The following is a guest essay by Ted Nordhaus and Michael Shellenberger, authors of Break Through: From the Death of Environmentalism to the Politics of Possibility and “The Death of Environmentalism.” Nordhaus and Shellenberger are managing directors at American Environics and the founders of the Breakthrough Institute.

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Shellenberger & NordhausThis month the world celebrates the 20th Anniversary of the international treaty that phased out ozone-destroying chemicals. For environmentalists, the Montreal Protocol has long been a model for action on global warming. In the words of David Doniger, the climate director of the Natural Resources Defense Council, "The lesson from Montreal is that curbing global warming will not be as hard as it looks."

Indeed, when one looks back at the pollution problems of old, none of them were as hard or as expensive to solve as the affected industries claimed they would be. Scrubbers on smokestacks, catalytic converters on cars, lead out of gasoline, and alternatives to ozone-depleting chemicals — these technical fixes came at a very low cost to the economy, industry, and consumers.

The same will be true, environmentalists say, when it comes to global warming. All the alternatives we need — efficiency, conservation, renewables, sequestration, and even nuclear — already exist. We just need to scale them up.

Sure, global warming is a bigger problem, they acknowledge. But it will be solved just like we solved acid rain: by auctioning emissions permits and allowing firms to trade them. To reduce U.S. emissions by 80 percent between 2010 and 2050, we simply need to reduce the total allowable emissions by two percent each year.

By limiting the amount of emissions each year, and auctioning or giving away a limited number of emissions permits to firms, governments will effectively create a price for carbon dioxide emissions. This price will create value for reducing emissions, and the free market — firms trading emissions permits for emissions reductions — will find the most efficient way to reduce our greenhouse gases by 80 percent by 2050. And as dirty energy sources like coal and oil become more expensive, clean energy sources will become cost-competitive and more widely used.

It is true, environmental leaders acknowledge, that China and the rest of the developing world haven’t agreed to reduce their greenhouse gas emissions. But they are just waiting for the U.S. to act. These countries, China in particular, are receiving billions of investment from European firms purchasing emissions reductions. They will see the wisdom of limiting their emissions so that, in the future, they can stay in the emissions trading system. And while the developed nations that ratified Kyoto saw their emissions go up, not down, they are just getting started. The U.S. will learn from Europe’s mistakes, and the next version of the Kyoto treaty will be executed much better.

The Regulation-Centered Approach

This pollution regulation framework offered by environmentalists for dealing with global warming is, for many, a reassuring one. For 15 years it has provided policymakers, the media, and the public with a mental model for understanding how such a massive problem like climate change could be solved in an organic way by the market, perhaps the most powerful institution ever created by human beings.

There’s just one problem: it won’t work.

There are five reasons why setting a price on carbon dioxide, either through a cap and trade approach or an outright tax, cannot reduce greenhouse gas emissions anywhere close to what is needed.

Break Through1. The regulation-centered approach won’t result in the deep reductions in global carbon emissions that climate scientists believe are necessary to avoid catastrophic climate impacts. The consensus among climate scientists is that we must reduce global carbon emissions by roughly 80 percent by the end of this century in order to avoid catastrophic climate change. Many have come to the position that U.S. emissions must be reduced 80 percent by 2050. But current regulatory approaches will result in modest, not deep, reductions in carbon emissions. This is due to a combination of technical, economic, and political constraints.

Technically, there simply do not yet exist the low-cost, low-carbon technologies that could be quickly brought to scale to replace carbon intensive energy sources. The environmentalist line that "we just need to scale up existing technologies" is only partly true. It is true that some strategies for reducing emissions, such as efficiency and conservation, can be scaled up immediately. But technologies like solar and carbon capture and storage are still far more expensive than coal and gas.

Pricing carbon at $35 – 100/ton — whether through cap and trade or carbon taxes — can help us to get part of the way there. Carbon at those prices will drive investments into efficiency and conservation, and will create incentives for energy providers to build gas-fired rather than coal-fired plants. These measures could result in emissions reductions on the order of roughly 20 percent by mid-century. But to achieve major reductions on the order of 80 percent, we will need to replace coal and oil as energy sources almost entirely. And that will require dramatic technology breakthroughs to bring down the price of clean alternatives.

Economically, the price of carbon dioxide would have to be set at exorbitant levels for today’s clean energy alternatives to become cost-competitive with coal, gas, and oil. The IPCC estimates that establishing a global carbon price of $184/ton — a figure five times higher than what legislation in the Senate would set it at — would still only result in a reduction of global carbon emissions by 20-38 percent by 2030. To reduce greenhouse gases by 90 percent by 2050 in the United States through regulation alone, carbon would have to priced at around $300 dollars/ton between 2010 and 2030, and at a whopping $600-800/ton between 2030 and 2050. To gain a sense of the impact this would have on consumers, not to mention the economy as a whole, consider that carbon priced at $700/ton would increase the price of coal-generated electricity in the U.S. two and a half times.

Politically, if action on global warming depends on voters and politicians accepting higher energy prices, there will be very little action on global warming. That’s because voters consistently rank global warming dead last as a priority — and just as consistently rank rising gasoline and electricity prices as a top concern. Understandably, then, politicians care more about keeping energy prices low than they do about global warming.

Shellenberger & Nordhaus

2. Governments will continue to set a low price for carbon, which will prevent clean energy sources from becoming cost-competitive. Tradable pollution limits and a price for carbon could result in some emissions reductions — just not reductions approaching anything close to 80 percent in the U.S. or 50 percent worldwide. Recognizing that voters care more about the cost of energy than global warming, most policies under consideration in Congress would price carbon at around $30-75/ton. At that low price, private investment will flow toward the least expensive emissions reductions, such as burning methane from landfills, purchasing forest land for carbon sequestration, shifting from coal to natural gas, or retrofitting power plants and buildings so they operate more efficiently. Private investment would not, for the most part, flow toward breakthrough technologies like low-cost solar energy and carbon capture and storage, which are required to displace coal-based energy.

3. Developing nations like China will not sacrifice their economic growth to reduce its emissions. Reducing carbon emissions by 80 percent worldwide through regulatory limits alone would require setting a very high for carbon. For carbon capture and storage to become economically viable, carbon would have to be priced between $100-200/ton. For solar photovoltaic to become cost-competitive without other subsidies, carbon would have to priced at well over $500/ton.

It is important to keep in mind that high carbon prices would, in today’s carbon-heavy energy economy, translate into dramatic increases in the price of energy and everything else that requires energy (which is to say, virtually everything). Given that increasing energy use and consumption are highly correlated with longer life spans and higher living standards in developing nations, a high carbon price would represent a major obstacle to economic development for poor countries.

Environmental leaders insist that once the U.S. acts, so will China. They point to the fact that Chinese firms are earning billions selling emissions reductions to European firms, thus giving China a stake in the success of global emissions trading. Moreover, China is genuinely worried about global warming.

Nevertheless, there is no reason to believe that if China does eventually set a price for carbon it will set it high enough price — at, say, $100-$200/ton — for carbon capture and storage facilities to become cost-competitive. Doing so would dramatically slow the rapid climb that hundreds of millions of Chinese are making out of poverty. But even if the Chinese government were to set a high price for carbon as early as 2030, China will have already constructed hundreds of coal-fired power plants — few of which will be compatible with carbon capture and storage plans.

In the end, the only way the Chinese government will be able to substantially reduce its emissions is if the price of clean energy and carbon capture technologies come down enough to get within striking distance of the price of fossil fuels — with or without a price for carbon.

4. Dramatic and rapid technological breakthroughs will not be primarily driven by the private sector. Private firms will play an important role in bringing new technologies to market — and carbon pricing will play an important role in making market conditions more amenable to clean energy technologies. However, private firms will not make the large, long-term investments in R&D and deployment, nor can they create the public infrastructure (e.g., new transmission lines) needed for the new energy economy. The energy sector is unlike the pharmaceutical, software, and computer sectors. Energy R&D requires far larger sums of investment capital than are required for other technologies, which helps explain why energy remains one of the least innovative sector of the economy (coal and oil being very old fuel sources). Unlike those other industries, it is extremely difficult for energy firms to protect their patents against reverse engineering. And even pharmaceutical, software, computer and Internet industries all depended in their formative decades on large-scale government investments in education, infrastructure, and R&D.

5. Public investment will be far more important than pollution limits in driving technological innovation and reducing the real price of clean energy. This point seems to be controversial only among environmentalists.

Anyone who read the media coverage of the spring 2007 IPCC report would be forgiven for having thought that the U.N. had simply reiterated the long-standing consensus that global warming is happening and being caused by humans. In fact, the 2007 IPCC report went much further, calling not just for regulation but also for large public investments into clean energy. "Public benefits of RD&D investments are bigger than the benefits captured by the private sector," the IPCC report concluded, "justifying government support of RD&D."

Similarly, the Stern Review on the Economics of Climate Change, the influential report commissioned by the British government in October 2006, recommends that governments boost their clean-energy investments from current global levels of $34 billion (an amount that includes nuclear) to between $68 billion and $170 billion annually. Indeed, whether it’s the recommendations presented by the IPCC, the Stern Review, Scientific American, or top energy innovation experts, investment is universally seen as a central element in overcoming ecological crisis. "Funding for energy research," Scientific American said in its lead editorial in a special issue dedicated to clean energy, "must be accorded the privileged status usually reserved for health care and defense." In the 2002 Science article by New York University physicist Martin Hoffert and 16 other leading energy experts that inspired the two of us to co-found the call for a "New Apollo Project" on energy, Hoffert et. al argued that, "although regulation can play a role, the fossil fuel greenhouse effect is an energy problem that cannot be simply regulated away."

Given all of this, it seems odd that global warming was ever seen as fundamentally similar problem to the hole in the ozone — much less one that will not be hard to fix. Granted, both problems are consequences of human pollution. But whereas dealing with the ozone hole required a simple, inexpensive chemical substitute, global warming demands a totally different way of producing energy. We were able to fight smog without replacing oil. We dealt with acid rain without dismantling our power plants. And we will phase out ozone-depleting chemicals without affecting any of our energy sources. But to deal with global warming, we will need an almost entirely new energy infrastructure.

An Investment-Centered Agenda

For the last 15 years, environmentalists have been locked in a debate with opponents of action on global warming who have claimed that a) the U.S. should not act on global warming unless China does as well, and b) regulations will harm the economy. As a result, whenever we raise the specter of China, and describe the limits to pollution regulations, we get accused of either opposing pollution regulations or wanting to move slowly on global warming, or both. Bill McKibben writes in his review of Break Through, "The antipathy of Shellenberger and Nordhaus to placing limits on carbon emissions, an antipathy based on their fervent belief in what they hear in their surveys, locks them into accepting slower progress than is necessary and possible."

The truth is quite the opposite. We wrote:

In terms of birthing a new energy economy, regulation is important — it’s just not the most important thing. The highest objective of anyone concerned about global warming must be to bring down the real price of clean energy below the price of dirty energy as quickly as possible — most importantly, in places like China.

The fact is that it has been the regulation-centered approach — Kyoto — that has been both glacial and utterly ineffective. The developed nations that ratified the treaty saw their emissions go up not down.

We suspected our critique of the environmental community’s regulation-only agenda would be labeled "anti-regulation," so we bent over backwards in Break Through to make the point that while regulations are important, their most important function in the short-term is to generate the public investments aimed at achieving breakthroughs in the price and performance of clean energy.

Kevin Drum at the Washington Monthly criticized our description of the limits to regulation:

Seed money is useful, but the businesses doing the R&D will turn the whole thing into a backwater unless they’re convinced there’s a huge market down the road for their disruptive wares — and that means a credible belief that the cost of dirty energy technologies are going to stay high. A well-conceived regulatory structure can help that happen, and also helps promote evolutionary technologies while we wait for the big breakthrough. Why not support both?

The fact is that we do, as we have consistently stated. Our proposal, to state it once again, is that Congress pass legislation that either auctions permits or taxes carbon enough to a) establish a price for carbon sufficient to result in inexpensive emissions reductions, b) generate at least $30 billion a year for clean energy investments, and c) creating market conditions for the widespread adoption of these new technologies.

Given these consistent misunderstandings of our position, it was for us a sign of hope that the Sierra Club’s Carl Pope ended his review of Break Through in this way:

The greatest return on any investment made by the U.S. government in the last 30 years, for example, has clearly come from the money it sank into the Internet. It is the job of societies — of governments — to protect, invest in, and guarantee universal access to such common resources.

Shellenberger and Nordhaus argue that greatness requires progressives to embrace such investment strategies. I agree. But investments in what? Yes, new energy technologies — but for whom?

Since 2004, Pope has moved dramatically on everything from the need for global warming preparedness to the need for investment-centered rather than pollution-centered framework to deal with global warming. The problem is that, to date, Pope’s bold words have not yet been matched with bold deeds. Neither environmentalist lobbyists in Washington nor grassroots climate activists have put major new investments into clean energy at the tops of their agendas. They are, instead, putting all of their political eggs in the regulatory basket.

Walking the Talk

There is an existential question at the heart of the debate over global warming: can green groups transform themselves into institutions motivated by a vision of prosperity and possibility? Or will they remain grounded in the politics of pollution and limits?

The first test could arrive as early as next month. That’s when Congress may take up global warming legislation. What matters most about the legislation under consideration is how much money it will raise for investments into clean energy.

Pope asks an important question: what investments should be made, and how? In our view, some of it ought to be used to create a new military-industrial-academic complex around clean-energy sciences, similar to the one we created around computer science in the 1950s and ’60s. Some of it ought to be used to buy down the price of clean-energy technologies such as solar panels, like the Defense Department did with microchips in the 1970s.

These strategic investments in America’s economic development and national security need to be insulated, one way or another, from the pork barrel congressional politics that have sent billions in public investment toward things like corn-based ethanol and synfuels rather than toward the kinds of technologies and innovations that the global warming crisis demands. The goal should not be to subsidize clean energy in perpetuity but rather to make the kinds of investments that ultimately bring the real price of clean energy down to the price of dirty energy.

We applaud Pope for affirming the need to create a new politics that has "an eye to the future," in his words, "not nostalgia for the past." Toward that shared goal, we today formally invite Pope and the leaders of the other national environmental groups to join us in urging Congress, the President, and the leading Democratic and Presidential candidates to pass global warming legislation that directs at least $30 billion per year to make clean energy as cheap as possible as quickly as possible.

There’s no time to waste.