On December 2nd, New America Foundation launched its new Energy Advisory Council (EAC), led by Jeff Leonard and Zachary Karabell. The event kicked off six months of rigorous questioning of the Obama Administration's massive patchwork rewrite of US energy policies. The forum was a preview of larger discussions to come, looking at the "gap" of 4-8 years from now, when these policies will be implemented and begin interacting with energy markets and international climate agreements.
Panel participants included the Hon. Branko Terzic, Regulatory Policy Leader of Energy & Resources, at Deloitte Services LP; Douglas Koplow, Founder of EarthTrack; and Nigel Purvis, President of Climate Advisers. Keynoting was Congressman Bob Inglis (R-SC), who firmly supports climate change legislation and is the author of HR 2380, the "Raise Wages, Cut Carbon Act of 2009," a revenue neutral carbon tax coupled with a reduction in payroll taxes.
All panelists agreed they are encouraged by the increased attention and resources the Obama administration is investing in energy and climate issues. However, they also expressed concern about the control of that money, the political barriers to making economically efficient decisions, adequate investment in new technology, and the ability of the government to make room for effective markets for alternative energy.
ClearView Energy Partners' Kevin Book talked about the two phases of the oil market from today to the year 2013 when the market will absorb the excess capacity and the U.S. will learn to manage oil demand, then beyond to the point where industrializing economies drive demand, production levels off or falls, and oil costs $200/barrel. He also discussed the harsh impact of rapid oil price increases on the lower middle class who will be squeezed by high prices and unable to get credit to either purchase fuel or more efficient appliances. "If we get to $200 slowly," he said, "we will be okay, but if we get there quickly, it will be the end of globalization as we know it." He suggested that more incremental efficiency improvements would be better than electric cars because they would represent a larger market share and be less expensive. He described the result of the Copenhagen summit as an agreement that will encourage oil conservation and prolong the oil age. He also suggested that the United States may find it's cheaper to pay oil companies to increase product inventories rather than building reserves, but admitted it will be difficult to sell.
Nigel Purvis of Climate Advisers spoke about the two different imperatives of climate change legislation in both the four and eight year time frames. There will be a tendency in the U.S. to delay action either by hesitating or by reducing the cost of emitting carbon, which will create crises further down the line. If climate legislation is not properly juggled to accommodate the change in oil supplies and price volatility, the eight year time frame could be quite difficult for the U.S. as well as for developing countries. The next EAC forum will look more closely at the interaction between oil markets and policies in this time frame.
Another interesting gap is that the space for policy (dictated somewhat by lack of political consensus) means that some of the action is taking place outside the usual legislative arena, in particular, the $80 billion in stimulus funds for energy overseen by the Department of Energy and the national role out of the smart grid, which takes place among state jurisdictions with funds from many sources, and some oversight from the Federal Energy Regulatory Commission. Sanjay Wagle spoke about the DOE's distribution of stimulus funding. He said that the massive over-submission of requests meant that the deciders at the DOE had a broad sense of the market. He said he believed that the government can effectively work as a venture capitalist, though of course the transparency rules differ.
Branko Terzic spoke about the smart grid, the need for more dumb grid, and the certainty that the smart grid would be different in various parts of the country. There's a need to get the price signals right, to get the details right to make it fulfill its promise. He spoke of his experience regulating for cellphones in the 1980s when no one knew the market that would develop. In many ways regulators must now create markets for products that don't exist, and that will necessarily change the way they regulate, and who they regulate. Another issue that arose is that of political opposition to changing the static relationship between consumers and utilities-from consumers as well as utilities.
Nigel Purvis of Climate Advisers spoke briefly on the possibility of unforeseen path dependencies created by choices we make at this point. In particular, a decision to put a carbon tariff on imports, which seems necessary politically inside the U.S., could end up triggering much different, more punitive carbon tariffs from countries like India, which could choose to disadvantage U.S. goods on the basis of per capita carbon emissions.
The conclusion of the forum examined how some of the financing and subsidies for green energy (in part because they are a popular way of doing something for the green industry without the arduous political process of getting a carbon tax or better regulation) may be themselves a distorting influence.
Earthtrack founder and energy subsidy expert Doug Koplow presented slides showing the shape of current green energy subsidies as well as his concerns about the size and transparency of the Clean Energy Development Authority proposal, which will have debts larger than those of OPIC and the EXIM bank combined. He suggested that funding technology is only one aspect of bringing clean technology to market. Other aspects include creating markets and business models. Unfortunately, the government's tendency to try to overcome supply chain problems with subsidies actually prevents the creation of viable markets and business models. He showed a slide of the McKinsey cost curve for carbon abatement, pointing out that the largest subsidies are at the very highest end of the cost curve, while many more economically effective options remain unfunded.