GREEN GROWTH: FROM RELIGION TO REALITY - Sustainia

Chapter 1Third, we need to find policies that can be implemented,which is particularly the ease given the resistance to carbontaxes? Finally, if a self-sustaining, growth-inducingenergy systems transformation is the ultimate goal, thenwe should consider how these policy instruments mightbe best deployed in service of that end.Addressing the problem of energy systems transformationin light of this approach suggests that today’semphasis on carbon pricing fails to reflect the complexityof energy systems transformation, and may offer littleopportunity to put that transformation in service ofeconomic growth. Not only might prices fail to achievemeaningful decarbonization of the energy system, butthey offer no sustained support for the complementarychanges required to achieve an energy systems transformationof the form described in section 3.6.1 GoalsRenewable energy-focused policy usually expresses asingle goal: to reduce emissions via altering the dependenceof industrial economies on fossil fuels. But as we sawin section 3, that goal really requires an energy systemstransformation.28 That transformation, in turn, requiresparallel and complementary changes to energy production,distribution, and use in order to adapt to the differenttechnical and economic properties of renewable energy.The near-term goal for policy in this context is notthe completion of the transformation itself. The scaleand degree of investment required to do so make suchan outcome improbable. Rather, the real goal should beto shift the energy system onto a new and self-sustainingdevelopment trajectory. The nature of today’s energysystem provides large incentives to innovate within itsconstraints. The scale of the network means that suchinnovations immediately enjoy large markets and easycompatibility. Note of course that resistance is enormousin larger markets. Often .smaller markets are where newtechnologies gain a foothold. This of course poses seriousproblems for any attempt to transition out of the presentequilibrium. But it likewise suggests that a self-sustainingprocess of investment and innovation in favor of a lowcarbonenergy system is possible, if only we can find theright policy levers to achieve the initial shift in the trajectoryof the system as a whole.Such an achievement may provide the best opportunityfor green growth. As with past technological systemstransformations, growth via a low-carbon energysystems transformation requires a self-sustaining patternof innovation and investment in both the energy sectorand the broader economy. At present, it remains unclearwhether renewable energy can promise this kind of innovation.But it most certainly cannot if it continues to operateunder the constraints of an energy system designedpredominately around fossil fuels.6.2 InstrumentsClimate change mitigation confronts policymakers witha wide range of choices in service of both “green growth”and a low-carbon energy systems transformation. Themost vibrant policy debates today concern the role thatfour different policy instruments should play:1. Carbon pricing to incentivize both technological developmentand low-emissions energy adoption;2. Technology policy to support research and development;3. Regulatory policy to change market rules to favor newforms of energy production, distribution, and use29;4. Direct state action for public infrastructure investmentand industrial policy.6.2.1 Carbon pricing and its shortcomingsConventional policy wisdom for carbon emissions mitigationargues in favor of a credible, sustainable, and highcarbon price, perhaps supplemented with subsidies tobasic research and development for new energy technologies.30Such policy, its advocates argue, will allow theeconomy to discover the most efficient way of reducingemissions. In contrast, other options—such as industrialpolicy, subsidy of renewable energy sources, or mandatesin favor of energy efficiency—are seen as inefficientmeddling in the market that will ultimately cost morethan a policy reliant on price alone.This conventional wisdom falls short of the goal ofchanging the development trajectory of the energy system.Three shortcomings stand out:1. The self-identified preconditions for a successfulcarbon pricing policy—a universal, sustainable, highcarbon price—appear politically impossible either domesticallyor internationally2. It is by no means clear that the efficient carbon price,equal to the marginal cost of emissions, is high enoughto overcome the substantial network externalitiespresent in the energy system3. The carbon price offers little support for the substantialcoordination and market reform issues that will play acritical role in the viability of future energy innovationsWilliam Nordhaus’ “carbon price fundamentalism”argues that a “universal, sustainable, and high” carbonprice is a sufficient condition for the innovation andinvestment required for a low-carbon energy systemstransformation. Realizing those conditions today appearsimpossible. Moreover, those conditions appear internallycontradictory."Since any price on carbon is entirely a political construct,the durability of the carbon price dependsentirely on the ability of a given political system tosustain it."Since any price on carbon is entirely a political construct,the durability of the carbon price depends entirelyon the ability of a given political system to sustain it. Sustainabilitywill depend entirely on the relative ability ofwinners and losers created by carbon pricing to eithererode or protect the price level. A carbon price will hurt27 Bill Davidow, recounts thisstory from his time as head ofmarketing at Intel. See WilliamDavidow (1986) MarketingHigh Technology: an insider’sview (New York: The Free Press).There are other versions abouthow the Microprocessor spread.Some contend it spread amongsthobbyists first rather than existingbusinesses. The two stories are, ofcourse, compatible.28 Advocates of nuclear energyor carbon sequestration technologiesmight object that either orboth together provide real alternativesto intermittent renewableenergy sources, and don’t requirethe kinds of systemic changeswe outline. In the case of nuclearenergy, this is in fact true. But nuclearenergy faces a range of otherenvironmental, economic, and politicaldifficulties that have madeit unviable at large scale in mostindustrial economies. In the caseof carbon sequestration, the technologyis largely unproven and significantlydecreases the deliveredpower of any power plant (due tothe substantial energy required tosequester the carbon in the firstplace). Thus while either or bothtechnologies may contribute onthe margins to energy decarbonization,neither appear politically,economically, or environmentallyviable as of this writing.29 These three elements of theenergy system are configured differentlyin each country by regulationand ownership structure,creating distinct national dynamicsof demand and supply. Hencethere will not be one universal trajectoryto a low carbon future andcannot be a single best regulatorystrategy.12