Penny Wise and Pound Foolish: Why Obama's Symbolic Spending Freeze May Grow the Deficit

With rising anxiety about mounting federal deficits, President Obama declared a freeze on all non-defense discretionary spending in his latest budget proposal. Heavy on symbolism and light on impact, the Administration's proposal attacks all of the areas of the government least responsible for the inexorable increase in federal deficits, while potentially starving key parts of the discretionary budget critical to America's economic prosperity.

Let's be clear: ballooning deficits do pose a real long-term threat to the United States' economic security. Under current forecasts, the accumulated deficit could total $20 trillion by 2020. That could hobble Uncle Sam with interest payments on the federal debt nearly as large as the projected total for all domestic discretionary spending. Efforts clearly must be taken to avoid such an unsustainable - and risky - financial future.

That said, curbing domestic spending is the wrong route to trim the deficit. The President's spending freeze applies to only a small fraction of the federal budget, while exempting both the mounting costs of two wars and the ever-rising bill for the nation's entitlement programs - Social Security, Medicare and Medicaid.

Together, defense spending and the three big entitlement programs account for roughly 60 percent of President Obama's $3.7 trillion FY2011 budget. Defense spending has soared 70 percent since 2001, in inflation-adjusted terms, reaching the highest level in post-World War II history. The Pentagon's $708 billion 2011 budget is now 23 percent higher than the peak of Regan-era Cold War military spending. At the same time, the steady rising costs of an aging population are projected to drive the price tag for entitlement programs alone to nearly half (46%) of the U.S. budget by 2020.

There is simply no route to a balanced budget without the hard work of serious entitlement reform, including efforts to control the rising costs of health care in America. Likewise, slashing domestic spending will do little to control the deficit without efforts to rein in defense spending, beginning with the responsible disengagement from the wars in Iraq and Afghanistan.

Without a growing economy, taming the deficit will prove impossible

Despite long-term deficit concerns, slashing federal spending or raising taxes in the short-term - e.g. while economic recovery is tenuous and unemployment still hovers near ten percent - would be tantamount to economic suicide. As long as the economy remains on shaky ground, real deficit-cutting efforts will effectively stay shackled; tax revenues will remain stagnant while efforts to trim spending or raise tax rates could send the economy tumbling back into recession. Thus, without a growing economy, taming the deficit will ultimately prove impossible.

As such, getting the budget back in the black has more to do with smart investments to ignite America's engines of economic growth than symbolic spending freezes. While Clinton-era deficit reduction efforts are often credited with taming the federal deficit in the 1990's, it was robust economic growth, largely driven by the long IT boom of the mid and late '90's, that did the lion's share of the work to turn deficits into the surpluses.

Along with real entitlement reform and winding down the wars, smart government investments in broad-based economic growth must therefore be the keystone of a three-part strategy to truly balance the federal budget.

Domestic spending freeze undermines critical investments in America's prosperity

That's where the pernicious potential of the new spending freeze becomes clear: the embrace of symbolic "restraint" on domestic spending could have a real impact on the Obama Administration's efforts to make critical investments in areas like infrastructure, education, and innovation, undermining precisely the efforts necessary to get America on the path to prosperity.

The IT boom that paved the way to America's return to fiscal health in the 1990's was in fact the result of precisely the kinds of federal investments that today's budgets threaten. For four decades after World War II, the federal government made enormous investments in research universities, national laboratories, communications and micro-processing technologies, and the necessary infrastructure to support the development and commercialization of information technologies that have transformed the American workplace, created entire new industries, and made the American economy the most productive in the world.

Yet even as these government investments were paying dividends and new technologies were in the process of remaking the American economy, the U.S. government was already in the process of weakening its commitment to the very innovation system that had made the IT revolution possible. In the 1980's, federal funding for education, infrastructure, and technology R&D was already on the decline, an overall trend that only continued through the Clinton and Bush years.

Thus, even as the economic boom associated with the IT revolution was eliminating deficits that at the beginning of the decade had appeared intractable, the U.S. government became complacent about precisely the kinds of public investments that catalyzed American innovation and prosperity. With the exception of bio-medical research, which saw big increases in the late 1990's and early 2000's, federal investment in America's innovation economy has stagnated over the last three decades. And without accelerated technological innovation and progress, America's prospects for real sustained economic growth are limited.

President Obama's first budget, and the stimulus passed by Congress last winter, offered some hope for a change in course. Spending on R&D, education, technology, and infrastructure was up. And to the President's credit, the proposed 2011 budget has preserved funding increases for many of these programs despite the proposed discretionary spending freeze. But if America hopes to catch the next technological wave and ride it to fiscal stability, it will have to invest much more in its innovation economy, returning to levels not seen since before 1980.

Case in point: investment needed to secure clean energy competitiveness

Energy is a case in point, although by no means an isolated one. While investing in clean energy, or any other particular sector of the economy, will not single-handedly cure America's economic ailments, new growth sectors with multi-trillion dollar potential don't grow on trees. Making investments now to catalyze competitive clean energy technologies and industries will pay big economic dividends down the line.

American policymakers would thus be foolish to ignore the economic potential of soaring global demand for clean energy in any serious strategy to get both the U.S. economy and the federal budget back on track.

Unfortunately for a cash-strapped America, in today's increasingly competitive global environment, securing market share and leading industries in the clean tech sector won't be possible on the cheap.

In his State of the Union, President Obama lamented, "There's no reason Europe or China should have the fastest trains, or the new factories that manufacture clean energy products."

On the one hand, President Obama is right; neither China nor the EU has some inherent competitive advantage in the clean tech field.

But the President is missing the very clear reason our Asian and European competitors are out-pacing the United States in clean tech: governments in Beijing, Tokyo, Seoul, and across the eurozone are all launching (or redoubling) comprehensive national clean energy strategies backed by big, long-term public investments to support each stage of the clean tech value chain.

Take China as an example, where both the Chinese central government and numerous provincial governments are together committing tens, if not hundreds of billions of dollars annually to secure competitive clean energy industries - and the jobs, tax revenues and export opportunities that go with them.

Carving out America's market share in the growing sector will similarly require both a focused national strategy and sustained public investment to support the key components of a competitive clean energy economy: robust clean energy innovation, manufacturing leadership, and strong and consistent market demand.

"I do not accept second place for the United States of America," President Obama boldly declared in his State of the Union. Yet when it comes to the race to harness clean energy growth, the United States will continue to languish in second place - or worse - as long as clean energy investment remains restrained by the Administration's spending freeze.

Real strategy to control the deficit requires long-term focus

In the end, there are no short-term, easy fixes to a problem as intractable as the soaring federal deficit. Nor will critical public investments in education, infrastructure, innovation, and competitive American industries pay huge dividends in the next budget cycle.

Rather, a real effort to put both the federal budget and the U.S. economy back on track will require an honest commitment to take up several hard tasks over the long-haul: bringing solvency to the nation's critical entitlement programs; reining in historically-high defense spending without imperiling the nation's security; and making a series of robust, sustained public investments that can put America back on the path to long-term, shared prosperity.


Jesse Jenkins is Director of Energy and Climate Policy at the Breakthrough Institute, and co-author of "Rising Tigers, Sleeping Giant," a major report on international clean tech competitiveness. Follow him on twitter @JesseJenkins

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Clean Tech Execs Champion Innovative Clean Energy Deployment Administration

By Jesse Jenkins, Devon Swezey, and Yael Borofsky

A new Clean Energy Deployment Administration (CEDA) is critical to "position the U.S. as the global leader in the development and deployment of clean energy technologies for years to come," according to a letter written by the country's leading clean tech entrepreneurs, investors, and stakeholders.

Thirteen leading clean tech companies, including Google, GE, and Kleiner Perkins, wrote to President Obama last week urging him to expedite the creation of a Clean Energy Deployment Administration along the parameters outlined by the Senate's American Clean Energy Leadership Act of 2009 (ACELA).

According to ACELA, a bipartisan product of the Senate ENR committee under the leadership of Senator Jeff Bingaman (D-NM), CEDA would be a new autonomous agency staffed with project financing experts and its own Administrator but maintain affiliation with the Department of Energy in order to benefit from DOE's considerable energy expertise. CEDA would provide financial enhancement, much like a bank, through a flexible suite of credit augmentation tools, including loan guarantees, securitization, insurance, that would reduce risk for investors in clean energy innovation. CEDA's financial support packages will thus help innovative new clean technologies secure private-sector financing, greatly increasing investment in this critical sector with limited risk to taxpayers.

Perhaps the most important and unique feature of CEDA is that it would be the first example of a deployment-oriented agency specifically designed to further accelerate clean energy innovation. To date, most clean energy deployment policies - renewable electricity standards, production tax credits, even the House version of CEDA - are far more focused on driving megawatts into the ground (and thus supporting more mature technologies, like wind). In contrast to the House version, which is more likely to act as (and compete with) a typical bank, the Senate's formulation of CEDA breaks new ground for deployment policy in its understanding that innovation doesn't end at the lab. Under ACELA, CEDA would have the ability to take on riskier projects thanks to explicit technology improvement goals, with objectives to drive lower prices and higher performance in an array of nascent clean technologies that advance some of the nation's most pressing interests.

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Will Copenhagen Mark the End of "Magical" Climate Thinking?

That's the question explored by the Breakthrough Institute's Michael Shellenberger and Ted Nordhaus in a new column in Foreign Policy that chronicles the climate odyssey of the past year - from President Obama's campaign and election through Congressional climate debates and the chaos in Copenhagen.

Take a gander at the in-depth column here.

Here's a few excerpts:

There was good reason to be hopeful in January 2009 that the election of Barack Obama would bring about America's long-awaited clean energy revolution. As president-elect, Obama had started to talk about energy policy in a way that no leader of either U.S. party had before. Promising to save the country from both severe recession and industrial decline, Obama described the transformation of the United States' energy economy as a defining challenge of his presidency -- an economic and national security imperative that Congress would fail to address at the country's peril.

But the reality fell far short of expectations. The Obama administration succumbed, like many others, to a sort of magical climate thinking that promised a painless and even prosperous transition to a low-carbon future with the tools already at hand. The only official within his administration to accurately grasp the technology challenges faced, Energy Secretary Steven Chu, was sidelined at crucial moments.

[...]

One year ago, in his first State of the Union address, Obama proposed a previously unprecedented $15 billion annual investment in clean energy research and development. Further, he appointed a technologist, the Nobel Prize-winning physicist Chu, as energy secretary to oversee that investment. The $800 billion stimulus, passed shortly thereafter, gave further credence to the notion that after 30 years of false starts, overblown rhetoric, and outright neglect, Congress and the president might finally get serious about remaking the United States' energy economy.

The stimulus included billions for energy R&D, infrastructure, and efficiency, and overturned the conventional wisdom that the United States would never again make big federal investments in technology as it had during the Cold War. But no sooner had the president's stimulus program demonstrated that a new way forward on climate change and energy might be possible, then the new administration relinquished its climate change and energy policy to the partisans of the past.

[...]

Putting Browner, a former Al Gore aide, in charge of climate-change policy was payback to environmental groups and the green donors who had supported Obama's campaign. But it also signaled that, inside the White House, the clean energy investment message that the president had used to such great effect in winning battleground states like Ohio and Colorado was seen as just that: a powerful message to use in the campaign, not a policy priority.

In this, Obama was following two decades of magical thinking among both greens and liberal Democrats about energy technology. In this view, energy efficiency pays for itself, solar and wind power are already nearly cost competitive with fossil fuels, and both can quickly and cheaply reduce emissions. This Pollyanna view of fossil fuel alternatives and efficiency, which makes going green seem cheap and easy -- little more than the cost of "a postage stamp a day" -- has provided the justification for green-policy advocacy that has overwhelmingly focused on pollution regulations and carbon pricing while ignoring serious investment in energy research and development.

The price of Obama's failure to break with green climate orthodoxy is only now becoming apparent. The collapse of international climate negotiations in Copenhagen last month was just the latest evidence that efforts to regulate global pollution output cannot succeed. The Kyoto framework, which imagined that carbon pollution limits could be the primary driver of the complete transformation of the global energy economy, has irretrievably failed.

The real technological obstacles to decarbonizing the global economy today represent an insurmountable obstacle to political efforts to limit carbon emissions. Until policymakers get serious about addressing the central technological challenge, all efforts to control carbon emissions are doomed.

[...]

Steven Chu came to Washington expecting to manage a massive expansion of energy R&D. Chu had cut his teeth as a research scientist at the justly famed U.S. government-funded Bell Labs, which he saw as a model because they were responsible for inventing or developing a range of devices now part of the fabric of American life, from fax machines to TV transmission, radio astronomy, solar panel cells, the transistor, calculators, cell phones, Wi-Fi, and hundreds of other technological miracles.

Chu had never bought the idea that, in Al Gore's words, "we have all the technology we need" to solve the climate problem. Instead, he told the New York Times that Nobel-caliber breakthroughs are required in chemistry, physics, and biology to make more efficient batteries, solar panels, and biofuels that can compete with fossil fuels in price, and that nuclear power is needed to displace coal.

Unfortunately, his view hasn't shaped the actions of the administration or Democrats in Congress. By early spring it was clear that Democratic leaders on the House and Senate budget committees were not inclined to honor the president's request for a dramatic scale-up of federal clean energy R&D and that the White House was not inclined to fight for it. And with greens and establishment Democrats fully lost in the magical idea that we can achieve massive emissions reductions through conservation, efficiency, and existing renewable technologies, there was scarcely any constituency inside the Beltway for the kind of big energy-technology program that Chu had hoped to launch.

[...]

The Waxman-Markey legislation passed the House of Representatives last summer by a scant few votes, even as it became glaringly obvious to everyone who dared look that it would not require emissions reductions below business-as-usual levels.

Green groups insisted that the bill would reduce emissions and pointed reporters and green donors to allegedly independent analyses by the World Resources Institute (WRI). But the WRI, a major party to the cap-and-trade agreement negotiated by the EDF and NRDC with energy companies, simply used a magic accounting trick that was visible in plain sight: counting carbon offsets as real reductions of U.S. emissions.

Offsets typically fund activities such as tree planting and methane capture from landfills, and have proven over the last decade to be extremely unreliable, when they have not been outright fraudulent. The extensive offsets in Waxman-Markey would have allowed U.S. emissions to rise at business-as-usual rates over the next decade rather than declining to 17 percent below 2005 levels, as proponents of the bill claimed. Nevertheless, the WRI created graphs showing U.S. emissions magically going down 17 percent by 2020 and nearly 80 percent by 2050; the New York Times duly reprinted them; and partisans on both sides of the debate tacitly agreed to pretend as if proponents' farcical claims about the bill's mandated emissions reductions were true.

[...]

Incumbent energy interests had, in short, hijacked magical climate thinking for their own uses. They took cap-and-trade legislation and turned it into an opportunity for them to raise energy prices on consumers, invest a fraction of the higher revenues in clean energy, remove existing regulatory obstacles to the construction of coal plants, and lock in their competitive advantage while crowding out energy newcomers, including clean energy firms, for decades to come.

The legislation's prominent defenders, like CAP's Joseph Romm, labeled green critics of the bill "global warming deniers" and told anyone who would listen that Waxman and Markey had pulled a fast one on the coal lobby. Duke Energy's James Rogers played along, offering to gladly repay the American public in emissions reductions after 2030 for billions in free allowance allocations today.

[...]

The collapse of the Copenhagen talks marks not just the end of the United Nations as the primary venue for global climate negotiations but also the abandonment of binding emissions-reduction targets and timetables as the primary vehicle for achieving emissions reductions. Targets will continue to be tossed around, either as aspirational goals or as loophole-riddled sops to appease greens. But the real international action on climate change and energy will involve bilateral and multilateral negotiations to develop and deploy clean energy technologies.

Those negotiations will sometimes look like trade negotiations, sometimes like IMF negotiations, and sometimes like global agriculture or public health efforts. What they won't look like is the impossible global pollution-output negotiations that have defined international efforts to address climate change since the Rio climate convention 18 years ago.

[...]

In the end, whether or not the Senate passes a cap-in-name-only climate bill, the long-term failure of Kyoto and all other efforts to establish binding emissions caps is virtually assured and is a function of a basic technological problem. We simply do not have low-carbon technologies today that can at large scale replace fossil fuels at a cost that any political economy in the world is willing to impose upon itself. There will be no political solution to climate change, no binding international agreement to substantially reduce emissions, and no effective domestic carbon cap until low-carbon technologies are much cheaper than they are today.

[...]

However, the technologies we need will not materialize in response to carbon prices or emissions caps. Nor will they arrive, as many conservatives would have it, by getting the government out of the way and simply allowing a new generation of Steve Jobs and Bill Gates to tinker away in their garages.

Rather, we need to create a new clean energy economy in the same way we created our information economy: by identifying a set of well-defined technical problems and mobilizing the human resources of our technologically advanced civilization -- our scientists, laboratories, universities, and engineers -- to solve them.

These technical questions are not difficult to grasp and in fact have already largely been laid out by Chu in his remarks to the New York Times. How do we convert sunlight into energy much more efficiently than solar panels do today? What combination of chemicals can store more energy in batteries that are smaller and lighter? How can we manufacture a next generation of self-contained nuclear reactors that are safer, smaller, and cheaper than the large ones of the 1950s and 1960s? And how can we engineer new biological organisms to serve as a cheap fuel alternative to oil?

Solving global warming's technology challenges will require not a single Apollo program or Manhattan Project, but many. We need to solve technical problems across a range of technologies and at a variety of stages along the road from technological development to demonstration to commercialization to mass deployment.

[...]

Transforming the global energy economy from fossil fuels to low-carbon alternatives over the next 50 to 100 years is such a monumental technological undertaking that it is quite understandable that many would either declare it impossible or retreat into magical thinking. We must resist these temptations.

Solving the technology challenge will not be easy, but in terms of our collective wealth and knowledge we are in a better position today than at any other point in our history. In the end, global efforts to address the climate challenge, if they are to succeed, must centrally focus upon the creation of a new and extraordinarily important global public good: the development of low-carbon energy technologies that are cheap, clean, and abundant. After two decades of domestic and international failure to take real action on climate change, it is time for the purveyors of magical thinking to take their exit so that the main act can begin.”

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A CLEAR Look at the Cantwell-Collins Climate Bill, Part 2: Structural Advantages

Originally posted at the Breakthrough Institute

In Part 1 of our analysis of the new Cantwell-Collins CLEAR Act, we demonstrated how the bill fails to make the investments needed to jumpstart a competitive American clean energy economy and fund the technology innovation and deployment needed to affordably secure deep cuts in U.S. carbon emissions. In Part 2, we focus on several important structural advantages of CLEAR that open the door to a more transparent debate about the costs and benefits of climate action in Congress.

Simplicity and transparency are the strengths of the CLEAR Act, a climate bill recently introduced by Senators Maria Cantwell (D-WA) and Susan Collins (R-ME).

In contrast to competing climate proposals, which weigh in at several hundred pages in length, CLEAR contains just under 40 pages of text. Some of this brevity is achieved by punting on the development of a clean technology investment and competitiveness strategy (see more in Part 3, forthcoming), but much of the bill's simplicity comes from avoiding many of the complex and opaque measures in competing bills, creating new opportunities for transparent and open debate of climate action that may prove critical to securing real political consensus.

CLEAR does not allow offsets, is transparent about emissions reductions carbon cap will drive

Fossil fuel importers and producers regulated under CLEAR are not permitted to use emissions offsets to prove compliance with the bill's emissions cap. Unlike other climate bills, CLEAR keeps emissions reductions in non-capped sectors strictly separate from efforts to transform the U.S. energy system through the bill's carbon cap.

This enables a transparent debate over how quickly the U.S. energy sector can (or must) transition away from fossil fuels towards cleaner alternatives (and there will surely be much debate on that subject). Avoiding offsets also ensures that emissions reduction efforts in other sectors, including agriculture and forestry, are pursued in conjunction with, rather than instead of, the critical transformation of the energy system.

CLEAR's transparent cap on energy-related CO2 emissions is thus much better than competing climate bills at providing the kind of certainty that energy sector players need to plan investments in technology and infrastructure.

Furthermore, avoiding offsets doesn't mean ignoring emissions reductions efforts in non-capped sectors. CLEAR pursues additional emissions reductions outside the energy-sector cap by using a portion of the bill's cap and auction revenues to directly provide incentives for land-use changes that sequester carbon in forestry and agriculture and fund programs to reduce non-CO2 gases such as methane (which are not regulated by the bill's single-pollutant cap on carbon).

Competing Congressional bills permit regulated entities to rely heavily on emissions offsets for compliance with their emissions caps and count on these offset purchases to drive emissions reductions in non-capped sectors. Despite widely documented difficulties (even outright fraud) in verifying the actual emissions impacts of many offset projects, these bills permit both offsets and emissions permits to be used virtually interchangeably, allowing firms subject to the emissions cap to submit either instrument to prove compliance.

That dynamic means that the degree of emissions reductions -- and technological transition -- actually achieved in the energy sector under these bills will be highly uncertain, as energy firms can simply turn to offsets in lieu of changing their own energy sources or practices, undermining the incentive for new investments in clean energy technologies.

The House-passed Waxman-Markey American Clean Energy and Security Act (ACES) and Senate Clean Energy Jobs and American Power Act (CEJAPA) authored by Senators John Kerry (D-MA) and Barbara Boxer (D-CA) both permit regulated polluters to offset up to two billion tons of their emissions annually. That's a huge amount -- roughly one third of all U.S. energy-related emissions -- and is enough to completely negate any pressure on the energy sector to transition towards cleaner energy technologies for much if not all of the next two decades, rendering their emissions "caps" effectively non-binding for the foreseeable future.

The graphic below shows the range of uncertainty associated with emissions levels permitted under Waxman-Markey (in blue) and Kerry-Boxer (in orange) versus the transparent emissions cap in CLEAR (in green).

(click to enlarge)

Actual legally permitted emissions levels in capped sectors under Waxman-Markey and Kerry-Boxer can fall anywhere within the range depicted above and will depend on the level of offset utilization (for reference, the U.S. EPA projects that over half of the permitted offsets will be utilized each year), meaning that CLEAR could easily outperform its Congressional competitors in spurring the transformation of the U.S. energy system. All three pieces of legislation would pursue some degree of additional emissions reductions in non-capped sectors through the means discussed above (e.g. offsets for W-M and K-B and direct programs and investments under CLEAR), which are not presented in the graphic above.

Transparent, predictable cost-containment

Public (and policymaker) tolerance for increased energy prices is a key constraint on politically viable carbon pricing policies. Mechanisms to constrain the cost of carbon are thus an inevitable component of any politically successful cap and trade policy.

Securing passage of any carbon pricing proposal will require a clear and transparent debate over the costs (and benefits) of such a policy and political consensus that such costs are worth it.

To date, the most prevalent cost containment mechanisms have been complex and opaque, including the massive reliance on offsets, as well as complicated "strategic allowance reserve" or "market stability" mechanisms found in the Waxman-Markey and Kerry-Boxer bills. That serves little purpose, other than to obfuscate the fact that no "cap" and trade policy truly places a binding limit on carbon emissions (more on why here).

Worse yet, the reliance on the unpredictable availability of affordable offsets to contain costs has created an endless war of competing economic models, with opponents cranking out predictions of exorbitant costs that will cripple the economy while proponents predict massive supplies of low-cost offsets and efficiency "low hanging fruit" that will keep prices in check and deliver deep cuts at bargain prices. And with complex econometric models the only arbiters of "truth," the debate continues on ad infinitum.

Eschewing the traditional reliance on offsets, CLEAR offers a simple and transparent approach to cost containment that can help end these debates: the bill provides assurance that carbon prices will not rise (or fall) outside of a prescribed and predictable range of prices.

This approach, sometimes dubbed a "cost collar," guarantees that auction prices for carbon emissions permits will fall between both a floor and a ceiling, initially set at $7 and $21 respectively in CLEAR. If the ceiling is reached, additional permits will be auctioned at that price, increasing the supply of permits to contain prices, and raising additional revenues (which in this case are used to pursue additional emissions reductions; and for those of you about to complain that this "busts the cap," please read this and this first).

Both auction floor and ceiling prices would rise gradually each year (at 6.5 percent and 5.5 percent above inflation respectively), providing a predictable environment for investments and transparency in the range of potential costs of compliance with the cap and trade system.

Cost containment measures in competing proposals have already been trending towards increased transparency. While the price at which the strategic reserve/market stability mechanism in the House's Waxman-Markey bill was set based on an unpredictable floating average of auction prices, the Kerry-Boxer bill fixes the trigger price, much like the cost collar approach in CLEAR.

Cantwell and Collins simply take this progression to its logical conclusion, offering a predictable mechanism that enables a transparent debate about how high the body politic is willing to allow carbon prices to rise, or where we want to limit the economic damage in any worst-case scenario. $21 per ton may not be the right number, but if it isn't, CLEAR's cost collar mechanism allows Congress and America figure out what the right number is.

Other streamlined features

There are a number of other areas in which CLEAR streamlines cap and trade, each of which offers advantages.

One hundred percent of CLEAR's emissions permits are auctioned without the giveaways that can undermine the purpose of carbon pricing in the first place, result in windfall profits for polluters, or redistribute the value of a public good (the atmosphere) to corporate shareholders.

As President Obama once aptly stated, "If you're giving away carbon permits for free, then basically you're not really pricing the thing and it doesn't work -- or people can game the system in so many ways that it's not creating the incentive structures that we're looking for."

If you use a transparent cost containment mechanism to ensure cost impacts will be minimal, permits giveaways should not be necessary. Investments in clean technology innovation and deployment which actually accelerate the transition to clean energy and increase the availability of affordable emissions abatement technologies would be a much more effective use of revenues if the goal is to secure an affordable transition to a low-carbon energy system.

CLEAR places it's carbon cap "upstream," on the first point of entry of fossil fuels into the economy: fossil fuel producers or importers. This both reduces the number of regulated entities, streamlining the cap and trade bureaucracy, and ensures that the carbon price signal percolates through the entire economy, providing a price signal at each step of the energy pipeline.

Finally, CLEAR limits participation in carbon trading markets to regulated entities. Wall Street derivatives marketers, speculators and other interests can't buy or sell emissions permits or create and trade in carbon derivatives or other secondary products under CLEAR, preventing what many (e.g. these two members of Congress for example) predict could be a new round of carbon market manipulation and mayhem if the Waxman-Markey bill (or similar legislation) becomes law.

With the government auctioning 100% of the permits on a frequent (e.g. monthly) basis to begin with, there's no need for Wall Street's participation in the permit market, and the bill's authors argue that there's enough regulated entities who will need to buy and sell permits amongst themselves to provide sufficient liquidity and, with the help of the cost collar, avoid unnecessary market volatility.

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EVENT: Rising Tigers, Sleeping Giant: Major New Report on US vs. Asian Competitiveness in Clean Energy Technology

A new report by the Breakthrough Institute and the Information Technology and Innovation Foundation, "Rising Tigers, Sleeping Giant," is the first to thoroughly benchmark clean energy competitiveness in four nations: China, Japan, South Korea and the United States.

Developing better and cheaper clean energy technologies will be central to addressing climate change, securing U.S. energy independence, and creating new clean energy jobs. Increasingly, nations are seeking to gain competitive advantage in this rapidly growing, high-technology sector and the stakes for the United States are significant: will the United States largely be an importer of these clean technologies and lose the jobs related to them, or can America emerge as a global leader, driving exports and high-wage jobs?

The report analyzes clean energy investments and public policy support for research and innovation, manufacturing, and domestic demand, with a particular focus on six key technologies: wind, solar, nuclear, carbon capture and storage, hybrid and electric vehicles and advanced batteries, and high-speed rail.

Please join the Breakthrough Institute and ITIF for a discussion of the report's findings.

EVENT DETAILS

Date: Wednesday, November 18, 2009
Time: 10:30 AM - 11:30 AM
Location: Washington, D.C. - Senate Energy Committee Room, Dirksen Senate Office Building (SD-366)

Moderator and Presenter

Robert Atkinson (bio)
President, The Information Technology and Innovation Foundation

Guests

Congressman Rush Holt (D-NJ, bio)

Congressman Ron Klein (D-FL, bio)

Presenters

Jesse Jenkins (bio)
Director of Energy and Climate Policy, The Breakthrough Institute

Michael Shellenberger (bio)
President, The Breakthrough Institute

Gary Fazzino, Vice President of Government Affairs, Applied Materials (Invited)

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VIDEO: Jumpstart Clean Energy with a National Institutes of Energy

Thanks to Senator Brown's staff for providing this video of the September briefing on the Hill releasing a paper I co-authored with Avi Zevin and Josh Freed of Third Way's clean energy program, "Jumpstarting a Clean Energy Revolution with a National Institutes of Energy" (pdf).

Senator Sherrod Brown of Ohio and Congressman Rush Holt of New Jersey joins Matt Bennett and Josh Freed of Third Way and Ted Nordhaus and Michael Shellenberger of the Breakthrough Institute in this video to call for a dramatic scale-up in federal funding for clean energy innovation and create a new federal institution singularly focused on the kind of research and development that can make clean energy cheap and abundant, enable deep cuts in global warming pollution, and finally secure our nation's energy independence.



For more on the need for a major scale-up in federal R&D investments and the need for a National Institutes of Energy, see archives here.

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KPFA Radio: Former Sen. John Warner and WattHead's Jenkins Talk Climate Bill

I joined former Senator John Warner of Virginia on the KPFA Morning Show today to discuss Senate climate and energy legislation, the focus of hearings this week in the the Environment and Public Works Committee. (listen to the full interview below)

Senator Warner, a rare Republican champion of climate action, was the co-sponsor of the 2007 Lieberman-Warner "Climate Security Act." He retired in 2008 after thirty years in the Senate but remains an active advocate of Congressional climate legislation, and is working to convince his reluctant Republican former colleagues to embrace the climate and energy legislation authored by Senators John Kerry (D-MA) and Barbara Boxer (D-CA).

I was honored to join the discussion with Senator Warner (who's spent more time in the Senate than I have on this warming planet). I was also pleased to find consensus with the veteran Republican on the need for final Senate climate legislation to include much greater investments to ensure U.S. innovators, entrepreneurs and businesses invent and commercialize clean energy technologies here in America (is this a sign of a possible bipartisan consensus on greater clean energy R&D funding?).

Agreeing with the strong consensus of energy innovation experts, the former Senator said that the current Kerry-Boxer bill invested too little in clean energy R&D and did not provide enough proactive support for American firms commercializing, manufacturing and installing clean energy technologies, but he noted that final legislation is still taking shape. Hopefully his common-sense attitude on clean energy innovation and technology investment will prevail on Senate Republicans, who so far have resorted to threatening to boycott hearings on the Kerry-Boxer bill, rather than work constructively to ensure the bill includes more funding for American innovators and clean energy firms.

Senator Warner, the long-time Chairman or Ranking Member of the Senate Armed Services Committee and a former Secretary of the Navy, also highlighted the need to avert climate change in order to mitigate future conflicts and humanitarian crises that would sap the resources of the U.S. military. For more on the Senator's views on climate legislation, you can read his testimony before the Environment and Public Works Committee on earlier this week here.

Listen to the full interview here or using the player below. The segment starts at 1:08:00 into the Morning Show.

The Morning Show - October 30, 2009 at 7:00am

Click to listen (or download)

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The Innovation Consensus: $15 Billion for Clean Energy R&D

$15 billion. That is the figure at the heart of a growing consensus of energy innovation experts, all calling for dramatically larger U.S. investment in clean energy research and development. Writing at theEnergyCollective.com, WattHead.org's Jesse Jenkins highlights mounting calls to address what Google Director of Climate Change and Energy Dan Reicher called "a serious energy R&D short-fall" in the current House and Senate climate bills. As Congress debates energy and climate change legislation, a chorus of voices including policy think tanks such as the Brookings Institution, Third Way and the Breakthrough Institute, as well as a collection of both the nation's top research universities and dozens of Nobel-prize winning scientists have joined leading businesses like Google to converge on a $15 billion increase in annual U.S. energy R&D budgets as a critical component of any final legislation.

Read the full post at theEnergyCollective.com here.

See also:

Google Calls for $15bn/year for R&D in Testimony Before Senate EPW Committee

"TNR: Brookings' Muro Calls on Senate for More Investment in Clean Energy R&D"

"Nation's Leading Universities Echo Calls for $15b/year in Clean Energy R&D; Draw $5b/year Bottom Line for Climate Bill"

"34 Nobel Prize Winners Write President Obama Urging Support for Clean Energy R&D"

Third Way's Josh Freed: "National Institutes of Health: A Model for Jumpstarting Energy R&D"

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Kerry-Boxer Climate Bill Allowance Allocation Breakdown

Originally at the Breakthrough Institute

Late Friday night, Senator Barbara Boxer's Environment and Public Works Committee released a new draft of the Kerry-Boxer "Clean Energy Jobs and American Power Act" (S.1733), the first version of the legislation to detail how emissions allowances created by the bill will be divvied up. These allowances, which give polluters the right to emit greenhouse gases under the bill's cap and trade program, will be worth nearly a trillion dollars over the first ten years of the program alone.

Breakthrough Institute staff worked over the weekend to dig through the new legislation and get an accurate picture of the allowance allocation pie [see summary tables and graphics below and click here to download a comprehensive spreadsheet of allowance allocations in both Kerry-Boxer and the House Waxman-Markey/ACES bill. Note: updated after initial posting to convert EPA forecasts to 2009 constant dollars. Hat tip to Jason at 1Sky for catch].

Overall, the allowance allocation scheme mirrors the bill's House-passed sibling, the American Clean Energy and Security Act (ACES), aka the Waxman-Markey bill (HR 2454) [for a side-by-side comparison of the two bills, click here].

(click either graphic to enlarge)

Depending on the value of emissions allowances under the cap and trade program, an average of roughly $70 billion to $126 billion in emissions allowances will be created and distributed on each year under the first ten years of the bill's cap and trade program, 2012-2021.

Of that value, by far the largest share, roughly 64% of the total allowances, will be distributed for free to shield energy consumers and industry from the higher energy prices driven by the establishment of a price on carbon dioxide and other greenhouse gases under a cap and trade system. This includes both direct rebates to end consumers and low-income energy assistance, as well as free allocations to electric and natural gas utilities (aka "distribution companies"), which they are directed to use "on behalf of" their customers. It also includes direct transfers of billions of dollars in free allowances to various industries, ranging from the relatively defensible (11.3% of allowances to heavy industries vulnerable to international competition), to the pretty indefensible, (e.g. a windfall-profit generating allocation of over 3% of the allowances -- worth at least $2 billion annually -- to the "merchant" operators of conventional coal plants).

By contrast, only about 13% of the value of allowances will be invested in various clean energy technologies, including incentives for the deployment of carbon capture and storage technology (aka CCS, given 2.2% of permits on average each year), federal, state and local government funds to incentivize renewable energy and energy efficiency (6.4%), and investments in advanced clean vehicle technologies (1.7%).

Just 1.9% of the allowances are dedicated to critical clean energy research and development (R&D) efforts, which amounts to an investment of just about $1.4 billion annually under EPA-projected allowance prices (in 2009 constant dollars).

Overall, the "Clean Energy Jobs and American Power Act's" investments in clean energy technologies will total under $9.5 billion per year under allowance prices projected by the EPA.

4.5% of the allowances will be devoted to various other public purposes, including efforts to adapt to the public health, infrastructure, wildlife and natural resource impacts of an already-changing climate and training programs to expand a skilled energy efficiency, renewable energy and nuclear energy workforce.

Another 7.5% of the permits will be allocated to fund various supplemental emissions reduction efforts, with the largest share (4.2%) going to fund efforts to slow deforestation overseas. Efforts to reduce emissions in the U.S. agriculture and forestry sectors will receive 1.2% of emissions allowances and 2.1% of the allowances will be devoted to reducing vehicle-miles traveled and emissions in the transportation sector (e.g. through public transit expansion and more proactive metropolitan area transportation planning).

Just over 10% of the allowances will be set aside to ensure the cap and trade program does not increase the federal deficit (i.e. is "deficit neutral"). This is the largest difference between the allocation scheme in the Kerry-Boxer bill and the House-passed ACES legislation, which dedicated just about 3.1% of the allowances over the first ten years to deficit reduction.

Senate legislation is given a more rigorous test for budget impacts, with legislation required to have no major impact on the deficit over the next fifty years, while House legislation only examines impacts on the budget over the first ten years. The larger set-aside required to keep the bill deficit neutral means overall allocations for most uses are slightly lower in Kerry-Boxer than in ACES (for the strong-of-heart, see this wonky explanation of Congressional Budget Office scoring rules). Since House-passed legislation would eventually have to be made consistent with Senate budget scoring rules before concurrence and final passage by both chambers, ACES arguably over-promises the allowance allocations, which Kerry-Boxer attempts to correct.

The following table provides a detailed breakdown of the average annual allowance allocation over the first ten years of the cap and trade program (2012-2021), including percentage of total allowances and the dollar value under three likely allowance prices described below [click here for pdf version].

(click to enlarge)

You can download a spreadsheet (.xlsx file) detailing allowance allocations under both the Kerry-Boxer (S.1733) and Waxman-Markey/ACES (HR 2454) bills here. Allowances are detailed from 2012-2032 and summarized in several ways to aid comparison and analysis.

Notes:

Allowance price scenarios:

The first allowance price scenario is the floor price for permits established by the legislation, which begins at about $11/ton (in 2009 dollars) in 2012, and rises at 5% per year, resulting in an average allowance price of $13.91 during the first 10 years of the program. Note that carbon market research firm Point Carbon projects that due to modest emissions reduction targets, a slower-than-expected U.S. economy, and the permitted use of large numbers of offsets, allowance prices will likely remain at the allowance price floor through at least 2019. The resulting price is $13.91/ton on average for 2012-2021.

The second allowance price value is consistent with the EPA's preliminary analysis of Kerry-Boxer, which projects allowance prices unchanged from their analysis of ACES. 2005 constant dollar values reported by EPA have been updated to 2009 constant dollars for ease of comparison. The resulting price is $15.42/ton on average for 2012-2021.

Finally, to aid comparison with the House's ACES bill, Breakthrough calculated a price roughly consistent with the Congressional Budget Office's (CBO) price estimates under ACES. To provide a higher-range price, this scenario, labeled "CBO-equivalent," projects permit prices 180% higher than the floor price under Kerry-Boxer, which is consistent with proportionate difference between CBO's projections under ACES and the ACES floor price scenario. The resulting price is $25.04/ton on average for 2012-2021.

On "discrepancies" with Environment and Public Works Committee summary of allowance allocations:

The Senate EPW Committee published a summary of allowance allocations under S.1733 here. Some percentages reported in this document will differ from those reported in the analysis here, and in fact are somewhat confusing. Here's why:

Under Kerry-Boxer, allowances for some uses, like deficit reduction, stocking the Market Stability Reserve and other selected uses come "off the top" as a 'set aside' before the percentages reported for most of the other uses are calculated. About 16% of the allowances are set aside off the top in this manner. So when the EPW document (or the bill language) says elsewhere that a given percentage of the allowances are allocated to a particular use, say the allocation of 10.35% of the 2012 allowances to investments in renewable energy and energy efficiency, that is in reality 10.35% of the 84% of permits left over after the 16% of allowances set-aside, or really about 8.7% of the total permits (10.35%*84%).

This makes determining the true percentage of total allowances created under the bill somewhat challenging, requiring the kind of detailed reading and "spreadsheet work" conducted by Breakthrough here.

Note that the same was true for ACES, which set aside 1-3% of the permits each year "off the top" to stock the bill's Strategic Reserve pool, but with such a relatively small amount of total permits set aside this way, it did not have as significant an impact on the reported percentages allocated to other uses; Kerry-Boxer by contrast sets aside nearly 16% of permits in this manner, which has a noticeable impact on the percentages reported for other allocations.

On over-allocation of allowances under Kerry-Boxer:

Astute observers will note that the sum total of all Kerry-Boxer allowance allocations under this report total to roughly 101% between 2012-2021 (actual value is 100.65%). I've attempted to double check my calculations and identify the source of this over-allocation (potential typo?). However, at this time, it appears that the slight over-allocation may actually be based on an accurate reading of the bill language. It could be a simple oversight, given the complicated calculation of actual percent allocations discussed above. I will update this post if I identify the source of the over-allocation, but given how small it is (just 0.65% of total permits), it should not significant impact any of the figures above.

Questions: contact Jesse Jenkins, jesse[at]theBreakthrough.org.

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Anatomy of a Bill: Key Features of Kerry-Boxer Senate Climate Bill

As the Senate's climate and energy bill takes shape, it looks broadly similar to the House-passed Waxman-Markey American Clean Energy and Security Act - with a few exceptions. Writing for theEnergyCollective.com, WattHead.org editor and Breakthrough Institute energy policy director Jesse Jenkins outlines the key features of the Kerry-Boxer "Clean Energy Jobs and America's Power Act" and contrasts the notable changes with the bill's House sibling.

Still, key details about the use of hundreds of billions in carbon allowance revenue remain blank for now, leaving some, including Breakthrough Institute Senior Fellow and science policy expert Roger Pielke, Jr, speculating that the Senate plans to use this revenue, as the House did, primarily as bargaining chips to secure reluctant votes, rather than as a funding source for critical, proactive investments to spur clean energy technologies, industries and jobs.

See also: Jenkins and other experts discuss Senate climate bill politics and policy in an Energy Collective webinar.

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The Magic of Offsets - What a C.R.O.C.!

Greenpeace, through its alter ego, CROC, is bringing the "magic" and "logic" of carbon offsets to the masses. Check out the video and follow CROC on Twitter @itsacroc.

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DC Climate Bill Update (Via 1Sky)

Jason Kowalski, a policy expert with climate advocacy group 1Sky, has an excellent and handy update on the climate bill "situation report" from DC. Here's the skinny on upcoming Senate committee timelines, political posturing from critical moderates, and how the health care debate is impacting the climate scene:

1. Timeline

Environment and Public Works (EPW) Chairwoman Barbara Boxer (D-CA) has promised the release of her committee's discussion draft on September 8, the first day back from recess. By releasing a discussion draft after recess, EPW has the potential to positively influence other committee processes as titles get marked up before the September 28th deadline. The current schedule:

• 8/8 - 9/7: Senate August recess;


• 9/8: EPW discussion draft to be released;


• 9/8 - 9/25: Committee mark-ups held;


• 9/28: Majority Leader Harry Reid's (D-NV) mark-up deadline for all Senate Committees with climate jurisdiction.

2. EPW and Finance Committees

Aides from the EPW Committee have said that their draft of the bill will not include "detailed language" on allocations, as they may wait until the markup process before they tackle the allowance scheme (like Energy and Commerce Chairman Waxman (D-CA) did in the House).

Chairwoman Boxer is being pushed by climate champions like Sens. Sanders (I-VT), Lautenberg (D-NJ) and Whitehouse (D-RI) to strengthen short-term emissions reduction targets "beyond 17% by 2020" (in anticipation of attempts at weakening on the floor), while Sens. Carper (D-DE), Baucus (D-MT), and Specter (D-PA) want a more moderate bill from EPW. Carper has specifically said he wants a more "centrist" EPW draft.

Finance Chairman Max Baucus (D-MT) has been clear that his committee will mark-up the international trade and allocations provisions of the climate bill.

3. Posturing amongst the Moderates

Senators have begun posturing in anticipation of what will take place in September. Here's a brief rundown of some public comments we've seen since ACES passed in the House:

• Sen. Blanche Lincoln (D-AR) called ACES a "complete non-starter" this week.


• Sen. Byron Dorgan (D-ND) ran an op-ed on his concerns about ACES that (unbeknown to him) were actually addressed in the bill. Read responses from Joe Romm and Nobel Prize winning economist Paul Krugman.


• Sen. Claire McCaskill (D-MO) supports a "very gradual implementation" of a climate plan. Also, see her negative Twitter posts on ACES.


• Sen. Mel Martinez (R-FL), who recently announced a 2010 retirement, said he opposes climate action, but also opposes offshore drilling.


• Sen. Sherrod Brown(D-OH) said recently that he won't filibuster a climate bill; however, it's not uncommon for a senator to vote for cloture and then against the bill.


• Sen. Robert Byrd (D-WV) says that he cannot support the bill without greater recognition of CCS as a "green" resource.


• Sen. Bill Nelson (D-FL) says he will filibuster a climate bill if it doesn’t preserve a wide offshore drilling buffer.


• Grist has created profiles of other key climate swings.

4. How Will Healthcare Delays Affect Climate?

Though healthcare floor action has been pushed until after the August recess, climate champions are insisting they will hold a vote this year. EPW Chairwoman Boxer and Agriculture Chairman Harkin (D-IA) have promised to stay on track with their committee pieces of the bill, and Foreign Relations Chairman Kerry (D-MA) is denying that the healthcare calendar will have any effect on climate (E&E). The White House is maintaining that both agenda items are the "valued children" of the Administration, and they will continue to press Congress to pass both this year.

Read more on:

• Problems both bills have encountered.


• The role the CBO could play in helping climate, and hurting healthcare.


• Why both agenda items need to be pushed this year.


• Healthcare vs. Climate.

Bottom line: Wins beget wins. A win on healthcare helps raise the political capital necessary to pass a strong climate bill before Copenhagen.

Thanks to Jason and 1Sky's Rhiya Trivedi for the update. Check out the 1Sky "Skywriter" blog for frequent updates.

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John Stewart: How A Bill Becomes a Horribly Compromised Law - the Story of the ACES Climate Bill

John Stewart does it again, in the way only he can:

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Jon Stewart Jizz-Ams in Front of Children - Cap'n Trade
www.thedailyshow.com
Daily Show Full Episodes Political Humor Joke of the Day

Of course, as Stewart lampoons the ACES bill, he hits so much right on the head. Cap and trade, boring as zzzzz....

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Greener Postures
www.thedailyshow.com
Daily Show Full Episodes Political Humor Joke of the Day

Finally, if that wasn't good enough, the Incredible Secretary Chu is the guest of the day as well. Don't make him angry!

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Steven Chu
www.thedailyshow.com
Daily Show Full Episodes Political Humor Joke of the Day

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Southern Alliance for Clean Energy Confirms: ACES Renewable Electricity Standard Will Have "Effectively Zero" Impact

With most DC-based environmental organizations at least grudgingly supporting the Waxman-Markey American Clean Energy and Security Act, and official government analysis of the latest version of the bill still pending, it has been largely up to independent think tanks, advocates and bloggers to take a critical look at the major provisions in the nearly 1,000-page climate and clean energy bill. I've spent most of the past two weeks doing just that with my team at the Breakthrough Institute, and we have released some of the first analysis of the bill's cap and trade provision, allowance allocations, and renewable electricity standard.

Yesterday, the Southern Alliance for Clean Energy (SACE), a Knoxville, Tennessee-based non-profit organization advocating clean energy solutions throughout the southeastern United States, released their own analysis of the Waxman-Markey renewable electricity standard. SACE's independent analysis confirms Breakthrough's own earlier look at the now severely-weakened renewable electricity standard, concluding as we did, that the impact of the renewable electricity standard on U.S. renewable electricity generation will be "effectively zero."

SACE also looks at the likely impact of the efficiency requirements in the now combined efficiency and renewable electricity standard (which the Alliance refers to using yet another new acronym: "CERES") and concludes it falls far short of President Obama's campaign pledge to reduce U.S. electricity consumption 15% by 2020 (below business as usual projections).

John Wilson, the Alliance's director of research, writes:

Our organization and other advocates are becoming increasingly concerned about the House Waxman-Markey energy and climate bill and its companion in the Senate for a host of reasons. Among the most dramatic changes made by the House Committee on Energy and Commerce is the "Combined Efficiency and Renewable Energy Standard," or "CERES" as people are starting to call it.

It is clear that President Obama's campaign pledge to "create millions of new green jobs" by ensuring that 25 percent of our electricity comes from renewable sources by 2025 is not being realized in this legislation. Our analysis suggests that this bill would not help America make any progress towards that goal, at least through 2020. Furthermore, this bill falls far short of President Obama's pledge "to reduce electricity demand 15 percent from projected levels by 2020."

Let's be clear, in addition to creating a healthier economy and global environment, these provisions are essential to the long-term jobs strategy that we desperately need. Prior to combining energy efficiency and renewable energy, the Waxman-Markey bill promised 297,000 new renewable energy jobs by 2025 and 222,000 new energy efficiency jobs by 2020. With more than half a million jobs at stake, the CERES compromise barely opens the hiring office. The lower energy efficiency targets may be strong enough to create 60,000 jobs. And with the renewable electricity standard almost completely gutted, it looks like all the new renewable energy jobs will be in the credit trading business.

One of the unfortunate conclusions that I draw from analysis of the CERES is that in an effort to add "flexibility" by coupling the renewable energy and energy efficiency portions of the bill, the potential impact of the bill has been diluted to the point where it would actually be better to have just a standalone energy efficiency standard than the CERES. If that were to happen, the bill would at least represent a more sure-footed path towards achieving the green jobs goal for energy efficiency.

The CERES would result in no new renewable energy development according to our analysis, which considers three basic components. First, the utility qualification threshold and various factors that diminish the effective requirements of the CERES. Second, the existing state renewable electricity standards (state RES) and existing generation. Third, the interaction with the opportunity to use energy efficiency to partially comply with the CERES.

In 2020, about 8% renewable energy will be generated simply from compliance with existing state standards and continued operation of existing renewable energy facilities. This 8% floor is derived from data assembled by Union of Concerned Scientists, Lawrence Berkeley National Laboratory (pdf), and Energy Information Administration. Although the CERES is set at 12-15% for qualified utilities, after taking into consideration the qualification threshold and several other factors, the CERES would at most require an 1.4% increase in renewable energy above the 8% floor. However, additional exemptions that cannot be quantified (for reasons discussed below) are very likely to reduce the impact of CERES to effectively zero.

...

The CERES would mandate more energy efficiency, as much as 4-8% in 16 states and the District of Columbia. A similar number of states already have a state energy efficiency resource standard (EERS), but 17 states would remain without a substantial energy efficiency mandate. Across the Southeast, and in a few other states, the CERES mandate would lift the energy efficiency programs from insignificant levels to mid-level efforts.

The original stand-alone national EERS would have required cumulative energy savings of 15% from qualified utilities, taking into consideration building codes, etc. Because building codes accounted for about 4% of the 15%, allowing utilities to meet either 5 or 8% of the CERES standard with energy efficiency represents a reduction in the EERS of at least 3 to 6% on paper. But the same qualification threshold and other factors that diminish the renewable energy impact of the CERES also diminish the energy efficiency impact.

In 2020, the proposed CERES would drive a national reduction of 2.5% in electricity use (somewhat less, actually, due to the same unquantified exemptions mentioned above). In contrast, ACEEE data indicate that electricity use would be reduced by about 5% nationwide from the EERS obligations in 21 states. Even though the CERES would have an important impact, it is clear that a minority of states are still setting the pace on energy efficiency and that the CERES would be a least-common-denominator approach.

A glance at the state map indicates that the CERES would have highly irregular impacts from state to state. The renewable-energy oriented qualification and exclusion factors create large differences in the effective statewide standard. (Since utilities have the opportunity to meet energy efficiency targets anywhere in their state, this is the appropriate region of analysis.)

Alaska has no energy efficiency mandate because none of its utilities qualify to be regulated under the CERES. The CERES has little or no impact on North Carolina and several other states due to the combined effects of weak state RES and EERS requirements, existing renewable energy generation, qualification limits, and other factors.

This analysis probably overstates the impact of the CERES for several reasons. Although we've got a very good idea of which utilities qualify under the CERES, the base amount against which the 20% mandate is assessed is impossible to anticipate using available data sources. The base amount is reduced by three factors: existing hydroelectric generation, new nuclear generation, and new coal generation with carbon capture and storage (CCS). Another way of looking at it is that utilities get 20% credit towards the CERES for these energy resources.

We aren't able to anticipate which utilities will have new nuclear or coal with CCS by 2020, so we don't adjust for these base amount reductions. However, 35 GW of new nuclear or coal with CCS would be enough (if strategically located) to eliminate the 1.4% renewable energy requirement. That's probably a stretch goal for 2020, but certainly some qualifying power plants will be complete by then.

Our data on existing hydroelectric generation are from the Energy Information Administration. We assume that all of this generation would be used by qualified utilities to reduce their base amount. Although a small amount of this generation probably cannot be effectively transferred from non-qualified utilities, the major problem with this assumption is that some of this generation is considered "new" and thus does not reduce the base amount. Instead, it may be used by the utility to meet its federal CERES obligation. This unknown amount of hydroelectric is effectively undercounted by 80% in our analysis. If just 10% of existing hydroelectric production is "new," then that would reduce the 1.4% renewable energy requirement to 0.9%.

Another source of under counting the utilities' existing resources to comply with the CERES is the distributed generation credit. Existing and early developers of distributed generation will receive triple credit for their projects. We assumed that solar energy projects specifically mandated in state EERS rules would receive this triple credit, but in reality there would be other qualifying energy projects. This would effectively increase the number of RECs generated as a result of compliance with state EERS deadlines. However, considering that distributed generation has been slow to take hold, this should be on the order of a 0.1-0.3% reduction.

Finally, we did not take into consideration banking (or retirement) of federal RECs. To the extent that early state RES deadlines create a surplus of federal RECs, federal RECs can be banked for three years, pushing out the date at which the CERES might actually require some renewable energy development. This could be in excess of 1% per year for several years until the backlog is cleared.

If these factors together aren't enough to erase the 1.4% renewable energy requirement, then we just have to look at the growth rates from EIA that we used and wonder if they might be a little too optimistic. If actual energy demand in 2020 is 2% lower than the forecast we developed based on the Annual Energy Outlook, then the CERES mandate would be reduced by approximately 0.4% (depending on which states have the lower growth). And since we used 2020 forecast electricity sales as our baseline (rather than 2019), we've probably overestimated the impact of the AEO2009 forecast anyway.

I'll again note that analysis from the National Renewable Energy Laboratory (pdf) of the broadly consistent 20% by 2021 Senate combined efficiency and renewable electricity standard also corroborates the conclusions reached by Breakthrough and the Southern Alliance for Clean Energy's respective analysis of the Waxman-Markey combined standard.


===========
See Breakthrough Institute's additional analysis of Waxman-Markey ACES climate bill collected here

Originally posted at the Breakthrough Institute

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Solar Advocacy Group Says Climate Bill Will Fail to Make Solar Energy Cheap

Originally posted at the Breakthrough Institute

The solar energy advocacy organization VoteSolar issued a pretty clear verdict on whether or not the Waxman-Markey American Clean Energy and Security Act will effectively make solar energy cheap and abundant: "The accurate answer is nuanced, but the short answer is no."

Here's their take on the Renewable Electricity Standard, which Breakthrough digs into in a detailed analysis here:

The Solar Energy Industries Association spent the last six months urging Congress to add solar specific provisions to the draft RES [Renewable Electricity Standard] bills, namely a distributed generation carve-out to support rooftop solar, inclusion of solar hot water among the qualifying technologies and accomodations (sic) for utility-scale solar. The solar set-aside is a policy mechanism in use today in fifteen states, and one that has proven effective in kick-starting robust new solar markets.

Instead, a "REC multiplier" for distributed generation is emerging as the favored solar mechanism in the federal bills under consideration. With a three times multiplier, one megawatt hour of distributed solar would be treated as three megawatts of wind, biomass, geothermal or hydro in the REC market. If past experience at the state level proves anything (think Arizona and New Mexico), the multiplier will do little to encourage distributed solar as there's still little incentive to invest in the early-market, higher-cost energy option. Without a direct carve out to encourage this initial investment in distributed solar, it will take much longer to realize the economies of scale cost reductions projected for this valuable energy resource. A further downside to credit multipliers is that they dilute the goal, an outcome that undermines the original intent of the policy. One megawatt counting as three reduces the total amount of renewable energy in the mix, an outcome that undermines the original intent of the policy.

And here's their take on the cap and trade title of the bill, which Breakthrough has also dissected in several posts here:

The Waxman-Markey energy bill also includes a carbon reduction plan. ...

The climate plan in the Waxman-Markey Discussion Draft is the result of years of negotiations and vetting. More than 300 people have testified at over 40 days of hearings in the E&C Committee alone on this plan over the past two Congresses. Even with all of the coalition building of the last decade, Waxman faces a serious challenge just to move the bill out of the E&C Committee. If the skeptics are wrong and this plan passes through Committee and becomes law, will it help deploy solar? Unlikely.

Much like the RES, the carbon cap and trade will encourage short-term, least-cost implementation mechanisms, ignoring the other tremendous benefits solar offers....

If there is an auction of any allowances by the time the bill is passed into law, the solar community is asking that 5 percent of the auction proceeds be set-aside into a solar technology deployment fund. It remains to be seen whether this provision will be contained in the Waxman-Markey draft. But one thing is certain, giving credits away for free means fewer federal dollars to be invested in efficiency, transmission and renewable energy programs.

The role that solar and renewable energy generation plays in the new carbon market also remains in question. Solar advocates assert that solar generators, whether roof-top solar owners or large-scale concentrating solar power plants, should either receive some portion of the carbon credits allotted, or the overall cap should be lowered to account for renewable energy projects.

Both options are designed to ensure real reduction in overall GHG levels from investment in solar generation. Unless we account for renewable energy generation when implementing the program, carbon-emitting generators could meet their requirements by taking credit for emission reductions from renewable energy projects that are already developed. A situation that amounts to zero progress on carbon reduction.

VoteSolar's conclusion:

[W]e remain skeptical that current versions of either the RES or a carbon cap and trade policy will lead to significant solar deployment. The pending bill has proven that a new, cleaner energy future is a national priority. That in itself is progress. But a "sweeping" federal energy bill that fails to deploy a portfolio of renewable energy options is an underwhelming outcome, ill-equipped to help us meet the challenges at hand.

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