Economist magazine itself relates the story of how “Harry Truman famously asked to be sent a one-armed economist, having tired of exponents of the dismal science proclaiming ‘On the one hand, this’ and ‘On the other hand, that’.” That, however, doesn’t solve the problem if you have several one-armed wonks battling each other, as the Brookings Institution clearly does.
For the past year or so, Brookings has been aggressively trumpeting the benefit of federal clean energy programs, including the loan guarantee program. Back in September, Brookings published a piece, “Why the United States Should Not Abandon Its Clean Energy Lending Programs” that asserts
The reality is the DOE’s loan guarantee program will likely result in minimal costs and large gains for taxpayers—just like many other federal lending efforts.
Brookings also lamented the imminent crash of that funding in an April report they coauthored, titled “Beyond Boom and Bust: Putting Clean Tech on a Path to Subsidy Independence” (the source of the alarming chart above). That report concluded:
Policy makers should steadily scale-up investment in energy RD&D to triple today’s levels to matchthe scale of other national innovation priorities.
Strangely, though, that report ignores both “climate change” or “global warming” and while it devotes a full 20 pages to policy recommendations, it devotes not one single sentence to a carbon price. The phrase “carbon price” never appears.
Now that’s schizophrenic because in August 2008, Brookings President Strobe Talbott and VP for foreign policy studies Carlos Pascual wrote an Op-Ed titled, “7 Years to Climate Midnight” that opens:
The world may have only seven years to start reducing the annual buildup in greenhouse gas emissions that otherwise threatens global catastrophe within several decades. That means that between Inauguration Day in January 2009 and 2015, either John McCain or Barack Obama will face the most momentous political challenge of all time.
In May of this year, Talbott repeated the message in a piece titled, “It’s the Climate, Stupid!”
Apparently, though, no one at Brookings actually reads what anyone else writes, including their own President (since who could believe there’s a lot of stupid people there?).
And if that wasn’t clear before, it is now, with the release of their new report, “Clean Energy: Revisiting the Challenges of Industrial Policy.” That report basically trashes clean energy subsidies (mistakenly labeling them “industrial policy”). Indeed, it has a whole paragraph pooh-poohing the loan guarantee program. Doh!
The authors, which include two economists, argue, “Clean energy subsidies without a price on carbon may be money down a rat hole” — in direct contradiction to the April report, which endorses a whole bunch of clean energy subsidies while going out of its way to ignore a price on carbon.
Ironically, both reports are misleading in this regard. Certainly, the ultimate goal must be a carbon price, since that is the only way to avert the kind of catastrophe Brookings President Strobe Talbott has warned about (see my post on the first report, “Can We Stop The Collapse of Federal Clean Energy Support Without Talking About Climate Change Or A Carbon Price?“). The International Energy Agency (IEA) noted back in 2008 that just to stabilize at 550 ppm (roughly 3°C or 5.4F warming), which would likely still be catastrophic for humanity, you’d need a price of “$90/tonne of CO2 in 2030.” You need a 2030 CO2 price of “$180/tonne in the 450 Policy Scenario.”
But we don’t have a carbon price, and until we do, arguing against clean energy subsidies seems perverse if one is at all concerned about climate change, which Brookings is, except when it isn’t.
It really seems a waste of time to debunk this nonsensical report — you can just read everything else Brookings has written on the subject.
Still, the confused report is already being used by the media to confuse the issue. For instance, the Washington Post used the report as the basis of an equally nonsensical piece by one of its editorial writers, “ ‘Clean energy’ is money wasted.”
So let me focus on two of the sillier things in this report. The authors do understand that the political support for a carbon price hasn’t been there, but they are exceedingly confused about what the implication of that is (or should be) for clean energy policy:
What complicates attaining the goal, of course, is that political conditions in the United States could frustrate sensible carbon pricing for years. Thus DOE’s policy portfolio arguably ought to support the kinds of research and investments that would have been taken by firms in the presence of an effective carbon price. It would both sponsor basic research and, until Congress gets around to setting a meaningful price on carbon, encourage investments analogous to those that firms would undertake if carbon were properly priced. In other words, federal RD&D efforts would invest in technologies with the lowest expected cost of abatement and the highest probability of market penetration.
But this does not appear to be current policy. Instead, of the nearly $40 billion in loan guarantees in the stimulus package, over 43 percent went to two sectors with some of the highest costs of carbon abatement and the lowest projected market shares: solar power and electric vehicles. In the most recent data available, DOE awarded 38 loan guarantees, 23 of them for solar power (19 generation, 4 panel manufacturing) and 9 others spread among wind, geothermal, biofuels, and electrical transmission, plus 6 to auto companies for fuel-efficient vehicles and electric vehicles.
The disproportionate emphasis on funds for solar power does not square with projections of its likely deployment. For example, EIA projects solar power to comprise only about 5 percent of all non-hydro renewable electricity and less than one percent of all renewable electricity by 2035. That implies a very small fraction of all electric-power generation by 2035. In addition, $8.3 billion in loan guarantees (over 23 percent of the total) went to a single company to deploy two new nuclear power projects.33 The most cost-effective technology category in the 2001 NAS report, energy efficiency, received less than one percent of the loan guarantees. Of course, what matters is the overall spending portfolio outside the unusual context of the stimulus package, but allocations such as those in the ARRA’s loan program illustrate our point that resources should instead be directed towards investments that support innovations which minimize the cost of environmental protection.
No, no, and no.
I helped oversee a large chunk of the federal RD&D effort on low-carbon technology for a few years in the 1990s. There is no question that it’s important to invest in technologies with a high probability of market penetration. But that isn’t the same thing as the lowest expected cost of abatement. The technologies with the lowest abatement cost are almost entirely in the energy efficiency realm.
But a great many efficient technologies are cost-effective now (see “Energy efficiency is THE core climate solution. Part 1: The biggest low-carbon resource by far“). Their main barrier to marketplace penetration isn’t price (or at least not price alone,) it is generally something else, as has been very well known in the field (yes, I understand that most mainstream economists don’t believe there are a great many money-saving technologies being ignored by companies and individuals, but there are and that’s probably why no one should be paying attention to what most economists have to say on the subject). Their barriers tend to have to do with utility regulations that only allow utilities to make money by selling more of their product and the fact that many people don’t own the buildings they live or work in, which makes it hard for many people to capture the benefits of efficiency and so on.
Second, a key point of federal investment is precisely to help those technologies that aren’t close to being commercial. The private sector and the venture capital community are putting billions of dollars every year into the near-commercial technologies. That doesn’t mean they aren’t missing some bets that government should place in that arena. But it does mean that the government needs to place riskier and longer-term bets than the private sector would.
Third, solar power is not a sector that is projected to have one of the lowest market shares. Quite the reverse — it’ll be a major winner. And solar has been dropping in price very rapidly precisely because of federal investments and subsidies. Also, solar PV generally compete with retail rates so even with a higher cost it is still seeing accelerating market perpetration (see “Three Charts That Illustrate Why Solar Has Hit A True Tipping Point“). Brookings discussion of solar’s market potential here is several years out of date. Quoting EIA on renewable energy projections or anything else is laughable. EIA is notoriously poor at predicting the future of anything to do with energy — oil prices, natural gas prices, solar or wind prices.
I would add that batteries and electric cars are indeed expensive now. But better batteries are an enabling technology, and electric cars are a primary strategy for reducing greenhouse gas emissions in the transportation sector, which otherwise is considered to be a very high-cost source of emissions reductions (other than improvements in efficiency). Again, if the federal government only pursues the same technologies that the private sector focuses on — the low cost, near-commercial technologies — it would be wasting a lot of its money in duplication while ignoring key technologies that will be needed post-2030 when we have to take global emissions very sharply down.
So Brookings has failed to make a compelling argument that somehow current RD&D policy is so flawed or politically tainted as to render it unjustifiable.
A far more effective policy than subsidies for clean energy research, development and demonstration would be a tax or a cap-and-trade regime that would put an appropriate price on carbon and other greenhouse gases. Properly implemented, this alternative approach would help level the playing field for greener energy sources, for it would require emitters to pay prices that reflect the costs their emissions impose on society. The enhanced efficiency that would result has been widely recognized by economists. True costs would flow to purchasers of goods and services that require energy, suitably inducing conservation. Emitters would have incentives to invest in equipment and new production techniques, use alternative fuels, and seek other methods to reduce emissions. And America’s innovators would channel their efforts into inventing, scaling up, and marketing competitive forms of clean energy. However, because existing market signals do not suffice to encourage climate-friendly technologies, carefully targeted federal funding seems warranted. But as we explain later, it is ironically only after incorporating the social costs of energy into market prices that many clean energy subsidies will succeed in deploying new technologies.
Since I have a book on communications coming out in 2 months with an entire chapter on irony I feel compelled to point out that this is not ironic. It is almost the reverse of irony — it is literally true.
It isn’t ironic that many clean energy subsidies will succeed in deploying new technologies only after incorporating the social costs of energy into market prices. It is the primary rationale for having those subsidies until we get the carbon price.
To be clear, we are in fact talking about a two-phase process. Yes, we should have a carbon price. But we don’t. Because of the dire nature of the climate problem, the federal government needs to have an aggressive clean energy RD&D effort (along with efforts to reduce marketplace barriers) until the point that we do have a high and rising cost of carbon.
What’s ironic is that Brookings seems to be run by people who understand how dire the climate situation, people who understand that “It’s the Climate, Stupid!” but they keep publishing reports that don’t understand this at all.
Again, their President wrote 4 years ago:
Reflecting a consensus of hundreds of scientists around the world, the Intergovernmental Panel on Climate Change (IPCC) has affirmed that greenhouse gas emissions are raising the Earth’s temperature. The Earth is on a trajectory to warm more than 4.5 degrees Fahrenheit by around mid-century. Exceeding that threshold could trigger a series of phenomena: Arable land will turn into desert, higher sea levels will flood coastal areas, and changes in the convection of the oceans will alter currents, such as the Gulf Stream, that determine regional weather patterns….
Manhattan and Florida would be under water, while Nevada would have no water at all…. Countries such as Bangladesh and Mali do not have the resources to mitigate or even to adapt to the impact of climate change; millions would flee coastal flooding and the desertification of farmlands, creating instant “climate refugees.”
The head of the Nobel Prize-winning IPCC, R.K. Pachauri, recently told us: “The cities, power plants and factories we build in the next seven years will shape our climate in mid-century. We have to act now to price carbon and create incentives to change the way we use energy and spread technology — and thereby avert nothing less than an existential threat to civilization.”
Urgent and drastic action by the international community is required, and the United States must take the lead….
[There are] nearly 75 million Americans — and 2.2 billion people worldwide — younger than 18. That generation will be in its 40s or 50s when one of two things happens: Either the temperature of the planet warms more than 4.5 degrees and vast regions slide toward being uninhabitable, or the wisdom of the next president and his fellow leaders around the world pays off in the ultimate reward — survival.
And the science has only gotten more worrisome in recent years (see “An Illustrated Guide to the Science of Global Warming Impacts: How We Know Inaction Is the Gravest Threat Humanity Faces“).
In a world requiring “urgent and drastic action” where “the United States must take the lead” so we don’t see “vast regions slide toward being uninhabitable,” low-carbon energy is going to be the biggest job-creating industry, and it is absurdly ironic that Brookings would release a report arguing against federal clean energy investment. Except of course, they released a report two months saying the exact opposite. Where is Harry Truman when you need him?