Capturing the Energy Opportunity: Creating a Low-Carbon Economy

Part of Progressive Growth, CAP’s Economic Plan for the Next Administration

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    The energy challenge we face in this new century is extraordinary in its urgency, its stakes, its scope, and its opportunity. Of course, energy has long been at the intersection of the economy, environment, and national security, and its availability and price have always been important factors in economic performance. Because energy has been produced over the past two centuries mainly by burning fossil fuels, dirty byproducts soon threatened our air and water and spawned the modern environmental movement. Because critical elements of world energy supply come from unstable regions and hostile nations, energy has, for decades, played an important role in our national security.





    But something different is afoot now. The realities of global warming and our growing dependence on oil, much of it imported, will make energy more pivotal than ever to our economic, environmental, and national security fortunes in the 21st century. The challenge we face is nothing short of the conversion of an economy sustained by high-carbon energy—putting both our national security and the health of our planet at serious risk—to one based on low-carbon, sustainable sources of energy. The scale of this undertaking is immense and its potential enormous.

    The urgency of this issue demands a president willing to make the low-carbon energy challenge a top priority in the White House—a centerpiece not only of his or her energy policy but also of his or her economic program—to produce broad-based growth and sustain American economic leadership in the 21st century. This task is so encompassing it will demand that the incoming president in 2009 reorganize the mission and responsibility of all relevant government agencies—economic, national security, and environmental.

    As part of this reorganization, the incoming president should create a new National Energy Council in the White House led by a National Energy Advisor whose missions will be the energy transformation of our economy and the promotion of these same steps abroad. Our challenge is huge, full of opportunity and risk. And time is working against us. So the president will need the kind of single-minded attention that a fully empowered National Energy Advisor can bring.

    Our traditional understanding of energy security has been largely limited to assuring adequate supplies of energy to fuel our economy. That will remain a necessary concern, of course, but not a sufficient one. Going forward our leaders will have to act on an understanding of energy security that turns not just on the supply but on the carbon content of the energy we use. Otherwise, we will consign ourselves long-term to the mercy of international markets and an increasingly variable climate. We must act now and act boldly to put ourselves on a sustainable footing, in the interest of our national, economic, environmental, and energy security. Simply put, energy will rapidly transform the world for good or ill. The question for the United States is whether we will participate as a leader in the global energy revolution.

    This paper insists the United States must lead this revolution. Ours is a vision of an economy in which highly efficient vehicles dominate the roadways, service stations pump large quantities of low-carbon alter- native fuels, incandescent light bulbs are entirely replaced by compact fluorescents, and all buildings employ day lighting, solar heating and cooling, as well as highly efficient appliances and air conditioning. In this economy, utility companies will increase their profits when customers save energy and draw more than a quarter of their feed stock from renewable sources of energy; coal-fired power plants will be built to capture CO2 and pump it through a national network of pipelines for geologic storage; and businesses of all kinds will have to factor the cost of carbon into their bottom-line calculations and aggressively pursue low-energy options.

    The scale of the change we need is daunting but achievable. In their well-known “wedges” analysis on how to stabilize atmospheric CO2 at non-dangerous levels, Stephen Pacala and Robert Socolow of Princeton University describe 15 major energy initiatives, any 7 of which would allow us to bring emissions down to an acceptable level during the next 50 years— avoiding about a third of the total CO2 emissions that would otherwise be released. Each of these wedges is formidable, including, for example, increasing the fuel efficiency of 2 billion cars from 30 miles per gallon to 60 mpg (the worldwide fleet of cars is currently 800 million, but that number is rapidly rising). Other wedges include improving the efficiency of buildings and appliances enough to cut their CO2 emissions by 25 percent; increasing the efficiency of coal-fi red power plants by 50 percent; introducing so-called carbon capture-and-storage capabilities at the equivalent of 1,600 large (500 megawatt ) power plants; and dramatically increasing the use of renewables like wind, solar, and biomass in producing electricity.
    Taking such action is not just good for our environment. Actions like these can provide a powerful charge to the economy. Our vision of a low-carbon economy includes vigorous private and public research pushing the envelope on technologies that will not only stabilize emissions at livable levels during the next 50 years but also create the clean-powered world that our grandchildren and their children will see at the dawn of the next century. Developing, deploying, and building at this scale recalls other great economic transformations in America’s past, like the laying of our railroads and the construction of the interstate highway system. But in many ways our new challenge is even more complex since energy powers every part of the economy. Yet that’s exactly why these advancements will drive economic growth and American leadership in a competitive global economy well into the 21st century.

    The good news is that the technology we need to begin the transformation to a low-carbon economy exists and the investment dollars are available if the policy ground rules are properly established. A great deal of investment and effort will be needed to make this vision real, but the hard work of ushering it in can become a powerful engine for growth, competitive advantage and jobs.

    Our competitors are figuring this out, while our national leaders have been asleep at the switch. Over the past 10 years, for example, our market share in producing solar cells has plummeted, while Japan, relying on government R&D and consumer subsidies, has become the world leader. Germany, not known for its sunshine, has also become a solar leader, thanks to some well-placed incentives. European companies have also captured a dominant share, approximately 70 percent, of the world market for wind turbines. And Brazil has vastly reduced its dependence on oil by ramping up its production of ethanol and transforming its auto fleet to run on such fuel.  

    Our nation has always thrived on its creativity, entrepreneurial character, flexible economic structure, resourcefulness, and can-do spirit. Over and over, in the face of large and difficult challenges—cleaning our air and water, repairing the ozone layer, making cars go farther on a gallon of gas (which we did 30 years ago before reversing direction)—the gloomy chorus has complained that we couldn’t succeed, that the economy would fail, that jobs would disappear, that America’s competitive edge would be blunted. Every time the naysayers have been proven wrong, and this will happen again when we rise to meet our new energy challenge.

    At a gathering pace, Americans are recognizing and embracing this challenge. Chief executives, venture capitalists, state and local leaders, the general public— everyone, it seems, but the federal government, which keeps running far behind the curve—are taking action. A group of CEOs of major companies including General Electric Co., Duke Energy Corp., Alcoa Inc. and DuPont joined with major environmental groups, under the umbrella of the United States Climate Action Partnership, to call for a far-reaching, mandatory program to cut greenhouse gas emissions by 60 percent to 80 percent below current levels by 2050.

    Venture capital has started pouring into clean energy. Solar-energy companies accounted for the three largest technology IPOs of 2005. In 2006, venture capital investments in energy technology tripled to $2.4 billion. Annual revenue for solar power, wind power, biofuels and fuel cells rose from $40 billion in 2005 to $55.4 billion in 2006, nearly a 39 percent increase in one year. John Doerr, the leading Silicon Valley venture capitalist who helped finance Google Inc.,, Inc., and Sun Microsystems, Inc., among many others, calls clean energy “the largest economic opportunity of the 21st century.” Another leading Silicon Valley financier, Vinod Khosla, is now betting heavily on biofuels and solar thermal.

    Meanwhile, states, including long-time leader California and 10 Northeastern states that are implementing a regional carbon cap-and-trade program to cut CO2 emissions, are also charging forward to produce low-carbon energy, unwilling to wait for our temporizing leaders in Washington. And they are doing this on a bi-partisan basis, led by Republicans, such as Governors Arnold Schwarzenegger (CA), Charlie Crist (FL), and Tim Pawlenty (MN), and Democrats such as Governors Bill Richardson (NM), Eliot Spitzer (NY), Christine Gregoire (WA), and Edward Rendell (PA). In addition, under the auspices of the Clinton Foundation, 16 of the world’s largest cities, including New York, Chicago, and Houston, have recently agreed to participate in an aggressive program to retrofit buildings—the source of 40 percent of CO2 emissions—to lower their carbon footprint.

    The general public, unsurprisingly, gets it. A recent Greenberg Quinlan Rosner poll, conducted for the Center for American Progress, asked respondents to choose between two alternative perspectives: that the country needs to tackle global warming even if it will cost businesses more to meet stronger regulations on pollution; or that we should not address global warming by putting more regulations on businesses that will cost us jobs and increase prices for consumers. Respondents favored the first by 65 percent to 32 percent. Similarly, by a 79 percent to 17 percent margin, respondents endorsed the view that shifting to new, alternative energy production will help America’s economy and create jobs, rather than costing America jobs and weakening the economy.

    What has been missing to date is the political will in Washington to seize the energy moment, put in place a series of tough, mandatory rules of the road, back them up with targeted government investments, and begin the work of transforming our economy. The old way of addressing environmental issues apart from the main workings of the economy—as “externalities” or “amenities” in the language of economics—no longer applies. We are confronted now with an issue that is paramount to the preservation of our environment and the sustainability of our eco-systems as well as critical to our national security and central to our hope for a new era of economic growth and prosperity.

    In this report, we will look at the urgent reasons why we need to make this low-carbon energy transformation—climate change and oil dependency—and then discuss the building blocks (see box on pages 8–9) of a low-carbon economy as well as some of the policy instruments we will need to put those building blocks in place. Specifically, this report will examine the fi ve steps necessary to create this new energy opportunity:

    Implementing an economy-wide cap-and-trade program for greenhouse gases.

    Transforming our transportation network by:

    • Increasing vehicle fuel efficiency
    • Boosting the production and availability of low-carbon alternative fuels
    • Investing in a low-carbon transportation infrastructure

    Overhauling our electricity industry by:

    • Improving the efficiency of energy production and use
    • Increasing production and consumption of renewable energy
    • Promoting the use of “advanced coal” through carbon capture-and-storage systems

    Requiring the federal government, coordinated by a new White House National Energy Council, to manage the energy transformation and structure its own operations to reduce global warming and create a low-carbon economy.

    Advancing international global warming policies.

    A word about the international dimension is necessary. This report’s focus is on what we must do at home to transform the energy foundation of our economy, and so the complex issues involved in devising global solutions are largely beyond its scope. But a few short points are in order.

    All major carbon-emitting nations, including key developing countries such as China and India, will have to be part of the solution. In fact, most of the future emissions growth will be generated by developing countries who collectively will account for over 75 percent of global emissions growth by 2030.

    But far-reaching, mandatory U.S. action has to come first. Without that, the United States will have no credibility to argue for broader global participation.

    American action will spur developing world action in two separate ways. First, the policy changes needed to cut carbon emissions in the United States are job-producing and growth-generating actions. Other countries will emulate them, just as China, Russia, Brazil, and other countries have adopted building energy codes and appliance efficiency standards based on U.S. models.

    Second, the technologies needed to promote low-carbon economies are increasingly produced and sold in a global market. When America buys compact fluorescent lamps, most of them are made in China, so China automatically develops the manufacturing technology to use them domestically. When America requires that computers and TVs become more efficient, it affects the market in India and Africa. And conversely, when America lags in efficiency or renewable energy technology, either the rest of the world also lags or else other developed countries grab the market and control the export sales to the developing world.

    Clearly there are many reasons why the United States needs to capture the energy opportunity by creating a low-carbon economy. So, too, do the rest of the nations of the world. American leadership is paramount, both at home and abroad.