Jesse Jenkins is reporting for the Energy Collective from the Energy Innovation 2013 conference in Washington D.C. Check the @EnergyCollectiv timeline or hashtag #EI13 for live tweets and view more from the conference here.

Presenting two visions for the future of American energy policy, Fred Krupp, President of the Environmental Defense Fund, and Ted Nordhaus, Chairman of the Breakthrough Institute, squared off in a lively debate Tuesday, capping off the third annual Energy Innovation Conference organized by Breakthrough and the Information Technology and Innovation Foundation.

Speaking to a full crowd at the Washington D.C. conference, Krupp and Nordhaus agreed on the broad contours but often differed sharply in their priorities for new policy action.

Carbon pricing: the dog or the tail?

“My political experts [at EDF] are blunt. They tell me that no matter what’s needed, this Congress will not deliver a cap or a tax on CO2,” Krupp began, acknowledging that the national cap and trade legislation EDF was instrumental in pushing through the House of Representatives in 2009 before it failed in the Senate was not going to reappear in newly sworn in 113th Congress. 

“But [climate] scientists are equally blunt. They tell us that we need to reduce CO2, methane, and other greenhouse gases fast or we’re screwed – that’s not a technical term,” Krupp quipped.

The long-time head of the Environmental Defense Fund stressed the importance of sending a firm signal to markets that aligned profit motives to drive the transition towards a low-carbon energy system. 

“I fully agree with the Breakthrough Institute that we need policies to fund R&D and spur private investment in innovation,” Krupp began, before adding, “At the same time, we have to make firms pay the full social cost of using the atmosphere like a trash can.” 

While federal action on pricing carbon pollution has stalled, Krupp pointed to the launch of a cap and trade program in California this year, part of the implementation of the state’s 2006 Global Warming Solutions Act, also known as AB 32.

Krupp also noted similar cap and trade or carbon tax programs in place or soon-to-be implemented in the New England power sector, in Europe, South Korea, Indonesia, and Australia. Under its latest Five Year Plan, China was also set to launch a pilot carbon market covering a collection of Chinese cities and provinces home to about 250 million residents, Krupp said.

The Breakthrough Institute’s Nordhaus countered that while several jurisdictions had implemented some form of a price incentive to reduce carbon and other greenhouse gases, he argued that these policies were unlikely to drive substantial changes to global emissions trajectories.

“If there is one thing that should be clear by now, it’s that we are not going to price, cap, or regulate our way to a low-carbon future,” said Nordhaus. “No political economy in the world will raise energy prices sufficiently to drive large-scale clean energy deployment.” 

While Nordhaus acknowledged that several nations had implemented “what they call carbon pricing,” he argued that “after the political process, you get something that doesn’t actually have a real impact on the trajectory of emissions.”

The pair presented competing assessments of the success (for Krupp) or lack thereof (for Nordhaus) of the European Emissions Trading Scheme, the world’s longest-running carbon trading system in place since 2006. But both acknowledged that the long-run success of carbon pricing policies depended on their ability to drive the development of new, affordable low-carbon energy innovations.

While acknowledging that the challenge of arresting dangerous global warming was daunting, Krupp said he was still “hopeful.”

“Why am I hopeful?” Krupp asked rhetorically. “Just look how we got in this mess: its been profitable to dump CO2 into the atmosphere.” Lauding the powerful forces of capitalism, Krupp argued, “If we get the profit motive aligned [with a low-carbon transition], there’s real reason to be hopeful.”

In contrast, Nordhaus challenged that there was little evidence that price signals would unleash the kind of widespread energy innovation that Krupp described. According to Nordhaus, “If you look at the “induced innovation” literature, that’s what the academics call it, you really find no evidence that price signals drive that kind of innovation.”

Krupp countered by pointing to the success of the U.S. cap and trade program for the sulfur dioxide pollution responsible for acid rain, saying that the price incentive created by the program was responsible for improvements in power plant boiler technologies that enabled a steady increase in the use of low-sulfur coal.  That led to cheap reductions in sulfur pollution. 

That kind of incremental innovation is expected from that kind of price signal, Nordhaus acknowledged, but countered that these smaller improvements to existing technologies were a far cry from the kind of widespread and often dramatic improvements in low-carbon technologies needed to get to deep emissions reductions. 

“The debate isn’t if you regulate or not, or price [carbon] or not,” Nordhaus said.

“The point is what's the tail & what's the dog. Technology is the dog” that wags the carbon tail, not the other way around, the Breakthrough Institute Chairman argued. 

“Effective regulations, caps, taxes, subsidies, whatever it is, depends on the presence of cost-effective substitutes for fossil fuels,” said Nordhaus. “So the main policy thrust [should be] to invest in the low-carbon technologies we need. [This kind of innovation] is a public good. Without it, we won’t make progress.”


Agreement on regulating power plants and cleaning up gas

While the two sparred over the relative importance of pricing carbon pollution versus directly investing in the development and improvement of low-carbon energy sources, they agreed on much else.

Both EDF’s Krupp and Breakthrough’s Nordhaus said that President Obama should move forward to implement regulations on carbon dioxide emissions at existing power plants.

After designating CO2 and other greenhouse gases a threat to public health in 2009, the Environmental Protection Agency has been steadily promulgating rules to reduce the pollutants under authority granted by the 1970 Clean Air Act. 

The EPA should now finalize rules requiring any new power plants to emit less carbon than a modern gas-fired plant and establish new regulations for existing power plants, Krupp and Nordhaus both urged.

“In history, we've solved pollution when we've regulated it,” Krupp told the audience. “So I think EPA should be aggressively going after CO2 pollution.”

Nordhaus agreed that the new regulations would be important, although he said their impact was likely to be “modest” due to political realities.

Krupp and Nordhaus also stressed the importance of ensuring that the boom in U.S. natural gas production had the maximum benefit for national climate mitigation efforts and avoided polluting the air or water.

EDF is now leading a national effort to assess the rate at which methane, a potent greenhouse gas, was leaking from natural gas wells and pipelines, Krupp noted.

“According to a National Academies report, if methane leakage is too high, it negates all the climate benefits of shifting from coal [power plants] to gas,” Krupp said. “But 65 percent of leaks come from just 10 percent of wells,” he added.

“We can solve this,” Krupp concluded.

“These are problems we know how to solve,” Nordhaus agreed. “It's basically pouring concrete casings correctly. It's fixing leaking pipes.”

Both Nordhaus and Krupp also agreed that using natural gas as a transportation fuel did not make sense from a climate perspective.

“Look at the science,” Krupp urged. “If methane leakage [in the gas system] is greater than 1 percent, you get no climate benefit from a shift from diesel to gas” as a transport fuel, he said.

According to Krupp, actual methane leakage rates from natural gas wells and other infrastructure was almost certainly higher than that. EPA’s provisional estimate was about 2.5 percent per year, he said.

Natural gas could have the greatest climate impact by displacing carbon-intensive coal in the power sector, the pair of environmental leaders agreed. 

While Krupp said that he didn’t think anyone in the environmental movement should be “promoting gas,” he added that “we can't wish it away. That means cleaning it up.”

“I'd go further than Fred and say we should promote gas,” Nordhaus replied. “Its the "killer app" for coal.”

Natural gas has quickly displaced coal in the U.S. electricity sector in recent years, he said, helping the U.S. reduce emissions faster than any other nation and sustain emissions reductions in 2011 and 2012, even as the economy returned to growth.

While Krupp and Nordhaus both agreed that exporting U.S. gas overseas would have little climate impact, Nordhaus said that exporting shale gas extraction technology to coal-consuming nations like China could yield real climate benefits.

Beyond the immediate benefits due to natural gas’s displacement of Old King Coal here in the United States, Nordhaus also argued that the “gas revolution,” as he called it, was actually evidence of “how quickly we can make progress on emissions if we have clean energy source cheaper than the incumbent.”  

Now faced with a similar set of innovation challenges to make truly zero-carbon energy sources like wind, solar and nuclear power cost effective and fully scalable, there is a lot policy makers can learn from the development of cheap shale gas extraction technologies, Nordhaus said. He noted that decades of U.S. federal government support for shale gas technology was essential to spark the current gas boom.

Surging U.S. gas production has also had enormous economic benefits, according to Nordhaus, who cited a recent Yale University study that estimates the shale gas revolution has delivered $100 billion in benefits to the U.S. economy on just $10-20 billion in total government investment in the technology’s development.

That’s why “we must be failure tolerant in our innovation system,” Nordhaus said. “Not all technologies will pay off but you only need few successes like shale to pay for it all.”

In the end, “there’s a lot [Nordhaus and I] agree on,” Krupp concluded. “I don’t think there's much that's mutually exclusive here.”

“I agree more cleaner, cheaper technology makes it easier to regulate,” said Krupp. “That's more evidence” that directly driving technology innovation and pricing or regulating CO2 “are synergistic goals,” said the EDF President.

“We have our backs up against the wall,” Krupp concluded, “but I still have hope. Hope is a verb with its sleeve rolled up, and I'm counting on all of you.”

Full disclosure: I worked at the Breakthrough Institute from June 2008 to May 2012. While I therefore have obvious sympathies in this debate, I have strived to fairly and accurately capture both participants’ positions in this post. Watch the video of the debate above or view the conference Twitter stream and judge for yourself. Please add comments below. -JJ