

9. A financial system that recognizes the value of the tariff’s purchase agreement and loans money accordingly is key; sometimes public lending institutions can pioneer lending for early projects to demonstrate the viability of the system to private-sector banks.

If the above conditions are present or can be created, success with a feed-in tariff system is highly probable. If the groundswell in the US continues apace we may very well see successful feed-in laws on a local or national level within the next few years.

The Renewable Electron Economy XIII: Valuing Energy and Energy Services February 19, 2008

Posted by Michael Hoexter in Efficiency/Conservation, Energy Policy, Green Marketing, Renewable Energy, Sustainable Thinking.
Tags: , , , , ,

The events of December when the US Congress dropped an extension of the existing tax credits for renewable energy from the 2007 energy bill have highlighted the need for the renewable energy industry to take a different tack in the area of policy support and marketing strategy. The importance of support for renewable energy is key, as tax breaks have stimulated investment in wind, solar, and geothermal energy in the years that they have been in force, yet there is a dramatic fall-off in new project starts when the tax credits have elapsed in 2000, 2002, and 2004. The current tax credits may be revived but their spotty, on-again, off-again history points to a fundamental problem of a lack of consistent, dependable support for renewable energy in the US. The tax credits were fairly easy to cut because they are a relatively indirect subsidy, though the oil and gas industry with a much stronger lobby also have benefited from indirect (and direct) subsidies. The more indirect the subsidy, the more difficult it is to build public support for re-instating that subsidy and the more dependent on the informal power of lobbying. In the instance of the 2007 energy bill, the oil and gas companies won one more round, even though these large energy conglomerates have started to develop side-lines in renewable energy.

The “Cheap Energy Contract”, the society-wide social and political contract that is still in effect in the US and Canada, makes both overt and hidden subsidy a necessity. In the age when oil and natural gas was “easy” and geopolitical strains had not yet emerged around Middle Eastern oil reserves, subsidy to oil and gas companies may have been welcome to those companies but probably not necessary. Now, with skyrocketing global demand for energy, oil and gas subsidies reduce risk for Big Oil, allowing for record profits to continue to roll in while oil prices remain high but still not yet at politically unacceptable levels. Soon the guarantee of cheap energy may no longer be able to be sustained with oil and gas, if market forces push the price of these resources still higher. The Iraq war can be taken partially or in its entire financial and human cost as a failed attempt at an oil subsidy, as it is unlikely that the war would have been started if Iraq did not sit on top of some of the largest oil deposits.

Those who insist on a “free” totally unregulated and unsubsidized market in energy believe, but have never demonstrated, that energy would be less expensive without government intervention or aid. Of course, some government subsidies go directly to a private company’s bottom line but a) our economy is based largely on the profit motive so this would apply as well to the oil industry and b) the services or funds that government provides would cost these private firms a lot more on the private market and therefore would lead to still higher oil prices. The low price of fossil energy subsidizes our most important commodities including food; the recent hike in food prices is partly attributable to rises in energy costs. Presidents Bush and Reagan never seem to have allowed their championing of unregulated markets to interfere with oil subsidies.

Energy and Human Use

Fundamentally, for human beings, there are two types of energy: energy that people can eat and energy that people don’t or can’t eat. Analysts of the social aspects of energy distinguish between exosomatic and endosomatic energy: endosomatic energy is what people can eat while exosomatic energy is the energy that is used outside the human body, either by work animals or machines to achieve some desired end. (“Somatic” = relating to the human body; “endo”= inside; “exo”=outside).

We use the word “energy use” in modern societies to refer to exosomatic energy use. There is a pretty tight correlation between the level of economic development and the amount of exosomatic energy used: for instance, the richest country in the Western Hemisphere, the U.S., uses about 30 times more energy per capita than Haiti, the poorest country. While there are satiation mechanisms for endosomatic energy which most of us have from birth (we stop eating when we are full), we have no internal limit with regard to the use of exosomatic energy. This lack of an internal limit on the use of exosomatic energy has not become a major issue for us until we came to recognize in the last couple decades the relationship of fossil energy use with climate change.

As mentioned in the post in this series on the electric farm, exosomatic energy use enables a geometric increase in the power to do work that individuals can exert. In agriculture, the use of fossil-fueled tractors and harvesters, enables a single farm worker to support 40-50 people in the US with food when at most a single worker in agriculture might be able to feed just a few people on his or her muscle power alone. A driver of a massive off-road diesel dump truck like those used in mining can carry more ore in a day than perhaps a few thousand people could. The electronic tools of the Internet, fueled by numerous power plants, allow an individual to communicate simultaneously with thousands or even millions of others within a few minutes. As Tad Patzek has observed, excess exosomatic energy can turn any of us into an everyday superhero, which is for many of us, an attractive prospect.

The Low Valuation of Energy

If (exosomatic) energy, in combination with technologies that can convert that energy to useful work, turns us into superheroes, wouldn’t this be a highly valued product?

As it turns out, not so much, as being a “superhero” is part of the expectation of our working and home lives in developed countries. Furthermore it is usually the energy conversion technology that gets all the glory, the car, the train, the mobile phone, rather than the energy resource itself. Energy use is not the focus of the activities we do: we don’t say “oh goody! I’m using a whole bunch of energy now!” Something like 80% of exosomatic energy in the societies of the world comes from fossil sources. Cheap fossil energy subsidizes all other activities in advanced societies. We expect to be able to travel at many times walking speed and to do lots of work with little effort on our part. Furthermore, most crucially, the price and availability of the endosomatic energy that we need, food, is highly dependent on energy; so of necessity all non-agricultural economic activity is dependent on the low cost of energy.

Energy then is part of the “frame” of economic activity and even more than that the “frame” of the frame of economic activity (enables plentiful, affordable, and varied endosomatic food energy which frames all economic activity). Just as we don’t pay much attention to the frame of a picture, most of us don’t pay much attention to energy. As an example, at this moment I am not paying attention to the electricity being consumed by my computer but instead focusing on the words I am writing. I am also not hesitating to go back and revise or rewrite something (I don’t blog in stream of consciousness…sorry) for fear of using more energy, the attitude of most computer users. In contrast to electricity, petroleum prices in the US are now at levels where obliviousness to the cost of energy is no longer as common as it once was.

High Per Capita Energy Use and Social Inequality

One of the byproducts of the North American way of using and valuing energy is that the lifestyles of a majority of the population are highly dependent on cheap energy. People can live in larger houses with larger yards if they are able to travel longer distances for less money; they can also afford to heat and cool them using the relatively inefficient devices and methods in our current building stock. Long commutes are a burden of those residents of high cost urban areas with moderate means who wish to own homes. Rural life in widely dispersed farms and farm towns is viable and bearable because of very high levels of petroleum use and the readiness to travel hundreds of miles on a regular basis. In addition to work, what many of us do for fun and leisure often is highly dependent upon petroleum or cheap electricity (monster trucks, airplane flights, power boats, game consoles, computers, plasma TVs). Partial exceptions to this style of life can be found in the highly concentrated urban areas of the Eastern Seaboard, though immediately adjacent are suburban areas where high per capita energy use is typical. Furthermore cultural and real estate trends are now placing a higher value upon urban living, pushing the middle classes and poor out of the most vital urban areas to the suburban and exurban periphery, and more dependence upon cheap energy.

It is no wonder that energy pricing is politically sensitive though most policymakers favor moves that attempt to minimize energy costs over the short term rather than provide long-term solutions.

The Ethical Valuation of Energy post Carbon

In contrast to the low economic valuation of energy, the discovery of the negative externalities associated with fossil fuel use, i.e. carbon emissions and warming, have led to energy use becoming one of the key political and ethical issues of this new century. Now the avoidance of using fossil energy and the installation of renewable energy generators has developed a high moral valuation. Crudely stated, there is now “good” and “bad” energy use. While this valuation is subjective, it is very widely held and has inspired numerous pricing mechanisms that either tax fossil fuel use or increase the revenue accorded clean energy as a way to promote the expansion of renewables. Carbon trading markets have arisen as a means of instantiating and, with legal backing, enforcing this moral valuation in the arena of economic exchange.

The newness of the higher valuation of energy use, in the negative, has not yet led to cultural attitudes in the West that show a positive respect for energy use. We do not yet treat gasoline or electricity as precious, nor have we developed the analogue of cultural rituals that show respect for material and natural bounty that one finds in less industrialized cultures or in our own religious observances before eating food.

The Culture of Energy Efficiency and Energy Conservation

We have found at least a partial substitute for cultural rituals that re-value energy or high energy prices in the movement towards greater energy efficiency and energy conservation that has grown in fits and starts since the 1973 Oil Crisis. In the United States, California has been the standard bearer, with state policies since the late 1970’s that at least in the electricity and natural gas sectors have made energy efficiency a requirement and a revenue center for utilities.

While energy remains somewhat cheap, energy efficiency has again become a virtue as well as a way to save money as concern about global warming grows and carbon pricing is anticipated. Cultures with higher energy costs have already built some degree of energy efficiency into their building and transport systems, but the moral valuation of energy efficiency may lead to more aggressive, pre-emptive moves to cut energy costs.

Analysts usually distinguish energy efficiency that involves installing devices that do the same work using less energy, and energy conservation, which means altering end use activities to save energy. For a time, in the 1980’s and 1990’s in areas without binding laws or high energy prices, energy conservation fell out of favor, though now cultural re-valuation in the shadow of global warming has led to an “up-valuation” of energy conservation in our cultures. Large energy users are increasingly being paid to become involved in demand response programs in the overburdened electrical system where energy use is turned down in response to system demands or automatically via pricing signals. Energy conservation is an attempt to invent something analogous to a satiation mechanism for our use of exosomatic energy.

The Sustainability Criterion

In addition to carbon emissions, in the last couple decades sustainable use of energy resources has also emerged as a value. To use energy in way that doesn’t draw from exhaustible resources or endanger the livelihood of future generations is a new and fairly rigorous criterion. Renewable energy, of course, is supposed to satisfy this criterion, while nuclear energy does not.

Energy: Commodity or Segmented Market?

Until the emergence of concern about carbon emissions and sustainability, energy has been viewed as a commodity, i.e. a good of low, uniform value affordable by most consumers. The opposite of a commodity market is a segmented market, which can contain commodity products at the low end, branded mass produced products, and customized products and one-offs, some of them handmade. The latter types of products can sometimes be “premium” products that can command larger sums for their greater quality or functionality. The uniformity of energy products has additional usefulness in that it adds value to end use devices that can be used across a broader range of situations. Electricity and crude oil have been treated as commodities though refined petroleum products allow some limited differentiation and branding. Now, there is an emerging trend towards a segmented market, as energy is being divided into “clean” and “dirty”, “sustainable” and “unsustainable” energies.

As this series focuses on electricity, the new differentiation among types of energy refers to differences between electric generators and not between energy carriers: we are still dealing with electricity of a particular voltage, frequency, etc that drives the same machinery for the end users/buyers. While historically pricing and valuation of electricity did not include consideration of sustainability or environmental impacts, we are rapidly working on ways where these impacts are put into the value equation.

If one generates electricity using a sustainable, clean method, does one then have a premium product or simply an expensive means of generating the same commodity? By avoiding negative externalities in the present (carbon emissions) and creating a sustainable technology (benefit to future generations), while generating electricity, greater social benefit is created. By creating a premium product out of this type of generation, a portion of this greater benefit can be recognized by and compensated for in a higher price.

There are currently two methods of segmenting the electricity market in favor of renewables as premium products, one focused on the retail end and the other on the wholesale end. On the retail end, Green Power Marketing is a largely voluntary system that creates a parallel market to the conventional market for electricity. Each MWh of cleanly generated electricity is issued a Renewable Energy Certificate or REC, which can be traded and sold to those who want to support or are required to support renewable power generation. Renewable Portfolio Standards for utilities create a market for RECs, as do carbon offset programs and voluntary Green Power purchases by ethically motivated individuals and organizations. REC markets and RPS policies are the renewable energy programs found in most of the United States, some European countries.

Segmenting the wholesale markets, some countries and regions have implemented feed-in tariffs that set a menu of premium wholesale rates for renewable energy generators, that allow for recovery of costs plus a reasonable profit. Feed-in tariffs are tailored to specific technologies and are meant to allow renewable technology companies to gain economies of scale by stimulating market demand for their technologies. Feed-in tariffs mix in with existing electric rates, leading to increases of a few percent a year in the total cost of electricity. Implemented most successfully in Germany and Spain, feed in tariffs have been the most decisive instruments to spur the increase of renewable electric generation as they are simple and reduce finance costs and project risk. Feed in tariff laws are now being considered in Michigan, Minnesota, and California, which already has a very limited feed in law on the books.

Future of Valuing and Pricing Energy

If we are serious about reducing greenhouse gas emissions and developing a sustainable energy system, we will need to both increase our energy efficiency by a large factor and also switch over from fossil to renewable generators at a fairly rapid pace. Placing a higher value on energy, either planfully or forced by necessity when fossil fuel prices rise, is the most likely route to building a clean energy system for ourselves and future generations. A segmentation, either at the retail or the wholesale end (or both) will help drive economic actors towards making the investments and purchasing decisions that favor cleaner, more sustainable energy over the fossil energy that is still the norm. This “New Energy Contract” is yet to be written but it will be no doubt a topic of discussion for years and decades to come.