Silicon Valley venture capitalists have been running through our carbon-offset accounts lately, flying to Washington, D.C. to advise legislators on energy issues. I’ve visited the capitol three times just this spring, to speak to House and Senate committees (see my House and Senate testimonies, respectively).
Our new popularity inside the Beltway gives me hope that the federal government is finally starting to confront our three increasingly urgent, and related, energy dilemmas: climate change, threats to our overseas oil supplies, and the danger of losing our competitive edge in what is shaping up as the new, green industrial revolution. These issues present moral, political and economic challenges, but, as I’ve stressed, they’re also fundamentally entrepreneurial challenges. The best gift Congress could give this country would be policies designed to unleash American innovation.
The good news is that even in the absence of determined federal guidance, green energy technologies have become increasingly cost-competitive with the incumbent, fossil energy sources. We’re already seeing a dynamic similar to Moore’s Law, that famous observation that computer performance was doubling every 24 months.
I don’t, however, believe the market alone can get us out of our energy fix. So each time I’ve been to Washington, I’ve emphasized the following strategies, to be adopted as soon as possible:
Put A Price On Carbon Emissions
Economists have been urging us for years to put a price on carbon that would accurately reflect its costs to society. Making fossil fuels more expensive will make newer, cleaner power sources relatively less costly, spurring demand. Two legislative approaches would accomplish this: a carbon tax, and a carbon cap-and-trade system.
A carbon tax has the advantages of being speedy, simple and transparent, but is politically challenging, and offers no certainty about how much we can reduce emissions for any given level of taxation.
A well-designed cap-and-trade system, on the other hand, would be easier on politicians, and offer the predictability of a target for emissions reduction. It would also have the benefit of rewarding companies making the most progress in adopting clean energy, since they can earn and sell carbon credits to those moving more slowly. However, it would take many years to implement such a trading system, and the initial program is likely to be politically compromised.
I’ve urged Congress to consider gaining the advantages of both a carbon tax and a cap-and-trade system by combining these two strategies. There’s no danger of this becoming a “double tax,” by the way, because if the carbon tax cuts carbon emissions to at least the level required by the cap-and-trade system, there simply won’t be as many trades.
Increase Federal Research Funding of Green Technologies
The federal government provides roughly $1 billion annually for all research involving non-nuclear, renewable energy sources. That’s plainly inadequate if we plan to transform our power and transportation industries, which together account for more than $1.8 trillion of U.S. gross domestic product. Senior personnel at many of the top U.S. academic institutions have emphasized to me how little federal energy research funds are available for non-nuclear technologies – the cleanest, safest way out of our energy predicament.
We must find a way to increase federal sponsorship of clean energy research, several-fold, to build up this young industry. We’ve met this kind of challenge before. Consider: America, in current purchasing power, spent more than $20 billion on the Manhattan Project and more than $135 billion on the Apollo Project.
Beyond increasing overall energy research funding, Congress should ensure the vast majority of new funding targets renewable energy and energy efficiency. Over the past 50 years, nuclear energy has received more than 95% of all U.S. funds spent on non-fossil fuel energy sources. We need to make room for safer technologies.
Level the Playing Field for Clean and Efficient Energy
Here are five ways to do this:
A new federal Renewable Portfolio Standard and a substantially higher threshold for the existing Renewable Fuel Standard would send a powerful signal to the private market. Entrepreneurs and investors could be confident of substantial demand for innovative new products, even if they have not yet had a chance to achieve economies of scale.
Potential mechanisms include tax credits, subsidies, and loan guarantees.
Congress should strengthen CAFÉ standards, require national energy efficiency standards for electronic equipment and appliances, and work with states to create similar standards for buildings. Congress should also evaluate how to work with utilities so their profit potential is driven as much by introducing energy efficiency as it is by selling power.
Use the Power of the Purse:
The Federal government is the single largest U.S. energy consumer. As such, it can lead our energy transition by becoming the single largest purchaser of green technology.
Congress should encourage and guide the rapidly emerging biofuels market. One useful strategy would be to restructure the existing blender’s credit so it is paid to ethanol producers rather than to gasoline distributors, and provides a credit level that is inversely related to the price of gasoline (creating a safety net for ethanol producers in the case of a sudden drop in gasoline prices).
Like it or not, we’re in a global race for solutions to our energy dependence and climate-change problems. Europe and Asia are devoting significant resources to this effort, including major infusions of taxpayer funds. Countries that develop strong Greentech industries will surely boost their economies and provide the jobs of the future.
Will we be one of these leaders? After all, our standard of living today is the highest in the world, largely due to our leadership in technology innovation over the past half-century. The stakes are much higher than that, however. We must remember that our energy predicament today goes far beyond challenges to our economic well-being to include the health of the planet and our national security. Staying on the sidelines is simply not an option.