Electric utilities! They are to me what sideboobs are to Huffington Post — I just can’t stop writing about them.

A couple of days ago I posted a brief introduction to utilities and the way they currently work. The take-home lesson is that current regulations give utilities every incentive to build more infrastructure and sell more power, but very little incentive to cut costs or innovate.

The situation is no longer working for us. We need rapid, large-scale innovation in low-carbon electricity systems, and we need it now. It’s time to fundamentally rethink the utility business model.

I hope you’ll indulge me just one more scene-setting post before I finally get to the long-awaited post on solutions. Today we’re going to take a look at the way electricity has typically gotten from generator to customer, the electricity “value chain,” so we can better understand which parts need to change. This is a complicated topic, to say the least, but I’ll do my best to break it down in the simplest terms I can, with the proviso that I’m glossing over lots and lots of important details.

The electricity value chain

OK. Think of the electricity value chain as having three basic links:

• Generation: These are the power plants that generate (most of) the electricity.

• Transmission and distribution (T&D): These are the poles and lines that carry electricity to customers, both high-voltage long-distance transmission lines and lower-voltage local distribution lines, along with all the substations and transformers that help the power along its way.

• The distribution edge: This one takes a little explaining. The point where the grid meets the customer is the power meter, which tracks the customer’s electricity consumption for billing purposes. Most of the time that meter is on a house or building, though sometimes, in the case of “microgrids,” there is one meter for a whole collection of buildings. Everything that goes on in the building(s), before net consumption is tallied up by the meter (think rooftop solar panels, smart appliances, electric cars, energy storage, energy management software, etc.), happens “behind the meter.” Everything at and behind the meter is known as the “distribution edge.”

In the beginning, most utilities, especially investor-owned utilities, were “vertically integrated,” meaning they owned and operated the entire value chain, from the power plant to the meter. At the time, electricity was viewed purely as a commodity; the utility’s sole job was to get as much of it as possible to customers as cheaply as possible. What customers did with it on their side of the meter was of little concern, as long as they kept using more of it.

In the electricity-as-commodity model, it’s all about economies of scale. The bigger you make the power plants, the cheaper the power. That’s why utilities were monopolies: so they could maximize the benefits of scale.

The physical expression of the commodity model is the “hub and spoke” electricity grid, with large centralized power plants sending power out long distances to surrounding customers. It helps to think of it as a hydrological system. Electricity springs from power plants and flows down great rivers of transmission cables into the smaller canals and streams of a distribution system. In this system, power flows only one way, from hubs outward. It’s like gravity pulling water downhill.

Since there is no way to store the power, there must always be enough flowing into the streams to sate customer thirst. When demand surges in certain areas at certain times, grid operators fire up more power plants to supply the extra need. The plants that are always running are “baseload,” usually coal, nuclear, or hydro. The ones that get fired up for the busy daytime hours, the “mid-merit” plants, are typically natural gas combined-cycle plants. And then when demand “peaks” for a few hours, usually in the afternoon and again when people come home in the evening, they fire up the more expensive oil or gas “peaker plants.” There must always be enough power plants online — enough “generation capacity” — to supply well in excess of any expected peak, establishing “reserve margins” of 15 to 20 percent. That’s how reliability is assured: The canals and streams are kept full at all times.

Previous utility reforms

In 1978, seeking to open up the generation side of things to smaller and cleaner power plants, Congress passed the Public Utility Regulatory Policies Act, or PURPA. (There’s some talk that it could be used to drive a new wave of distributed renewables, but the details are complicated and not essential to the story I’m telling.)

More significantly, in the 1990s, there was a wave of regulatory restructuring that “unbundled” generation from transmission and distribution. These changes created competitive wholesale and retail power markets on the generation side, but left transmission and distribution — getting power to customers and billing them for it — to regulated utilities.

(This is often referred to as “deregulation,” but I think that’s a misleading term; the whole industry remains regulated from top to bottom.)

Restructuring was proceeding at a brisk clip until California happened in 2000-2001. Remember that? Enron? Maximum fubar? More or less overnight, “deregulation” and “consumers get f*cked” became synonymous in the public mind and restructuring of the utility industry froze in place.

I stole these handy maps from American Electric Power:

The top map shows all the states that were investigating or implementing restructuring in 2001. On the bottom you see the situation in 2010 — only Texas and the Northeast have stuck with restructuring. (Arizona is apparently looking into it.)

So we’re left with a mix of public and investor-owned utilities, some vertically integrated and some with only T&D, and just for fun, some have undergone decoupling (which we’ll talk about in a later post) and some haven’t. All these categories overlap. Oh, and some holding companies own both independent power producers and regulated utilities. It becomes very difficult to make generalizations or simplifying assumptions about utilities — and it also becomes super-boring.

I think I speak for all Americans when I say that contemplating the post-partial-quasi-halfway-restructured U.S. electricity industry gives me an intense, nagging pain just above my left eye socket. This is what happens when you bang into the force field of tedium.

What has changed in electricity

So let’s take a few steps back and think about what’s changed in electricity. The traditional utility model made sense in the context of rapidly rising demand, economies of scale, and blissful climate ignorance. But today, two big counter-trends loom large.

First, climate change has become an urgent priority. U.S. policy may look stuck right now, but action on climate is inevitable, and utilities know it. Doing what really needs to be done on climate would involve an immediate and rapid scaling up of low-carbon power along with aggressive, system-wide pursuit of conservation, energy efficiency, and demand response.

Second, electricity is beginning to behave less like a commodity and more like information. It’s no longer a one-way affair, from generator to meter. Now it’s hundreds of thousands of small, distributed generators (think rooftop solar panels) sharing with each other on local distribution networks. Electricity is increasingly managed: monitored, fine-tuned, time-shifted. Big customers, and increasingly small ones too, want energy services rather than raw kilowatt-hours. They want to know how to tie together solar panels, microturbines, energy management software, smart appliances, electric cars, batteries and other storage, and energy-effective design into smart systems. They want to know how to create microgrids that incorporate electricity generation and management and can “island” off the larger grid in case of emergency or attack. They want all the pieces of the electricity puzzle to fit together in a way that reduces consumption, minimizes waste, and maximizes resilience. Or if they don’t want it yet, they’ll want it soon.

That’s where things are headed: an electricity grid, particularly on the distribution side, that is infused with information technology and looks a lot like the internet. (This is usually referred to as the “smart grid,” though it extends beyond just the grid. Al Gore tried to make “enernet” catch on, but it never really took.)

So, two changes: the low-carbon imperative and the shift from a dumb one-way system to a smart, multi-directional network. Both point above all to the need for innovation, not just in technology but in business practices, financing models, and investment strategies.

The best tool we currently know of for producing rapid innovation, product development, and jobs is a competitive market. That’s what’s missing.

Now, I mentioned before that some markets have restructured to provide for competition on the generation side. I think that’s all to the good, and it should continue. But what’s really needed today is competitive markets on the distribution edge. It makes no sense to have utilities hostile to distributed energy and local energy management. We need entrepreneurs thinking about how to package energy services in new ways for customers, and we need utilities not just to stop impeding them or to get out of their way, but to actively empower them.

But we still need the reliability and stability with which regulated utilities have traditionally been charged. How can utilities provide that, make sure the grid keeps humming, while also structuring competitive markets on both the generation side and the distribution edge? That’s that knotty subject that we will (finally) tackle in my next post.

Last week, I posted on the fight between electric utilities and solar advocates over rooftop solar power. Today, I want to pull back the lens and begin to tackle the bigger question: How should utilities work? What’s the right way to provision and manage electricity in the 21st century?

There’s very little public discussion of utilities or utility regulations, especially relative to sexier topics like fracking or electric cars. That’s mainly because the subject is excruciatingly boring, a thicket of obscure institutions and processes, opaque jargon, and acronyms out the wazoo. Whether PURPA allows IOUs to customize RFPs for low-carbon QFs is actually quite important, but you, dear reader, don’t know it, because you fell asleep halfway through this sentence. Utilities are shielded by a force field of tedium.

It’s is an unfortunate state of affairs, because this is going to be the century of electricity. Everything that can be electrified will be. (This point calls for its own post, but mark my words: transportation, heat, even lots of industrial work is going to shift to electricity.) So the question of how best to manage electricity is key to both economic competitiveness and ecological sustainability.

It’s time to start talking about utilities. I, your courageous blogger and servant, am going to attempt to lay out, at a high level, how utilities work and why, the challenges facing them, and what a utility more suited to the 21st century might look like. It’s a complicated problem, but I think the basics are approachable by ordinary citizens, who very much need to get involved and speak up on these issues. Occupy PUCs! (You’ll get that joke after you read my next few posts.)

Why utilities are the way they are

OK, so. To understand why utilities need to change, it helps to understand why they are the way they are. That takes us back to the turn of the 20th century, as electricity was just getting a foothold in some big American cities. Small power plants, using reciprocating steam engines to generate electricity, were popping up all over, but the power they produced could reach only about a mile’s distance before fading on the copper lines.

Then along came two technologies that changed our relationship to electricity and have shaped American life ever since.

First, reciprocating steam engines gave way to more efficient, more scalable steam turbines. And second, local direct current (DC) power was joined by alternating current (AC) transformers that could ramp up voltage enough to allow electricity to travel very long distances with relatively little loss. Together, steam turbines and AC transmission lines formed the foundation of the modern electrical system and remain its dominant technologies.

Steam turbines exhibited classic economies of scale. The bigger you made them, the cheaper the power. And with AC transmission lines, you could send the power as far as needed to find customers. To take full advantage of these capabilities, though, you needed scale. The bigger the better.

Economies of scale, with the concomitant need for large, long-term capital investments, made utilities what were called at the time “natural monopolies.” As with railroads, it didn’t make sense to lay down multiple competing networks; it would be wasteful, and neither competitor would be able to capture the full benefits of scale. It was inevitable that one entity would end up provisioning power. And by maximizing the benefits of scale, a monopoly would be best for consumers too.

At the time, however, railroads and other monopolies were notably unpopular, for good reason — they were often corrupt and lawless. Utility folks didn’t want progressive reformers attacking them. It was in everyone’s interest to put a stable structure in place.

So that’s what happened. In the early 20th century, the American people struck a deal with the utilities, an enduring agreement known as the “regulatory compact.” It remains in place, more or less intact, to this day.

Here’s how the regulatory compact works.

In a particular service area, a utility is granted a monopoly; in that area, it is the sole electricity provider. It is allowed to charge its customers whatever rates are necessary to cover costs and provide for a reasonable rate of return on investments. In exchange, the utility has to make investments sufficient to provide reliable, low-cost power to any customer in the area who wants it, with minimal “line losses” (i.e., “leakage” of power from power lines). To ensure the utility does not abuse its power, a public utility commission (PUC) monitors its activities and has to sign off on its rates.

That’s the bargain: The utility provides low-cost, reliable power. In exchange, it gets a captive customer base.

Why the utility structure no longer works

There are a few key things to note about the regulatory compact.

First, note that this arrangement looks almost nothing like a “free market” as envisioned by classical economists. These are entities legally protected from competition, charging government-approved prices, receiving guaranteed returns. It is the most Soviet of economic sectors. (Keep this in mind the next time someone glibly refers to “the market” in discussions of coal or solar.)

Second, note that the utility makes money not primarily by selling electricity, but by making investments and receiving returns on them. If it builds more power plants and power lines, it makes more money.

Add these together and you see the basic incentive structure at work. In most economic sectors, businesses live in fear of competing businesses coming in and providing customers with a better value proposition. They must be vigilant, cut costs, and innovate. That is the power of markets.

But utilities do not fear competition. Their customers cannot live without their product, or purchase it elsewhere. Their profits are guaranteed so long as they can justify their rates to a PUC. All they need to do to increase profits is to build more stuff — more power plants, more substations, more power lines, more.

When the regulatory compact was established, this made perfect sense. The demand for power was inexorably rising and there was a need to scale up rapidly. Given all the unregulated monopolies at the time, the regulatory compact was actually fairly progressive — at least it provided explicitly for public oversight.

But make no mistake: it was designed to electrify the country, to enable more people in more places to find more uses for electricity. Demand grew so fast that utilities were proposing, getting approval for, and making huge investments right and left, as fast as they could. And everything got bigger. The mania for gigantism reached its peak in the ’70s, with the nuclear craze. Finally, a technology powerful enough to fuel the meteoric rise in electricity consumption that was going to last forever. (Ahem.)

Now fast-forward to the present. The regulatory compact remains the same, the incentive structure it created remains the same, but circumstances in the U.S. have changed in two big, overarching ways.

The first, which has just begun to emerge but will accelerate in coming years, is that demand for utilities’ services is slowing. Depending on which forecasts you believe, electricity consumption may even begin declining in some states over the next few decades.

Why? Some of it is merely the “offshoring” of industrial activity. But a substantial chunk is the recent explosion of energy-efficiency technologies and investments. Alongside that is the maturation of what’s called “demand response,” the ability to shift electricity use forward or backward in time in response to price signals. (Demand response doesn’t reduce total load, but it can reduce peak load; utilities have to invest/build enough to meet peak load, so if you reduce peak load, you reduce needed investments.)

Alongside that, individuals now have the power to generate their own electricity with solar panels and other distributed generation technologies. Utilities do not own that distributed generation; it’s an investment upon which they receive no returns. And it represents a reduction in demand for what they are selling, a reduction in use of their grid infrastructure, and a reduction in the need for future power infrastructure.

For all these reasons, many energy nerds believe that electricity demand in the U.S. will never again rise as fast as it did this century, and might even plateau or fall. But remember, utilities are in the midst of paying off large, 20-plus-year investments. If they get less than expected from some customers, they have to charge the other customers more in order to get the same rate of return. They do not like that one bit (nor do the other customers). Furthermore, the unpredictable rise of all these disruptive technologies casts their future investments into doubt. In the long term, they face the threat of lower profits and, well, shrinkage. They don’t like that one bit either.

And that is perverse, because the other broad change since the early 1900s is a recognition of the threat of climate change and an understanding of the radical reduction in fossil-fuel use required to address it. As a society, we need energy efficiency and demand response. We need distributed renewable energy. We need to cancel out future power plants and transmission lines. All those things are to the good, economically and ecologically. Yet utilities have every incentive to oppose them, as they are direct threats to their familiar, comfortable business model, which has survived nearly a century unchanged.

And so I think we need to do more than fiddle with rate structures or mandate arbitrary levels of efficiency or renewable energy. We need a ground-up rethink of how utilities work, how they are structured, and how they can be reformed in a way that enables and accelerates long-overdue innovation in the electricity space. More on that soon.

Next: Why we need competitive electricity markets (with fennec foxes!)

Tom Steyer spent years as a wildly successful hedge fund manager, a vigorous philanthropist, and a sought-after funder of Democratic politicians, but most of that activity took place beneath the public radar.

A few years ago, however, Steyer stepped into the spotlight. In January 2009, he and his wife Kat Taylor donated $40 million to found the Tomkat Center for Sustainable Energy within the Precourt Institute for Energy at Stanford, and another $7 million to found the Steyer-Taylor Center for Energy Policy and Finance, run by ex-Google energy guy Dan Reicher.

In August 2010, he and Taylor signed the Giving Pledge, vowing — as with Bill and Melinda Gates and Warren Buffett — to give away at least half their fortune, which in their case runs to $1.2 billion. Later that year, Steyer poured $5 million into a winning campaign against California’s Prop 23, which would have rolled back the state’s seminal global warming legislation. In November 2011, he co-founded the Advanced Energy Economy, a trade association of clean energy businesses. In October 2012, he resigned from his hedge fund to pursue social change full-time. Also in 2012, Steyer crafted, and spent $32 million to back, California’s Prop 39 — which voters approved in November, closing a tax loophole benefiting out-of-state corporations and directing half of the resulting revenue to clean-energy initiatives.

Most controversially, in March of this year, he dove headlong into electoral politics, pouring scorn and threatening to pour money into a Mass. Democratic senate primary campaign against Stephen Lynch, a supporter of the Keystone XL Pipeline. Lynch’s opponent Ed Markey won, but Steyer’s involvement drew fire. Markey himself disavowed the hardball tactics and political operatives everywhere clutched their pearls.

We met with Steyer when he came through Seattle, for a chat about climate, politics, and money. (This interview has been lightly edited for length and clarity.)

Q. What first engaged you on climate and energy in such a significant way? Was there a turning point or moment of clarity?

A. I don’t think there was a big epiphany. But getting involved in the No on 23 campaign in 2010 was an incredible education for me in how human beings think about this, how they relate to it, and what moves them on it. It definitely corrected a bunch of my preconceptions as to who cared and why they cared. People’s image of environmentalism is very different from the actual Americans who care about it. That Latinos care the most about environmental issues is not a popularly held view in the U.S., but it consistently polls that way.

Q. What do you talk about to reach that audience?

A. You talk about environmental justice. You talk about health. The reason Latinos are so aware of environmentalism is that companies have traditionally put their dirtiest plants in poorer neighborhoods, because poorer communities have no political clout. Then their kids have breathing problems.

Q. Presumably the GOP has seen the same polls. Do you think, with their newfound love of the Hispanic vote, they will move to the left a little bit on environmental stuff?

A. No. I mean, I probably over-count the California experience in projecting the American experience. We went through a process very much like the one the U.S. is going through — a legislature which is totally stalled, very low legislative approval ratings, inability to get a budget, inability to change the tax code … just consistent failure. So we’ve had a chance to see whether Republicans would pivot away from stuff that was deeply unpopular with the majority of Californians.

I am the son of two Republicans — so, you know, I am hoping. I’m rooting for a healthy two-party system in the U.S. But what we actually saw in California was a dysfunctional two-party system that ended with one of the two parties having no statewide elected officials and the other party having super majorities in both houses of legislature. It took 10 years, but [California Republicans] never pivoted to the center … I mean, they ran a prop against immigration!

Q. But there’s no prospect of those kind of supermajorities at the federal level, right?

A. I would put money on the fact that if you go against 92 percent of Americans’ wishes consistently [as the GOP did on the background-check vote], you will end up with less than 40 Senate seats.

Q. You got involved in the Markey primary this year. He won, but you came in for criticism about the way you were involved with that race. Looking back on it, would you do anything differently? Do you plan to continue in the general election?

A. Any time you’re involved in an election, it’s going to be a little chaotic. You could say, “I shouldn’t have thrown the left hand, I should’ve thrown the right hand.” But by and large, it is what it is. It was important not just to win, but to win for the right reason. It was going to be one more conspiracy of silence about energy and climate — no one wanted to talk about it. We had to create intensity; it had to get put on the ballot. From what we can tell from the polling and focus groups, it worked really well.

Should we not have done that because people didn’t like it? If people aren’t pissed off, it ain’t working. That’s the truth. We have a system where elected officials are extremely happy. It’s just the other 317 million Americans who are getting screwed. If elected officials are upset, I think that’s a good sign.

Q. Do you have plans for other races?

A. We certainly want to do more races. We just have to be strategic and have some idea as to where we’re going.

Q. At what point does it make sense to go the initiative route?

A. It kind of implies that representative democracy is failing, right? You can’t have less than a 10 percent approval rating for your legislature and think it’s working. It was failing; and so we did everything by proposition [in California].

There are good sides and bad sides to that. The bad side is that it’s really expensive. People seem to think that’s wicked, but if you think about spending money on a proposition as educating people about something complicated, then spending money’s not bad. The bad part is, is it coming from a good source? Are we spending money to obfuscate, to pursue our own monetary or business interests, or are we actually using it to educate Californians? It takes a lot of education for people to think about some of these topics.

[The proposition process] was put in to protect from failed legislatures, and it has been used in California to replace a failed legislature. I don’t know what will happen now that we have [Democratic] supermajorities in both houses. Maybe now we’ll have a functioning legislature again, and there will be no more need for props.

Q. The Keystone pipeline has become a flash point. Is there a plan for what to do if Obama approves it? What will the backlash be among the donor class, and what should it be? What’s the strategic way to respond?

A. One, getting an approval from the president is obviously a huge step forward for the pipeline, but there will still be lots of challenges, particularly in light of the EPA opinion on the State Department [draft environmental impact statement]. I think this thing will get litigated for a long time. So approval does not mean that construction will begin the next month.

Also, this is about [fossil fuel] supply. We already have multiples of the supply we need to destroy ourselves. [Keystone] will be one more multiple of supply. If we have six times more than we need, we’ll have seven times more than we need. Obviously, if he doesn’t allow Keystone, we’re not going to stop fighting, and if he does allow Keystone, we’re not going to stop fighting. So the question is, politically, what do you do? How do we relate to him? Here’s somebody who’s going to be saying, in effect, “I’m your only choice.” Right? “You have no choice but to support me.” I don’t think that works in politics.

I don’t know if [Obama] thinks the oil companies are now going to support him, or if he thinks that the Tea Party is now going to support him, or if he thinks that he’s gaining any political advantage by trying to appease them. When you appease people like that, they don’t think we should meet in the middle, they think, “He’s weak, we should get more.” So I think, politically, it would be a very poor decision.

Obama’s job is to lead in the United States overtly so he can lead in the world overtly. It is very hard to go to China or India or Europe and say, “I want you guys to suffer in order to get this right, and by the way, I’m not willing to do the right stuff myself.” So I think it would be a terrible decision for him.

If he thinks it won’t affect how people think about him, that’s extremely naïve. And he’s not naïve, he’s a really smart politician, right?

Q. But then again, he’s not running again, so it’s hard to concretely punish him.

A. That’s not true. If you look at the people who support Obama, and then you look at the people who support him actively and give money, the number of people who care about climate in this second group is actually a majority — not out of the people who support him, but the people who are really active and give money. It’s an enormously high percentage.

And if those people decided that he was no longer somebody who’s worth supporting, even though he doesn’t have to run again, it would be terrible for him. His whole thing is, he’s trying to retain popularity to push his agenda. It’s absolutely about polls. There is no doubt in my mind, the reason that he’s considering approving Keystone is because Keystone polls well.

Q. The next big item on the environmental agenda for Obama is EPA carbon standards on power plants. How does resolution of the Keystone question affect that battle? And are you going to get involved in that?

A. There’s two ways to think about it. One is, I’ll trade Keystone for stationary source [regulations]. There are people who are talking about that: I give you this, so I get this.

That will never work. You really think you’re going to go to climate deniers and say to them, “I’ve already given you this, now why don’t you give me this”? Do you really think that’s going to happen? If you think about this as a kind of fight — which is what it is — who takes a punch in the face in order to get the next punch? That doesn’t make any sense. You want to punch him in the face.

So I’m hoping this administration will realize that appeasing these guys is going to get them nothing. It’s gonna get them nothing. It’s only going to convince everybody that they’re weak. I mean, these guys didn’t get background checks on felons for guns! Their counter-parties aren’t compromising.

Q. The problem is a group of “centrist” Democrats — that’s why they didn’t get background checks, right? Because four or five Democrats bailed on them. If there’s a vote on whether to overturn EPA authority and that same group of Democrats …

A. I think that’s so unlikely, that they could overturn EPA authority and overturn a veto. That is so absurd. If you’re scared about that, you’re scared about everything.

These are two things he has the absolute right to do. He has the right to turn down Keystone and he has the right to regulate existing coal plants. There is no legislative check on this. Doing this Kabuki dance of worrying about every single possibility, it just means it’s not your issue. It’s not the top issue; it may not even be the second issue.

Q. So will you pull more donors into the climate fold?

A. We’ll find out. We’ll talk to a whole bunch of those people and see how they feel about it. People are changing.

Q. You think there’s going to be more donor muscle in electoral politics around clean energy?

A. Well, if you have a dysfunctional legislature where nothing can pass, then democracy can find other ways to work. It happened in California. It’s going to happen in the United States of America. There’s going to be democracy. It’s going to happen in ways we’re not ready for. People love to laugh at California for the props. But it was really democracy being channeled to a new place. Well, democracy is going to be channeled to a new place.

Q. So where is that? State elections?

A. I think it will be. If D.C. doesn’t work, the American people work through the states.

Q. What about 2016? It doesn’t look to me like it’s a top priority for Hillary Clinton either, or any of her possible contenders in the primaries. Who would be a climate champion at the presidential level?

A. I bet you the world will change by 2016, in a big way, politically. That’d be my bet. It will depend to some extent on events. We have three and a half years to go. There will be a lot of events between now and the first Tuesday of November 2016. People always extrapolate forward from where we are now, but that is not going to happen.

Q. How far away is clean energy from being a real force in politics?

A. Far. The oil and gas industry makes $155 billion a year. They spend $200 million a year on disinformation campaigns. I mean, we’re trying. The truth is, incumbent industries always have the political advantage against disruptive industries. Disruptive industries have to disrupt. Incumbent industries will use all their political muscle to support something that doesn’t make sense anymore. Happens every time.

The three things that people care about politically are jobs, health, and when companies are dishonest. Everything else on this issue is noise. Every time you get off those points and you think you’re being smart, you’re being dumb. And every time you come back to those points and you think you’re being dumb, you’re being smart.

Q. The jobs thing is a double-edged sword for the climate community. Green jobs were touted in the first term, and the reality is, it’s not an immediate thing.

A. Well, I think the stimulus over-promised and under-delivered. But the fact of the matter is, this will be an enormous jobs creator. Enormous. Just redoing all the buildings — that’s a ton of construction. That’s a couple million construction jobs. You know, we’re not going to jump to getting rid of fossil fuels in a day and if we had to rebuild the pipes for natural gas, that’s a ton of jobs. There are a lot of American jobs here.

Q. Let me ask you a California question. The fracking folks have their eye on heavy oil in Monterey County. You have supported an excise tax which would raise a bunch of revenue off fracking. Would you support a moratorium? What’s your take on California fracking?

A. First of all, as you pointed out, it’s heavy oil, not natural gas. Second of all, Monterey County has a lot of people in it. [Fracking] is being used in a different situation than in the places most people are familiar with. Since it’s heavily populated, it’s especially important not to blow it. The way I understand fracking, it’s very specific. Different geological formations and different regulations will produce a safe or an unsafe outcome. Since I live in California, I think it’s incredibly important that we have a safe outcome — particularly in a part of the country where there are a lot people who live and drink the water.

Q. So why not support a moratorium?

A. I haven’t supported it or not supported it. I just haven’t read the bill. I don’t know the answer and I don’t think we should do anything until we do know the answer.

I want to separate putting an excise or lifting tax [also known as a "severance tax"] on existing oil in California from whether there should be oil fracking in California. The reason I want to put an excise tax is, we’re the only major oil-producing state — and we’re, I think, the third biggest [Ed. note: fourth; North Dakota has come on strong] — that doesn’t have a lifting tax. The difference is around $3 or $4 billion dollars a year. They’re going to lift the oil; why shouldn’t we tax them like Texas does? Texas has a huge amount of money from oil-lifting taxes. They’re the right-wingers! Why are we not doing this?

Q. How should average citizens and also political donors who care about climate be spending their time right now?

A. This is going to have to happen on a variety of levels. And I think for all of us, including me, in order to have some credibility, you’ve got to try and clean up your own life. It’s actually a pretty interesting, fun thing to do, and it gives you some real-life experience. That’s an exercise that people should do, and will enjoy, and will be valuable to them in a variety of ways, honestly.

And this is a political fight. Democracy is not a spectator sport. If people think this is the big issue, then they should stand up on the big issue. In 2010, the climate bill in the Senate, the American people were not engaged. They were going to pass a hugely impactful bill that 1 in 100 Americans understood. I honestly did not think that was right. This is a huge deal, this is the No. 1 issue. We aren’t going to World War II without telling the American people. And we shouldn’t.

Q. We thought about staging a reading of that bill with our readers. It might have taken three weeks. But the bill did have its defenders.

A. [Laughs.] It’s not about the bill. It’s a question of whether there was any grassroots awareness, support, or understanding. No. That’s why I keep saying: We have to talk about it. You can’t ask people to fix a problem that you’re scared to talk about in public.

Either the science will be wrong or we will win politically. Those are the only two possibilities. It’s only a matter of how much damage we’ll do to ourselves until then. And this is still a global problem. We can’t just win in the United States, we have to have a solution here that we can then provide a coalition of other countries. Winning here is a first step. It’s not the last step.

Q. The U.S. is reducing carbon emissions from energy in the short term in part via natural gas, which is shaping up to be a huge and divisive fight inside the green community. Is natural gas a “bridge” or a distraction that’s suppressing investment in renewables?

A. Of course both are true, right? Obviously. The question is what should we be doing. We’re not in a position right now where we have a [low-carbon] replacement for coal, which is a baseload fuel, other than natural gas or nuclear. We really don’t have the storage capability to make wind or solar serve as baseload. So if we’re going to get our carbon down in the short run, we pretty much have to [use natural gas]. Natural gas is fine. But if that’s the end of the line, then we’re just dead.

The real issue — and the argument on Keystone — is, we have to make a change. We have to make a political change so we can make a policy change and do all these other things. I don’t know if it’s going to be solar or wind. I don’t know what American business is going to come up with to make this happen. None of us knows. But the fact of the matter is, we have to make the change and put in place incentives and a framework so people can work from dawn ’til dusk figuring out those questions and trying to make a lot of money doing it. This is a huge industry. They’re going to make a lot of money. And God bless them. That’s fine with me.

The biggest question here, and the reason Keystone does matter, is about priorities. And that’s huge! That’s why it has to be a conversation. There is no one policy that’s the answer here; we have to change the framework. And if we change the framework, all these individual things will fit into that framework.

Q. Do you have aspirations for political office yourself? (We’re required by law to ask you that.)

A. You know what I say — this is actually the truth, I’m actually not being clever or disingenuous: The only jobs that I’ve done politically are jobs that no one else wanted. So if there was something that no one else wanted, but I thought was important, that was just a completely bad idea, I would probably do it.

The conflict between electric utilities and distributed energy — mainly rooftop solar panels — is heating up. It’s heating up so much that people are writing about electric utility regulation, the most tedious, inscrutable subject this side of corporate tax law. The popular scrutiny is long overdue. So buckle up. We’re getting into it.

I wrote about the fight a while back — “solar panels could destroy U.S. utilities, according to U.S. utilities ” — but it’s worth taking a closer look at what’s under dispute. Some bits are unavoidably wonky and technical, but it’s important to understand exactly what’s happening. This is a pivotal issue, a trial run for many such struggles to come.

There’s a short-term problem and a long-term problem. The former is about how electricity rates are structured, specifically how utilities compensate (or don’t) customers who generate power with rooftop solar PV panels. The latter is about developing an entirely new business model for utilities, one that aligns their financial interests with the spread of distributed energy. The danger is that fighting over the former could delay solving the latter.

Today, let’s dig into the fight at hand. It’s about utility rates, specifically “net metering,” yet another nerdy green term no one understands. I will endeavor to make clear what it is and why the fight over it is so damn interesting and exciting. Exciting, I tell you! Wake up!

The utility perspective

First, note that I’m focusing here mostly on investor-owned utilities (IOUs), which serve about 70 percent of America’s customers. These are the old-school, for-profit, regulated-monopoly utilities, with a captive customer base and profits guaranteed by law. IOUs are the main (though not exclusive) force pushing back against distributed solar.

Here’s how IOUs make money: 1) they estimate how much power their customers will need; 2) they estimate the investments they’ll need to make in power plants, fuel, transmission lines, etc. in order to meet that demand; 3) they estimate what rate they need to charge customers to cover those investments and offer a reasonable “rate of return” to their investors; 4) they go to the state public utility commission (PUC) to make a “rate case” justifying the rate; 5) if the PUC signs off, the IOU charges that rate until time to make their next rate case.

The free market in action! [cough]

Anyway, that’s the rate residential customers pay: the PUC-approved “retail rate.” Typically, the retail rate bundles all the utility’s costs into a single package, not just the “variable costs” of fuel and electricity but also the “fixed costs” of investment in transmission lines, transformers, power plants, and the like.

That’s all background. Now. Into this milieu comes “net metering,” a policy in place in just over 40 states (though the details differ substantially from state to state). Under net metering, a residential customer with solar on her roof is credited the retail rate for the electricity she produces. If she produces as much electricity as she consumes, her bill nets out to zero. That means she’s not paying for electricity, but it also means she’s not paying anything toward the utility’s fixed costs. As more customers zero out their bill through net metering, fixed costs will be transferred to a smaller group of ratepayers, thus raising their rates (and their unholy ire).

According to utilities, this is not fair, since solar customers are still making use of the grid and the services that utilities provide. In fact, they say, the complexity of managing thousands of distributed solar panels makes grid management more difficult and costly. Through net metering, the customers who can’t afford solar end up subsidizing grid services for those who can.

That’s why utilities view net metering as unsustainable. That’s why they’re going after it in California, Texas, and elsewhere.

The immediate solutions favored by utilities are well-captured in the first two recommendations from that now-infamous Edison Electric Institute paper (the one where the utility trade group predicted a solar-induced death spiral). The first is that utilities institute a “monthly customer service charge to all tariffs in all states in order to recover fixed costs.” This “fixed charge” is something all homeowners would have to pay, whether or not they’d created a net surplus of electricity.

The second is to “develop a tariff structure to reflect the cost of service and value provided to [distributed energy] customers,” said service and value consisting in “off-peak service, back-up interruptible service, and the pathway to sell [distributed] resources to the utility or other energy supply providers.” To my ears, this sounds like a recommendation to pay rooftop solar producers wholesale rather than retail rates.

David Rubin of Pacific Gas & Electric sums up:

We need to set the stage for continued growth in solar in what we believe will be a sustainable way which is to not have solar customers that are being subsidised by the rest of our customers and producing unsustainable rates for those customers.

The solar perspective

Solar installers, customers, and advocates are not impressed by these arguments. In fact they are up in arms. Some of the country’s biggest solar installers have formed a group call the Alliance for Solar Choice to defend net metering. (This is happening in Australia too, where a campaign called Solar Citizens was just started for the same reason.)

They say: Gimme a break. Utilities don’t care when rates rise. That’s how utilities make their money.

Imagine if Walmart had a monopoly on retail sales. It could charge whatever it wanted for its goods, as long as the charges were approved by a PRC (public retail commission). In fact, the more Walmart bought, the more warehouses and stores it built, the bigger its truck fleet, the more it could justify charging customers. It was guaranteed a healthy rate of return on its investments, whether or not those investments were wise, whether or not customers end up needing them.

Would monopoly Walmart have any reason to object to rising retail prices? Of course not. Would it have any incentive to reduce costs? Of course not. As long as it’s got a captive customer base, it has no incentive to innovate or take chances.

That’s why utility customers are getting shafted all over the country. Utilities overestimate demand, underestimate efficiency, and contract for gigantic central-generation power plants that customers pay for whether or not they need the power. Why just elsewhere in California, Southern California Edison customers have been paying on the order of $68 million a month for a “refurbished” San Onofre nuclear plant that crapped out over a year ago and hasn’t produced a watt since. In Mississippi, rates are rising to pay for the new Kemper County coal-fired power plant. We Energies in Wisconsin is trying its damnedest to raise rates on its customers to pay for the ill-fated Oak Creek coal plant. And so on.

So no, utilities are not upset that solar is (allegedly) increasing some customers’ rates; they’re upset that solar is reducing their revenue. Rooftop solar panels are investments upon which utility shareholders receive no return. It’s competition they don’t like, the potential loss of their captive customers.

That, say solar advocates, is the core utility incentive, so anything from utilities about what they “need” to cope with solar should be taken with a large teaspoon of salt.

Relatedly, the notion that onsite solar generation and consumption is a “cost” to utilities is somewhat Kafka-esque. A home creating its own power basically unplugs itself from the grid. If you unplugged an old freezer or TV, would that be a “cost” to the utility? After all, the electricity that’s generated onsite on a solar home is used by that home or its immediate neighbors. It barely touches the utility’s transmission and distribution system. It is effectively delivered energy, which is why it gets the retail rate: It saves the utility on transmission and distribution costs. It also reduces line losses and the cost of meeting state renewable energy targets.

Nonetheless, last year, California Assemblyman Steven Bradford (D) — chair of the Committee on Utilities and Commerce and, ahem, a former Southern California Edison executive — managed to pass AB2514, which mandated that California PUCs consider onsite solar a cost. That’s how California utilities are trying to justify new fixed charges.

Tom Beach of energy research firm Crossborder Energy took those benefits into account when he analyzed the costs and benefits of net metering in California and (in a separate study) Arizona. He found that net metering will create a small net benefit for all customers: $92 million a year for customers in California and $34 million a year in Arizona, both by 2015. (Both these numbers are small beans relative to total utility revenue, by the way.)

This is from a Vote Solar infographic [PDF] on the California study:

And finally, solar advocates argue that utilities are ignoring the load-reducing benefits of distributed energy (and energy efficiency) in their resource and infrastructure planning. Distributed energy and efficiency reduce the utilities’ fixed costs by reducing the need for new power plants and transmission lines, but utilities don’t take that into account. They end up planning for — and justifying rates for — a level of infrastructure they won’t actually need. So those rising rates they’re squawking about are in part due to their own poor planning. Nick Chaset, energy advisor to California Gov. Jerry Brown (D), put it this way earlier this year:

… there is a bit of a disconnect in utility planning. … Typically, the investor-owned utilities do not fully account for the expected deployments of distributed resources in their distribution infrastructure planning. … [As a result,] we do some degree of double-paying. We are paying for the rooftop solar and a distribution system that is accounting for expected load growth that might be offset by that rooftop solar.

If utilities would plan around distributed resources better, solar advocates say, maybe they wouldn’t need to raise rates so much.

It’s not simple

My sense, looking on this battle from the outside, is that solar advocates have the stronger case, but that they’ve been a little too quick to go to Defcon 1 and tar all utilities as evil. Some utilities, at least, seem to be grappling with this issue in good faith.

Here’s a kind of parable. CPS Energy in San Antonio, a municipal (not investor-owned) utility generally considered a friend of solar, last month announced that it would scrap its net metering program and replace it with a “solar credit” worth about half as much. Solar advocates went ballistic. Among other things, they compared CPS unfavorably to Austin Energy, which offered a solar credit that was roughly twice as large.

Well, since then, CPS Energy has agreed to delay its move for a year, giving it time to work with solar advocates and installers to find a solution acceptable to everyone. Meanwhile, Austin Energy reduced its rebate for new solar installations.

This is not to say either utility is in the right, just that even the “good guy” utilities are struggling with the question of how to appropriately compensate for distributed solar. The fact is, as long as utilities operate under their current business model, rooftop solar really does hurt them.

What’s ultimately needed is not this kludgy, rate-jiggling solution, which will have utilities and solar advocates forever squabbling over pennies on the margins, but a deeper rethinking of the utility model, particular the investor-owned utility model.

It is to that deep thinking we will turn in my next post.

People are always lamenting the lack of small-scale, practical legislation that can address climate change without getting mired in polarized culture wars. Problem is, when legislators introduce bills like that, they’re often completely ignored. It’s the sexy, controversial stuff that gets attention.

So, in the name of bucking that trend, let me call out a bill just introduced by California Rep. Scott Peters (D). It’s called the Super Pollutant Emissions Reduction Act, or SUPER Act. It’s not particularly earth-shattering, but it is smart, and well-targeted. Basically, it would create a new federal task force to track, coordinate, and rationalize the various scattered efforts underway to reduce so-called “super pollutants.”

What are super pollutants, you ask? They are greenhouse gases that produce much more warming, molecule-for-molecule, than carbon dioxide. However, unlike CO2, they have a short atmospheric lifecycle. When emitted, they hang out up there for anywhere from a few days to a few years and then drop back to earth. They include: black carbon, tropospheric ozone, methane, and hydrofluorocarbons (HFCs). Think of them as the Fast & Furious of the greenhouse-gas world.

Remember, once CO2 is released into the atmosphere, it stays there for around 500 years. For all intents and purposes, it is forever. That’s why, over the long term, it is the atmospheric concentration of CO2 (which, by the way, is now hovering around 400 ppm) that will determine the severity of climate change.

In the short-term, however, super pollutants — or as nerds call them, short-lived climate pollutants, or SLCPs — make a big difference. They really ought to get more attention. (I’ve been meaning to write about them forever.)

For one thing, reducing SLCPs can buy us some time, forestalling some near-term climate impacts while we get our shit together to reduce CO2 in the long-term. A paper in Nature Climate Change finds that “mitigation of the four short-lived climate pollutants … has been shown to reduce the warming trend by about 50% by 2050.”

Here it is in graph form, from a comprehensive UNEP assessment [PDF]:

The top purple line is warming under business as usual. The red line is warming with CO2 mitigation measures only. The blue line is warming with tropospheric ozone and black carbon mitigation measures only. The aqua line at the bottom is warming with all mitigation measures combined. As you can see, tackling short- and long-term climate forcers together can spare us a full degree of warming by 2070.

That’s a big deal!

(Note, also, that the UNEP graph only shows mitigation of tropospheric ozone and black carbon. If they added methane and HFC mitigation — not sure why they didn’t — I expect the result would be even more impressive.)

SLCPs are also, unlike CO2, local pollutants, which means they have direct, negative effects on human and ecosystem health. They are largely responsible for the indoor and outdoor air pollution that kills 3.1 million people a year around the world. Black carbon, especially from indoor charcoal cookstoves, absolutely ravages the health of (mostly) women in developing countries. Tropospheric ozone gathers at ground level, reduces agricultural yields, and kills trees. Unlike the case with CO2, reducing SLCPs means tangible, immediate public-health benefits that in almost every case more than pay for the costs of mitigation. Climate and public health — a pollution twofer.

All of the SLCPs have different sources and characteristics, so mitigation will mean a bunch of little things rather than one big thing. Reducing methane, for instance, will mean capturing it from oil and gas wells and landfills; also, making cows fart less. Reducing black carbon means getting rid of those cookstoves. Reducing HFCs means beefing up the Montreal Protocol. And so on. For a detailed list of mitigation measures, check the UNEP report linked above.

What’s nice is that at least some of these SLCP mitigation measures are not as politically charged as CO2 measures tend to be. Cutting emission of SLCPs is a route into immediate climate mitigation that does not require huge political battles over divisive issues. There’s a lot of room here for old-fashioned, bipartisan progress.

Which brings me back to Rep. Peters’ bill. I assume, since it is a practical, commonsense piece of legislation that produces multiple benefits at very little cost, that it will go nowhere. But wouldn’t it be nice if we could actually take small steps like this?

I didn’t set out to spend all week endorsing Jonathan Chait posts, but he’s got a follow-up to the cover story he wrote last week and, well, I endorse it. Like Chait, I continue to believe that Obama’s EPA will issue CO2 standards on existing power plants. At the very least, there’s no dispositive evidence that it won’t. And I too believe that those standards are the most important piece of Obama’s climate legacy, if not his overall legacy.

But Chait passes over a key fact that, to my eternal puzzlement, plays little role in the discussion about EPA rules. Quite simply, EPA is legally obligated to issue these rules.

I said it all in a post I wrote early last year, but to recap:

1. In 2007, the Supreme Court ruled in Mass v. EPA that CO2 qualifies as a pollutant under the Clean Air Act.

2. In 2009, EPA issued an endangerment finding that deemed CO2 a threat to public health.

Once those two things happened, a cascading series of of legal obligations was set into motion.

3. First, EPA must regulate “mobile sources” of CO2 under Section 202 of the Clean Air Act. That’s what it did with its new auto mileage standards.

4. Then, EPA must regulate “stationary sources” of CO2 under Section 111 of the Clean Air Act. First it will issue standards on new power plants. It issued a draft regulation last year, but it missed a deadline in April for issuing the final rule (for which some green groups are suing it). Supposedly it has delayed release of the final regulation so it can do more work to protect the rule against legal challenge.

5. Then, EPA must regulate existing stationary sources — in the case of CO2, primarily power plants — under Section 111(d). That rule, the 111(d) rule, is the one EPA keeps telling journalists it has “no current plans” to develop, and no surprise, since it’s got its hands full working on the rule for new power plants.

Again, this series of executive actions is prescribed by statute. EPA is not “bypassing” Congress, or going around it, or in any way exceeding its authority. It is not even acting on Obama’s discretion, not really. It is simply carrying out the will of Congress, as embodied in the Clean Air Act.

Yes, EPA can slow-walk this, maybe even enough to punt rules for existing CO2 sources to the next administration (though I don’t think it will). Or it could conceivably issue toothless rules (this I’m 50/50 on). Or it could issue good rules and see them struck down by a reactionary D.C. Circuit Court, a disturbingly plausible outcome.

But what it can’t do is just decide not to issue existing-source rules. The agency is under statutory obligation to do so and would be subject to lawsuit if it didn’t. Neither Obama nor EPA has the authority to decline to issues these rules.

The Savvy Washington Insiders of the political press don’t understand or care about policy, they only care about court intrigue, so they are suckers for the daft conservative narrative that EPA regulation of carbon is some quasi-dictatorial power grab that Obama is contemplating. Now, as usual, they’re busy being amateur Sun Tzus and gaming out whether and how he will screw enviros over.

Who knows, maybe enviros — and the planet — will get screwed in the end. It’s usually a safe bet in D.C. But whatever happens, rules on carbon from power plants are coming. On that, Obama has no choice.

Several people have asked me what I think of Jonathan Chait’s new column in New York magazine: “Obama Might Actually Be the Environmental President.” Apparently some folks are quite upset about it and think it’s terrible, though I’m not entirely sure why.

Seems to me Chait mostly gets it right. He’s right that Obama has made much more progress on climate and clean energy than he gets credit for. He’s right that Obama has mostly done it through the stimulus bill and a series of low-key regulatory actions, rather than through high-profile “green” fights. In the high-profile green fights that have been had, cap-and-trade and Keystone, Obama has disappointed, and is disappointing, and promises to further disappoint many greens, but Chait is right that the disappointment has unfairly tarred the whole presidency. He’s right that greens’ harsh judgment is born of a sense of desperate urgency about the scale of action necessary.

And — perhaps more controversially — Chait is right that the decisions Obama makes on Clean Air Act authority in his second term are more significant, in carbon terms, than the much more high-profile decision he’s going to make on the Keystone XL pipeline. (Glad to see Chait call out NRDC’s ingenious proposal to make carbon regulations do serious work at low cost.)

What I think has my friends upset, and where they differ, is Chait’s overall assessment: that Obama is therefore “the environmental president.” The question here is — as it is for every historical figure, but especially Obama, and especially on climate — compared to what?

Is Obama a success on climate compared to what needs to be done? Ha ha. No. Of course not. But then all world leaders fail that test. Chait says 17 percent carbon reductions by 2020 is greens’ “holy grail,” but it’s more like a moldy grail. We now know that much more is needed. For the U.S. to truly do its part, to achieve carbon zero by 2040 or so, would require massive systems change, an all-hands-on-deck wartime mobilization. Obama is not delivering that, or anything close, nor could he.

A success on climate compared to previous presidents? Or to a possible President Mitt Romney? Well, of course. Clinton and Gore bungled it and George W. Bush crammed it forcefully out of sight. Mitt Romney would have done doodly-squat. (And no, John McCain wouldn’t have done anything either.) Compared to nothing, Obama’s done a fantastic job.

So those are the poles. Judge him by the dysfunctional sh*tpile that is current American politics or by the crushing size of the climate need? Or somewhere in between? Chait chooses to judge relative to the sh*tpile. Lots of climate hawks judge relative to the need. It’s mostly a matter of aesthetic preference or identity projection, to be honest. I’m not sure the grand historical thumbs-up or thumbs-down is all that important.

The question for me is whether Obama has been a success compared to what was (and is) possible. And here, I’m with Chait: If he delivers ambitious regulations on existing power plants, then yes, Obama will be an overall success on climate and energy, even if he approves Keystone. Given the situation he inherited — a vertiginous economic crisis followed by persistent high unemployment, a Republican Party now single-mindedly devoted to nihilistic opposition, and a series of choke points like the filibuster that give a committed congressional opposition almost total veto power — he has accomplished a miraculous amount. (Remember universal health care? That was cool.)

There’s more he could have done, of course, but as Chait himself has written, the American public and commentariat alike are deep in the grips of magical thinking about the presidency, blowing it up all out of proportion to its real power (on domestic policy, at least). Unless his agenda is shared by a large and muscular congressional majority — and Obama’s climate agenda is not, as was painfully demonstrated — the president has to work by hook or by crook, incrementally, in the margins. Ritually chanting “bully pulpit” and “leadership” won’t change that.

To be clear, I absolutely think Obama should reject the Keystone pipeline. It is the right thing to do, on both substantive grounds and on the basis of its powerful symbolic value. Some people think the Keystone fight is preventing or constraining what otherwise might be bipartisan progress on energy; I think that’s nonsense. Some think Obama can get “credibility” or “credit” from his congressional opponents if he approves Keystone; that’s nonsense too. Any Republican or fossil-state Dem who plans to fight Obama on EPA regs will fight him regardless of what he does on Keystone. But on the merits, it’s clear that those regs, especially the ones on existing power plants, are the bigger brass ring, the fight that must be won.

In a way, it is with climate as it is with so much else in the Obama era. He has not delivered the grand, dramatic transformation so many people wanted. He has not changed the narrative that big government is bad, or that regulations always slow economic growth, or that the deficit is a dire threat, or that “all of the above” is a sensible energy strategy. American politics remains trapped in a set of frames that make active, effective governance of the sort badly needed in the 21st century almost impossible. Obama didn’t change the weltanschauung. He does, however, deserve credit for doing a great deal within its constraints.

Climate hawks should not waste their time hoping for a Great Man (or Woman) to save the day in the next election. No one person, no matter how brave or clever, can turn the tide. The impediments to climate action in the U.S. are primarily structural and systemic; systems thinking, not Romantic tales of individual heroism, is what’s needed.

Last week, I argued that people shouldn’t be so gloomy about carbon-trading systems, despite the hue and cry around the European Union’s Emissions Trading System (ETS) right now. One example of a carbon-trading system that seems to be doing just fine is the Regional Greenhouse Gas Initiative (RGGI), which currently involves nine states in the U.S. Northeast.

RGGI is pretty modest as these things go. It only covers power plants, and only those 25 megawatts or greater. (There are 211 covered plants at the moment.) Its first three-year trading period ended at the end of 2011.

Thus far, it seems to be working as planned — better than planned, actually. Over the 2008-11 period, CO2 emissions from covered plants were down 23 percent compared to the three years prior. That’s 126 million short tons of emissions eliminated.

In fact, over 2008-11, RGGI power plants came in 33 percent under the cap set by the program. (In 2012, they came in at 45 percent below the cap.)

So RGGI power plants are reducing emissions faster than expected, mostly due to cheap natural gas (and somewhat due to the recession as well). Meanwhile, over the same three years, RGGI state economies grew by over 8 percent and electricity prices fell by 20 percent.

Since RGGI began, according to an independent analysis from the, um, Analysis Group, polluters have spent about $912 million buying pollution permits. (Note: The permits are auctioned, thus raising revenue for states. One of the ETS’s great initial flaws is that it gave too many permits away for free.) Almost all of that $912 million has been funneled back into the economy through spending “on energy efficiency measures, community-based renewable power projects, assistance to low-income customers to help pay their electricity bills, education and job training programs, and even contributions to a state’s general fund.”

When the benefits of those investments are weighed against the costs of program compliance, what’s the net economic effect? That’s what the Analysis Group set out to determine. Its headline finding: “RGGI produced $1.6 billion in net present value (NPV) economic value added to the ten-state region.” (There were 10 states during the three-year trial period; NJ bailed in 2012.)

Just to make sure this sinks in: The RGGI states benefited economically from reducing carbon emissions.

Most of the benefit comes from energy efficiency. Though carbon pricing raised bills slightly at first, the states spent the proceeds on energy-efficiency programs that have lowered bills over time — to the tune of a net $1.1 billion economic benefit over RGGI’s first three years, most of it going to industrial and commercial customers. (An energy-efficient state is a business-friendly state!)

Also, RGGI states rely almost entirely on fossil fuels for electricity, but produce virtually none. That means fuel costs drain money out of their states. Over three years, RGGI helped keep $765 million of that money at home, circulating in local communities. The program also led to more than 16,000 new “job years,” through a combination of temporary and permanent new jobs.

Anyway, the program is going well. But emissions are coming in under the cap, so permit prices have been low — a similar challenge to the one faced by the ETS. Unlike the ETS, however, RGGI seems to be reacting in a sensible way.

RGGI states recently got done with a comprehensive two-year review of the program, which yielded a set of recommendations [PDF] for improving it. Among those recommendations is the same one I had for the ETS: lower the cap! The review recommends reducing the cap for 2014 from 165 million short tons to 91 million — a 45 percent drop — and reducing it 2.5 percent each subsequent year, out through 2020. That would mean, cumulatively through 2020:

• 80 to 90 million tons of additional CO2 reduction, which would leave the power sector’s CO2 emissions 45 percent below 2005 levels, well beyond Kyoto targets;
• some $2.2 billion in additional revenue for states;
• $8.2 billion in additional state GDP and almost 125,000 additional job years.

Not bad. The other recommendations are good too, including a reserve of allowances to be released if prices get too high, updates to the offsets program, and not selling those unsold permits from 2012 and 2013. (Check out the link above for more.)

Anyway. In the big picture, in absolute terms, RGGI isn’t doing that much for emissions. Right now, its main benefit is that it’s providing a much-needed source of revenue to state governments; the spending of that revenue, not the carbon price itself, is what’s driving most of the positive results.

But then, this is how it’s supposed to work. You start with a small, modest carbon-pricing program. It doesn’t destroy the economy. So you strengthen it, tighten the cap, maybe extend the program to other sectors. It still doesn’t destroy the economy. Wash, rinse, repeat. It’s a painfully slow and frustrating process, but unlike most other grand carbon schemes, it’s actually happening.

The United States and 140 other countries have signed or otherwise associated with the Copenhagen Accord, in which it is agreed that the nations of the world should “hold the increase in global temperature below 2°C, and take action to meet this objective consistent with science and on the basis of equity.” For there to be a chance — even just a 50/50 chance — of limiting temperature rise to 2°C, global greenhouse gas emissions must peak by 2020 (earlier for the developed world) and fall by 9 or 10 percent a year every year thereafter.

Nothing like that has ever been done. Not even close. No major energy transition has ever moved that quickly. Carbon emissions have never fallen that fast, not even during the economic collapse brought on by the demise of the USSR. Getting to change of that scale and speed is not a matter of nudging along a natural economic shift, as clean energy cost curves come down and fossil fuels get more expensive. That scale and speed seem to demand something like wartime mobilization.

That metaphor gets used a lot. I’ve used it many times myself. But is it apt? And what would it mean to take it seriously? There’s been lots of academic attention to the technology side of rapid, large-scale mitigation, but little attention to the governance side. How could a country engineer such a transition? What powers and institutions would be necessary?

An interesting pair of papers from Laurence L. Delina and his colleague Mark Diesendorf at the Institute of Environmental Studies at the University of New South Wales helps to frame the discussion. “Is wartime mobilisation a suitable policy model for rapid national climate mitigation?” will be published in Energy Policy, and “Governing Rapid Climate Mitigation” [PDF] was delivered at the Earth System Governance Conference this year in Tokyo.

The papers, which are focused mostly on the U.S. but meant to draw lessons applicable to other countries as well, “commence the process of developing contingency plans for a scenario in which a sudden major global climate impact galvanises governments to implement emergency climate mitigation targets and programs.”

Let’s pause right here for a second. This entire project is premised on the notion that harsh climate impacts will eventually spur the public to demand emergency action from governments. That is, to put it mildly, a debatable premise. I’ve always thought people put way too much faith in it. It’s really, really difficult to know what kind of impact would be big or frequent enough to spur that kind of public unity, especially directed at climate change mitigation (as opposed to adaptation). After all, no one will be able to prevent climate disasters within their lifetime through mitigation — the next 50 years of climate change are already “baked in.” So we’re talking about the peoples of the U.S. and the world rallying around emergency measures, wartime sacrifices, on behalf of future generations. I can easily imagine that never happening. And if it does, it’s going to take some kind of shock that I can’t even really imagine.

Delina and Diesendorf acknowledge that politicians will resist adopting a true emergency posture:

Since rapid climate mitigation responses on the scale and scope of warlike mobilisation mean that governments may have to turn away from business-as-usual and predominantly market solutions to place more emphasis on centrally organised and publicly funded activities, politicians are less likely to support emergency climate actions for the fear of losing corporate support and, in countries with large fossil fuel reserves, tax revenues.

Uh, ya think?

Because of political resistance, moving to a wartime-mobilization footing will require serious grassroots pressure:

Unless the climate action movement can exert strong, growing pressure on governments, by means of lobbying backed up with media, public education, legal actions, building alternatives and nonviolent direct action, it seems unlikely that governments will undertake emergency mitigation, even when life-threatening climate disasters occur.

Yup.

But anyway. For the sake of discussion, let’s imagine such disasters did unfold and there was enough grassroots pressure to force politicians into wartime posture. What would that look like? How would it work?

Delina and Diesendorf take a close look at America’s experience during WWII. (It’s worth digging into the first paper’s section on that topic — there’s lots I didn’t know about the government’s domestic policy during that period.) During that time, the country went from manufacturing almost no war material to manufacturing enough of it to run the world’s biggest military. It was an industrial turnaround of astonishing speed and scale.

The lessons that emerge from that period aren’t ones I’m particularly comfortable with, and it sounds like the authors aren’t totally thrilled with them either. Long story short, what’s required in wartime mobilization is an enormous amount of centralized federal executive authority, an enormous amount of borrowing and taxing, and an enormous amount of labor displacement and retraining. At least temporarily, the economy will be more government-directed than market-based.

Among other things, pulling that off will require some sort of large-scale strategy, a set of goals and programs, that is durable enough to be insulated from the ebb and flow of passing administrations and changes in public opinion. It must be focused on long-term mitigation rather than merely immediate adaptation (which is what all the short-term political pressure will favor). At the same time, however, the mitigation strategy can’t be so rigid that it is immune to public oversight and control. Some measure of democratic control must be preserved.

Delina and Diesendorf recommend the statutory creation of two new institutions in particular:

• A special Ministry for Transition to a Low-Carbon Future as the principal agency of rapid mitigation activities to conduct technical requirement studies, set and enforce production goals [for renewable energy technologies], institute efficient contracting procedures, cut through the inertia and ‘red tape’ inhibiting institutional changes, and serve as the coordinating agency for all transition activities.

• A separate institution, independent of the Executive and the above Ministry, reporting directly to Parliament/Congress and the community at large, to prepare a transition timeline specifying the period when executive control starts and ends; to conduct appropriate checks and balances; to scrutinise government/executive actions, especially those of the Ministry for Transition; and, through legal powers, to ensure that the government/executive sticks to its transition mandate.

So it’s your basic balance-of-powers set-up: a single coordinating agency and a watchdog to keep it honest. The delicate dance here is to hand over extraordinary power to the executive branch on the premise that it can and will be handed back after a set period of time.

Among the many dangers in this approach is that executives are not generally inclined to give up power once it’s been granted them. And it’s not like the climate situation will be any less dire in 10 years, or 20. Once you switch over to wartime government in the face of a foe that cannot surrender and never stops, how do you ever switch back? (The parallels to the “war on terrorism” should be obvious here.)

Delina and Diesendorf acknowledge that the WWII mobilization comparison is not perfect, because climate mobilization will be even more difficult and more complicated. (Whee!) It will also involve state and provincial governments, along with civic and private institutions. It will also, crucially, involve international coordination and enforcement. It will eventually have to go beyond particular economic sectors and address the larger issues of population and consumption. “Getting all these acts done in a coordinated and democratic/participatory manner,” Delina and Diesendorf write, “is definitely a huge challenge.”

You could say that.

So. Assuming that the climate movement can tie climate impacts together enough to galvanize the public against climate change; assuming politicians can actually be swayed by public pressure into radical, immediate action; assuming that executive power can be expanded and the economy transformed as though it were 1942; assuming that, at the end of the sprint to zero carbon, the federal government cedes back the extraordinary and democratically suspect powers it adopted … well, assuming all that, we’ve got this climate governance thing nailed! Yeeesh.

One final note about this. A political conservative will see this post and think, “Aha! I knew it all along! Liberals are using climate change as a pretense to grow government and increase its power over our lives!”

As an assessment of the motivations and ideology of those fighting against climate change, this is absurd, of course. But as an assessment of what must be done to secure real climate safety, it is accurate. In any scenario where mitigation is big enough and fast enough, government really will need to be bigger and more intrusive. That is very much worth worrying about; getting through this ordeal while retaining the open, democratic character of U.S. government (such as it is, anyway) will be a tough needle to thread.

However, it’s worth noting that eschewing mitigation and instead trying to adapt to a 4°C world will create widespread suffering, migration, and desperation. Those, in turn, will lead to civil unrest and resource conflicts. Guess what governments do in the face of massive disruptions and unrest? They get bigger and more authoritarian!

There’s no libertarian choice here. A huge, global challenge like climate change is inevitably going to mean more government action and intrusion. The choice is, do you want managed big government, with a bounded set of plans and some amount of oversight built in, or do you want panicked big government, responding to migrations, famines, and conflict? I’m not exactly excited about either choice, but the former definitely strikes me as the lesser of two evils.

A little less than two years ago, I wrote a post called “the medium chill,” about efforts by my wife and me to step off the “aspirational treadmill” and accept some material constraints in exchange for lives with more free time, relationships, and experiences. It has gone on to be my most popular post ever. I don’t know if it got the most hits, but it has solicited the most feedback, by a wide measure. It is one of very few posts I’ve ever written that is regularly mentioned to me by Normal People, i.e., people outside my online circles of green wonks and political obsessives. Several people have told me it gave them a way to express something they’d already been thinking, which is pretty much the nicest thing you can say to a writer.

Anyway, in some modest way, it resonated. Since Grist’s theme this past month has been “happiness,” my editor asked me to revisit the essay and talk a little about how my thinking has (or hasn’t) changed. So here goes. Pardon me if this is a little discursive and rambly — and by a little I mean a lot.

If I had to sum up, I’d say that I’m more skeptical/cautious about one part of my post and more committed than ever to the rest of it.

First, the part I’m more skeptical about. In my post, I cited research showing that above a certain level of income, money brings no further happiness. This is known as the Easterlin paradox, based on the work of USC professor Richard Easterlin. Those who want government to focus on quality of life rather than GDP (like me!) are very, very fond of citing this research, to the point that it’s become a bit of a cliche, something “everyone knows.”

The problem is that Easterlin got it wrong — or at least, it sure looks like he got it wrong. I was going to round up some of the new research on this, but Dylan Matthews already did it for me. He sums up:

There is a clear upward relationship between income and happiness. It’s just logarithmic: the happiness value of the next dollar you earn is always worth less than the one you earned before it.

(If you want to dig in on this, read Stevenson & Wolfers [PDF].)

The relationship between money and happiness gets weaker as you climb the income scale, but it never completely dissociates. (Note the obvious implication: the same dollar brings more net happiness to a person the lower their income. We’ll return to that point in a minute.) Some related research shows that happiness may max out around $75,000, but life satisfaction continues rising with income, basically forever.

Now, what are we to make of this? We should be careful about overinterpreting these findings (see: the headline on Matthews’ piece, which may or may not have been written by Matthews). There’s still a great deal we don’t know about the dynamics of happiness, about exactly why it appears to be coupled to income and about what exactly people mean when they express life satisfaction. I am, as a general matter, deeply suspicious of self-reported happiness measures anyway — just as we can be wrong about what will make us happy in the future, we can be wrong about what makes us happy in the present. That might sound peculiar, particularly to an economist who defines happiness as the satisfaction of preferences, but we do not often understand why we feel what we feel or what will make us feel better. We see our own inner selves through a mirror, darkly. As it were.

Nonetheless! There’s no denying the fact that “chill,” of any sort, is a privilege enjoyed by a very small number of the global wealthy. It takes only $34,000, after taxes, to be among the world’s richest 1 percent. My family is among the globe’s wealthiest 0.06 percent. (You can find out where you rank here.)

How did I rise to these lofty economic heights? According to World Bank economist Branko Milanovic, about 60 percent of it is attributable to the fact that I had the great foresight and wisdom to be born in the United States. Another 20 percent is due to my choice of parents — they were lower-middle class, basically, but they kept me well-nourished, healthy, and intellectually stimulated. Also I chose good genes. The same is true for my wife.

If you tally it all up, I’d say about 90 to 95 percent of our current good fortune can be attributed to circumstances that unfolded before we were legal adults making our own choices. And trust me: There’s been plenty of dumb luck since then, too. It’s not that we didn’t work hard — we did. But did we work that much harder than, say, a farmer in India? We have hundreds of times what he has. Did we work hundreds of times harder? Of course not. We’re just hundreds of times luckier. The notion of a “meritocracy” is plausible only to those who need to justify their luck.

Where does that leave us? For one thing, I think everyone could stand to be more cognizant and appreciative of a) the logarithmic connection between wealth and happiness, and b) the substantial role of luck in life’s outcomes. Or to put it another way: The poor need money more than the rich do, and the fact that the poor are poor and the rich are rich is largely a result of chance and contingency. Together, those two facts argue for more redistributive public policies: things like more open borders, a guaranteed basic income, (real) universal health care, universal daycare and early childhood education, and oh yeah, aggressive climate change mitigation and adaptation. Or to put it more pithily, they argue for liberalism.

So, to my way of thinking, anyone who finds themselves in a position where they can even contemplate “chilling” should be insanely grateful and, more than that, working to create the kind of world where more people can enjoy that privilege. But being lucky (like me and, if you’re reading this, probably you) doesn’t only mean gratitude and responsibility. It also means opportunity — the opportunity to live a good life.

In these neoliberal times, the notion of a good life has become almost entirely economized. There are no communities, only economies, no citizens, only consumers. New York Times columnist Tom Friedman is the great chronicler of this dystopia, not least because he seems to find it all quite congenial. Today he writes of a “401(k) world” in which everyone agrees to pretend luck doesn’t exist and “your specific contribution will define your specific benefits.” In the words of a consultant Friedman quotes, “a 401(k) world requires you to learn much more about investing in yourself: how do I build my own competencies to be attractive to employers and flourish in this world.” Such is the road to flourishing, the key to a good life: become attractive to employers. You are an investment. The world is defined by a tax provision.

I’m sorry, I just find that horrifying. I don’t want to get all dreamy and romantic on you, but … well, yeah, I do. Surely there is more to life than making oneself attractive to an employer! Surely there is more than, as Bill Clinton (and now Obama) says, “working hard and playing by the rules” — the game in question being globalized capitalism, presumably.

Surely we have higher aspirations. I was just reading the classic Oscar Wilde essay, “The Soul of Man under Socialism,” and it got me all fired up about this again. Like most Wilde, it is alternately inspiring, delightful, and utterly loopy. He envisions giving all degrading manual labor over to machines, freeing humans to pursue their own fulfillment, and he’s only half-kidding, I think. Individualism, he says, is the highest aspiration, but not individualism like we think of it, the relentless pursuit of material advantage, but individualism in the sense of authenticity.

In a community like ours, where property confers immense distinction, social position, honour, respect, titles, and other pleasant things of the kind, man, being naturally ambitious, makes it his aim to accumulate this property, and goes on wearily and tediously accumulating it long after he has got far more than he wants, or can use, or enjoy, or perhaps even know of. Man will kill himself by overwork in order to secure property, and really, considering the enormous advantages that property brings, one is hardly surprised. One’s regret is that society should be constructed on such a basis that man has been forced into a groove in which he cannot freely develop what is wonderful, and fascinating, and delightful in him — in which, in fact, he misses the true pleasure and joy of living.

Wilde wrote that in 1891. Imagine if he could see our 401(k) world …

Then he really gets going:

And so he who would lead a Christlike life is he who is perfectly and absolutely himself. He may be a great poet, or a great man of science; or a young student at a University, or one who watches sheep upon a moor; or a maker of dramas, like Shakespeare, or a thinker about God, like Spinoza; or a child who plays in a garden, or a fisherman who throws his net into the sea. It does not matter what he is, as long as he realises the perfection of the soul that is within him.

I’m much more of a communitarian than Wilde. I believe the good life involves not only cultivating what is best in you, acting with purpose and joy, but also being at the center of a sturdy web of connections: family, friends, communities, and circles of interest. We become our best selves in part by loving others and being loved, valuing others and being valued.

But yeah, this kind of talk sounds faintly absurd these days. We Americans schlep to jobs that 70 percent of us don’t give a sh*t about. Then we come home and watch TV — 34 hours a week of it. The very idea of living a life of aesthetic and moral quality, of developing our passions and finding our best selves, of contributing something of worth to humanity … it all seems far away and silly. We just work to keep existing, and exist to keep working.

As always, XKCD puts it best:

“To live is the rarest thing in the world,” Wilde says. “Most people exist, that is all.” That’s what I was getting at with the medium chill — not just chilling out and working less, “taking it easy” or whatever, but trying to live, to break free of the soul-numbing expectations and routines of late capitalism and instead construct a life rich in relationships and experiences. A meaningful life.

To sum up this unwieldy beast of a post, for those hardy enough to still be reading, I guess it’s about balance. We can’t forget how lucky we are; we can’t stop fighting for a world in which more people are freed from the degrading stresses of material want and insecurity. But we also can’t forget that blessings give us the opportunity to live lives of quality and purpose and service and love. Take a look at the top five regrets of the dying. Think about what it would take to have none of those regrets on your death bed. That’s the medium chill.

——

Read the original medium chill piece.