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On Does Improving Efficiency Do Any Good?
This is a thoughtful and measured post Karen. My colleagues and I at the Breakthrough Institute will soon be publishing a thorough literature review covering the current state of the art in research in the field. Hope you can take a look when it's out (in February most likely).
One comment on your post. As you correctly note, there are a variety of different rebound effects operating at various economic scales and scopes. The full global, macroeconomic impact of rebound effects is the scale that matters most to climate and global resource depletion concerns, although micro-scale direct rebounds are more important to individual consumers and businesses, while utilities may concern themselves with locally-bounded macroeconomic impacts only, etc.
After introducing the various direct, indirect and macroeconomic effects, however, you write:
See the paper for the scale of the rebound effect, which is close to 0% for home appliances, 10 - 30% for cars, and 0 - 50% for space cooling.
This is the scale for direct, micro-economic-scale rebound effects only, however, not the full scale of combined direct, indirect, and macroeconomic rebound factors. As you correctly note, the ultimate scale depends quite a bit on what kind of efficiency improvements we're talking about and what kind of economic sector or country that occurs in. Combined economy-wide rebound is going to be quite a bit larger than those figures however. Rebounds are particularly large, and can sometimes lead to backfire -- rebound greater than 100% of projected energy savings -- in developing economies (as you note), in sectors where elasticity of substitution of energy for other factors of production is high (e.g. particular industrial sectors, most notably energy-intensive ones), and when efficiency improvements yield productivity improvements in both energy, as well as other factors (e.g. labor productivity boosts from better and more efficient lighting, for example), which produces an out-sized impact on economic production and output (and associated energy demand).
In the end, while the insight into rebound effects first proffered by Jevons is widely considered a paradoxical notion, the combined impact of rebound effects means we have reason to be skeptical of the ability of below-cost energy efficiency to drive real and lasting reductions in total energy consumption and thus the ability of efficiency measures to significantly contribute to climate and energy security objectives directly. Relying on a linear, direct, and one to one relationship between below-cost energy efficiency improvements and carbon emission reductions, as is almost universally the case in contemporary policymaking, is very likely to lead nations and the world on a dangerous path.
To be prudent then, efforts to reliably reduce greenhouse gas emissions or dependence on depleting fossil fuels that aim to avoid the risk of overreliance on energy efficiency measures should focus primarily on shifting the means of energy production (rather than end use), relying on zero-carbon and renewable energy sources to diversify and decarbonize the global energy supply system.
On Election Does Not Spell Cleantech Doom
Hi David,
Glad to see a less dour outlook on future energy prospects in Washington. I too think that if they can find it anywhere, energy is one realm Republicans and Democrats may be able to work together to achieve some meaningful reform.
On that note, have you seen the "Post-Partisan Power" report that I and my colleagues at the Breakthrough Institute released in October with scholars at the American Enterprise Institute and the Brookings Institution? Our proposals are very much in the spirit of bipartisan opportunity articulated in this post and have been the focus of significant discussion since the report's release on October 13th. The report has been featured in the New York Times, Boston Globe and The Atlantic, the Weekly Standard, and most recently in the Washington Post editorial page, which endorsed the plan. I'd be curious as to your thoughts on the report.
Cheers,
Jesse Jenkins
On Geoengineering research, getting real
Excellent post Marc. Thanks for overing this important beat.
This seems like exactly the right kind of cautious research that must proceed on geoengineering to start expanding our knowledge about potential risks, benefits, and processes involved. It is unlikely we will need to pursue geoengineering options until many decades from now -- and the precise date will be delayed or even made irrelevant by the right steps to develop and field low-cost, scalable, zero-carbon energy sources -- but that research must begin today to be properly prepared. The LAST thing we want to do is being a full-scale geongineering effort in an emergency mode, without preparation and foresight.
Keep up the coverage on this Marc. Cheers,
Jesse
On Extend or Reform?
Finally Geoff, here's another reason to consider tax credit policies a fairly poor way to incentivize alternative energy adoption: for every dollar of taxpayer-funded incentive provided, forcing things through tax equity markets loses 30-50 cents on the dollar for the project developer, according to Rohne Resch of Solar Energy Industries Association (talking to the NYTimes). If we're trying to get the most bang for limited taxpayer dollars, why would we want to use this inefficient system that spends more public money than is needed to incentivize clean energy while simply enriching bankers in tax equity markets on the side?
On Extend or Reform?
p.s. This point is one I fully agree with and is central to the recent "Post-Partisan Power" report I helped develop:
Taxpayers aren't obligated to underwrite business investments in renewable energy indefinitely. What's needed--for both the industry and taxpayers--is a clear policy aimed at making these efforts self-sustaining (and globally competitive) as rapidly as possible, with a transparent schedule for phasing out government support--or at least reducing it to a similar level per BTU or per kWh generated as conventional energy sources enjoy.
In service of effective subsidy reform however, I'm interested in more direct ways to provide incentives, not the indirect tax measures that exist today, which I think raise transactional costs for many projects unecessarily.
On Extend or Reform?
Geoff, responses to two of your comments here:
2. "the creation of a project will creat long term tax payments to the government even if some of the tax payments are offset by the grant program". With all due respect, this argument contradicts the basic justification for the grants and the impetus for the tax equity market, which came into being because smaller developers weren't paying enough taxes to capture the full benefit of the Production Tax Credit, for which the ITC (converted to cash grants) now substitutes. If developers are in fact paying significant taxes net of incentives and the only issue is timing, then there's no reason to provide this convenience (the grants) for large, profitable firms, as I noted in the posting.
Geoff, I'm not positive, but I assume that Kevin was referring to the ongoing tax payments paid by the project and the tax revenues generated by the employment and services contracted for construction and operation of the project. In Oregon, where I used to work, wind farms routinely became the largest property tax revenue stream for the rural counties they were built in, while employing hundreds during construction -- all of whom paid income taxes -- and contracting numerous services companies who do not get the tax incentives offered directly to the wind developer, and thus pay in both business and personal income taxes. I wouldn't be surprised if over the long-term, the wind or solar projects pay out far more in taxes generated than they claim in initial tax credits. This point does not as you say run counter to the whole justification of the program.
3. " there is no elimination of the rigorous review by project lenders and equity investors, as the cash grant only provides a portion of the funding." I would hope not, having participated in many such reviews in my career. At the same time, the tax equity providers that the grants avoid bring a unique, cross-industry perspective to their investments, enabling them to transmit learnings and best practices from projects that have reached operation. The DOE application vetting process can't match this.
I'm still not convinced by this argument. I don't understand why you think the private sector must include tax equity markets in the vetting of projects when 70% of the project financing must still come from private sector debt or equity investors, when the project developers are all private firms that must answer to investors and shareholders, and when the projects must all make power sales to utilities which answer to both shareholders and public utility commissions. There's a hell of a lot of checks and reviews and private skin in the game through that entire process. Forcing these projects to go through tax equity markets to add yet another layer of project assessment makes no sense to me, and strikes me as adding an additional transactional cost that will slow the pace of project development, increase financing costs, and raise project risks.
Consider that almost any other sector of project development -- be it retail or residential construction, fossil energy development, infrastructure projects, etc. -- don't need to involve tax equity markets. Do you think we should force commercial real estate developers to undergo scrutiny from tax equity markets?
I raised this question on your last post on the Section 1603 grants, and this line of reasoning still doesn't convince me for these reasons.
Cheers,
Jesse
On Subsidies for renewables: $57 billion; subsidies for fossil fuels: $312 billion
While I certainly support the IEA's calls to phase out fossil fuel subsidies -- excepting where those would expand the already deplorable share of the global population (about 2.4 billion) locked in energy poverty -- the IEA figures on energy subsidies are actually a stark reminder of the major cost gap that persists between fossil energy and costlier clean energy alternatives.
If renewables account for a 7% share of global energy energy demand, and recieve $57 billion in subsidies, that's $8.14 billion for each percentage share of global demand. In contrast, fossil fuels supply about 83% of the global energy mix (nuclear accounts for the remaining 6%, according to the IEA) and recieve $312 billion in subsidies, for $3.76 billion per percentage share of global energy supplied.
In other words renewables recieve more than double the subsidy rate per unit of energy supplied as fossil fuels. When you consider that hydropower, which rarely requires or recieves subsidy, accounts for the vast share of global renewable energy production, the relative subsidy rate for wind, solar and other renewables per unit of energy produced is much higher.
This is why I always come back to the urgent need to make clean energy cheap, in real, unsubsidized terms. Ending fossil energy subsidies will help level the playing field, but only real innovation to drive down price and improve performance for a full suite of clean energy technologies can ensure that a meaningful share of global energy demand can be supplied by low-carbon alternatives to fossil fuels.
On Green Jobs Aren't Renewable Energy's Value Proposition
I'd prefer a cash production incentive to a cash grant up front...
On Investing in technology vs. pricing carbon
Simon, thanks for engaging with our Post-Partisan Power report.
Three notes:
1. Innovation-focused policy strategies, such as the one we advocate, are not synomous with more R&D. Check out the report's recommendations for a discussion of how we must accelerate the deployment and adoption of clean technologies to ensure they mature and come down in price over time, driven by competitive deployment incentives and procurement. Innovation is not the domain of the lab alone, and neither does our policy strategy focus solely on R&D. More from Breakthrough here.
2. This isn't presented as an either or proposition. No where in the report does it say that (I've double checked a couple times, since people seem to keep reading it that way; or misrepresenting it that way...). All we noted as the clear facts, that cap and trade efforts have now failed four times in Congress the past seven years, and that they were unlikely to return or achieve much progress if attempted again in the near-term. That said, as Michael Shellenberger and Ted Norhdaus note in response to Dr. Stavins of Harvard over at the NYTimes Economic blog:
A technology first strategy is not a technology-only strategy. Cheaper and better clean energy technologies are not a substitute for pricing, regulatory, public procurement or other policies that will be necessary to make a full transition from fossil fuel based technologies to low carbon technologies. They are however likely to be a precondition. If we have learned anything over the last twenty years it is that we are not going to price our way to a low carbon economy given the current technological options we have today. No political economy in the world has been willing to raise energy prices sufficiently to drive new private investment toward low carbon technologies on any scale that is relevant to climate change. This was true before the recession, it is true today, and it appears likely to be the case for the foreseeable future.
3. Your statement that it was always the plan to have cap and trade fund a serious R&D or innovation investment strategy stands in contrast to the recent history of the cap and trade debates in Congress. The House and Senate bills would have directed less than $2b per year of roughly $70-100b into clean energy R&D efforts, far far less than expert recommendations for clean energy innovation spending levels. Failing to direct cap and trade revenues towards a proactive clean energy innovation effort was "a dangerous omission," according to Dr. Burton Richter, Nobel Prize winner and the leader of a group of 34 Nobel laureates who drafted a letter to President Obama and Congress warning of this serious shortfall in July 2009. "Much can be done with the current generation of technologies. However, study after study has confirmed that to combine growing prosperity worldwide with sharply reduced production of greenhouse gases will require technological advances that are possible only through research," the Nobelists cautioned.
So I think this matter deserves a little more serious consideration rather than cast it aside as a straw man argument or "a dodge." The nation (and the world) has made very little progress trying to make fossil fuels more expensive through cap and trade, and has consistenly paid short shrift to proactive energy innovation strategies. Getting this right is about far more than simply marrying cap and trade with some R&D funding. It's time to focus on a comprehensive strategy to drive clean energy innovation and make clean energy cheap and abundant.
Jesse Jenkins
Director of Energy and Climate Policy
Breakthrough Institute
On Green Jobs Aren't Renewable Energy's Value Proposition
Hmm, interesting points. I'll have to mull the relative value and costs of the third party tax equity partner here a bit further. But I should also note that the tax equity partners are not the only market tests these projects are given. Even with a cash grant in hand worth 30% of capital costs, project developers must find equity or debt financing for the remaining 70%, and they must secure power purchase agreement or ownership agreements with utilities (and they in turn must demonstrate fiscal responsibility to shareholders and/or public utility commissions). So plenty of tests for fiscal viability going on here already. Why introduce another?
On Green Jobs Aren't Renewable Energy's Value Proposition
Agreed there. X per MWh is the right metric to compare apples-to-apples on most things electricity related...
On Does Improving Efficiency Do Any Good?
Charles, you're quite right, that Lovins is in many ways "the godhead" for efficiency advocates. As a member of a younger generation, I became acquainted with efficiency arguments in a climate change context, but the real genesis of efficiency efforts lies in the anti-nuclear movement of a generation before. The argument was always charged with anti-nuclear sentiment, and developed as a means to challenge what greens saw as a false need for new nuclear power plants.
In fact, the first round of debate over rebound effects played out in this context, with pro-nuclear energy economist Leonard Brookes arguing in 1979 that rebound effects meant that placing an overrelliance on efficiency to meet supply needs would be imprudent, and Lovins soon firing back in an effort to dismiss this challenge. Ever sense then, a dismissal of rebound effects as "insignificant" has been a matter of faith for US-based greens, even as energy economists and researchers developed an ever greater understanding of the scale and import of rebound effects and built a true body of knowledge over the following three decades (which I survey with my colleagues in our forthcoming literature review).
Meanwhile, Lovins and greens wound up winning their anti-nuclear fight. What Lovins lost out on was his predictions of future energy demand. In 1982, Lovins predicted global energy consumption in 2000 would be 5.33 gigatons of oil equivalent. He was off by 40 percent. So instead of building new nuclear plants, America went on a coal-building spree, instead...