Sens. Kerry, Graham, and Lieberman,
Thank you for the work you’re doing to to address America’s climate and energy challenges. As you meet with a broader group of stakeholders and begin to structure a bill, you face an enormous challenge of your own: crafting legislation that can get 60 votes in a fractured and somewhat exhausted Senate. The odds are steep, but I believe there is a strong, bipartisan path forward.
The crucial starting point is this: The American people want clean energy. They want to make more energy in America; they want to use energy more wisely; they want to create jobs and compete in new global industries; they want to leave behind a clean environment and healthy children. These aspirations are shared across the country, across income groups and demographics, and across party lines, as reflected in poll after poll after poll.
What Americans and their political representatives are more ambivalent about is a policy instrument designed to serve those goals: putting a price on greenhouse gas emissions. One form of carbon pricing in particular — cap-and-trade — has become a partisan political football and moved, unfortunately, to the center of the public conversation. Cap-and-trade comprises only about a third of the comprehensive climate and energy bill passed in the House last year, yet in political and media circles it was discussed almost exclusively as a “cap-and-trade bill.”
Cap-and-trade has become the “death panels” of clean energy policy, rendering hyper-partisan what should be a rare area of pragmatic consensus. This is the dynamic you must change if you’re to have any hope of success. The question is: how?
Moving carbon pricing to the background
Past efforts at climate legislation, dating back to Sen. Lieberman’s first effort with Sen. McCain, have tried to secure support for a price on carbon by making concessions to affected industries and legislators from energy-intensive states. Lawmakers have distributed free permits under a cap-and-trade system; promised subsidies and tax breaks; weakened targets and increased the number of carbon offsets. As the Senate’s recent experience with health care shows, Americans do not particularly enjoy the sight of this kind of deal-making. Regardless, it hasn’t worked: no bill has offered enough sweeteners to lure 60 votes for carbon pricing in the Senate.
All of you, notably (and to his credit) Sen. Graham, have resisted the call for an “energy-only” bill. You agree with economists that a price on carbon is necessary for a long-term energy transition. How can you thread this needle?
There is a way. It begins by changing the way we think about carbon pricing. For at least the next five to ten years, no politically palatable price on carbon is going to serve as a primary driver of change. Anything that can pass simply won’t be high enough and its effects will be too diffuse. The main goal with your bill should be to establish a framework whereby a carbon price is implemented and steadily raised. The initial price can be low — low enough to avoid the kind of political backlash that has poisoned previous efforts — and phase in over time so affected industries have time to prepare. At least in the short term, we should think of carbon pricing as a funding mechanism for clean energy policies. It’s a form of responsible budgeting, nothing more, nothing less.
As long as the revenue it raises isn’t being siphoned away for payoffs to nervous voters and energy incumbents, a relatively modest carbon price could produce the revenue needed to fund an ambitious clean energy effort without imposing undue pain on consumers or manufacturers.
This strategy moves carbon pricing where it belongs for the next decade: into the background, as part of a sturdy, multifaceted policy infrastructure. In the post-2020 years, the price will reach a point where it plays a more direct role in driving behavior change. By then, clean energy will have built up enough capacity and market demand to give the public an appetite for increased ambition. In the meantime, clean energy and energy efficiency policies — the job creators and money savers — should move into the foreground.
In exchange for reducing the role of carbon pricing, you should push to strengthen and expand the clean energy and efficiency provisions in your bill. Without a substantial price on carbon those policies will have to be that much more robust if they are to meet the goal President Obama promised in Copenhagen: 17 percent from 2005 levels by 2020.
Moving clean energy and efficiency to the foreground
The energy bill passed by the Energy Committee last year is a credible effort. Sens. Bingaman and Murkowski are to be lauded for the work it took to put it together. But as they both recognize, much more needs to be done. The political climate is ripe for greater ambition and a host of good ideas on energy, many with demonstrated bipartisan appeal, have been put forward recently.
An effective starting point for the effort can be found in the “practical energy plan” being developed by Sen. Dick Lugar, who, like all of you, is a long-time Senate bridge-builder. His plan is admirable for its simplicity and the clarity of its goals: capturing energy efficiency, diversifying and cleaning up the electricity sector, and reducing foreign oil dependence. Each of those goals is served by a range of policy instruments, from building efficiency standards to loan guarantees for clean energy generators to higher CAFE standards. It’s a strong foundation that should be built on in a few important ways.
1. Strengthen the energy efficiency title.
Efficiency should be at the heart of any bipartisan effort: it saves consumers money, creates jobs, benefits every single congressional district, and can be achieved quickly. As a comprehensive new report from the World Economic Forum and IHS Cambridge Energy Research Associates puts it: “Of all the energy options, [energy efficiency] can provide the biggest ‘amount’ of energy in the near and medium term while contributing to reductions in greenhouse gas emissions.” Strong energy efficiency provisions can easily save consumers more money than a price on carbon would cost them; most people, particularly low- and middle-income Americans, would come out ahead.
The most important efficiency provision to add is a separate, free-standing energy efficiency resource standard (EERS) to complement the clean energy standard. It would require that utilities satisfy a percentage of new demand with efficiency programs of the sort that have repeatedly demonstrated their effectiveness. The American Council for an Energy Efficient Economy has done extensive modeling work on this subject and found that even a modest, easily achievable national EERS has the potential to save American consumers billions of dollars and create thousands of jobs. An ambitious EERS — say, 20 percent by 2020 — can do even more. It’s the lowest hanging fruit in energy policy and can benefit every region and every state.
Other energy efficiency bills focused on the building sector have emerged recently, backed by the Obama administration and several senators. The Home Star and Building Star programs would offer consumers and businesses incentives to invest in energy efficiency retrofits, while creating much-needed jobs for the struggling construction trades. Property-assessed clean energy bonds (so-called PACE programs) remove one of the primary barriers to cost-effective efficiency investments: the steep up-front costs. They have proven wildly popular in a growing number of cities and states. The Rural Energy Savings Program recently put forward by a bicameral, bipartisan group of lawmakers (including Sen. Graham) would extend the same employment and money-saving benefits to rural areas.
More ideas like this emerge every week, as legislators’ eyes open to the win-win potential of energy efficiency. It can serve as the heart of your bill and as common political ground.
2. Strengthen the clean energy standard.
Just this week, a bipartisan coalition of 29 governors joined in a call for a renewable electricity standard (RES) of 20 percent by 2020. The Department of Energy found that an RES of 25 percent by 2025 is both affordable and achievable, and that’s with fairly some pessimistic projections of scale and innovation.
Unfortunately, the RES in the Energy Committee bill — 15 percent by 2021 — would do little to boost renewables above business as usual, according to both ACEEE and the Union of Concerned Scientists. The politics of clean energy have been vexed because some senators, particularly from the Southeast, believe their states have little access to clean energy and will end up subsidizing other regions. This is simply mistaken. As an analysis (PDF) from the Southern Alliance for Clean Energy shows, Southern states have access to copious biomass, along with plentiful solar, geothermal, and offshore wind energy. (West Virginia’s Joe Manchin is part of the coalition of governors.)
Further support could be built by allowing some nuclear power and coal with carbon sequestration to qualify under a broader clean energy standard, of the sort Sens. Lugar and Graham have proposed. If those sources are permitted, however, their contribution should be capped; genuinely renewable sources deserve special consideration.
3. Address the legacy fleet of dirty U.S. coal plants
One of the biggest impediments to the growth of clean energy is America’s fleet of aging dirty coal plants. Just under 10 percent of U.S. power plants produce fully half the power sector’s carbon pollution. Of those plants, 83 percent were built 30 or more years ago. That same group of decrepit plants also produces a disproportionate share of particulate emissions and mercury pollution, at substantial public health cost.
Because they are fully amortized and face no pollution controls (they were “grandfathered” under the Clean Air Act), the energy these plants produce is extremely cheap. For that reason, they have been run more intensively the last 20 years. For the same reason, no carbon price likely in the next 20 years will render them uneconomic. They must be addressed by regulation.
The best way to do this is via regulations of greenhouse gases by the EPA. Those regulations are the subject of heated controversy; legislators from energy- or manufacturing-intensive states are concerned that they will be intrusive and expensive. (Less widely understood is the fact that a few simple legislative modifications to the Clean Air Act could allay those fears. The threshold for a regulated entity could be raised to 25,000 tons, or higher, to insure that only the biggest polluters are subject to regulation. The vexed question of what constitutes “best available control technology” under the Clean Air Act could be settled by Congress in a way that balances economic and environmental concerns.)
If, as is rumored, EPA authority over greenhouse gases is pre-empted by your legislation, Congress will still needs to address the problem. Steadily rising plant-by-plant performance standards would prompt utilities to upgrade or close those plants. Alternatively, T. Boone Pickens and Ted Turner have proposed a “cash for coal clunkers” program that would effectively buy out the oldest, dirtiest plants.
4. Pick the best of the rest
There are plenty of other worthwhile provisions in circulation, in the Energy Committee bill and elsewhere. They address the need for bulked up energy transmission and a smarter grid; the need to establish institutions (like a Clean Energy Bank) to provide stable financing; the need to bring utility regulations into the 21st century. Many of these ideas have, quietly and without fanfare, gathered bipartisan support. Look outside the conventional channels and conventional ideas. Beyond the somewhat stale thinking in the Beltway, many of America’s brightest minds are furiously attacking this problem. Unleash them!
In long-overdue conclusion
America is ready for clean energy. A vast amount of private capital is being held back as investors wait for clear rules. The dispute over carbon pricing should not be permitted to cause further delays, concessions, or trimmed ambitions. The smarter path forward is to establish a minimal or slowly phased in carbon price, acceptable to most industries and legislators, along with a framework whereby it can be raised in the future. With that contentious debate behind you, you can turn to crafting the ambitious clean energy bill for which the American people have unambiguously voiced support.