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Supply-Side Climate Policy

The emerging U.S. approach is second-rate at best and will not produce the carbon reductions the United States has promised

3 min read

With last week's surrender of the White House and Democratic leadership on efforts to enact a cap-and-trade carbon bill, it follows that the entire U.S. effort to reduce greenhouse gas emissions will be on the energy supply side. Though proponents of a carbon tax (as an alternative to cap-and-trade) are hoping for a second chance, that's almost certainly an idle hope--or threat, depending on how you look at it: There's no sign the president or the leadership have the imagination, boldness, and commitment to sell the country on pricing carbon, in whatever form; and nobody expects the president and Democratic leadership to emerge stronger from this fall's midterm congressional elections. (The opposite is the norm is midterms, which almost always favor challengers over incumbents.)

So, if they can't sell cap-and-trade or carbon taxation now, they won't be able to sell it next year or the year after that either. The game is up.

That means that the climate policy we'll have is pretty much the climate policy we've got: A hodgepodge of subsidies and incentives fashioned to stimulate nuclear, renewables, and the smart grid. Instead of putting a uniform price on carbon, so that  electricity customers and their utilities opt to get less of their electricity from coal and more from the most cost-effective lower-carbon alternative (whether natural gas, wind or nuclear), and drivers buy more fuel-efficient and alternative-fuel cars, we're ending up with just the approach Republicans in particular have always said they hated. That is, we're throwing a lot of money at miscellaneous technologies, hoping that at least some of them take off.

A demand-side policy produces sure results: Statistically, we know if we set carbon prices at certain levels, so as to have specific effects on electricity and fossil fuel prices, that predictable greenhouse gas emissions will follow. A demand-side policy tuned to get U.S. emissions back to their 1990 level by 2020, the Obama administration's stated objective, will do just that.

If a melange of supply-side policies somehow produces the equivalent reduction, it will be by dumb luck.

So let's evaluate the odds of the United States' getting lucky and achieving its 2020 goals, in general qualitative terms. The automotive sector can be left out of account, as people are not going to buy electric or hybrid vehicles in large numbers until prices come down radically, and there's no saying just when that might occur, no matter how much is done to subsidize battery manufacturing and charging infrastructure.

Turning to the all-important electricity sector, how much will new nuclear contribute to reducing carbon emissions in this decade? Nothing. Given that ground has yet to be broken for the first new plant to be initiated in a generation, and given that it takes close to ten years to bring a nuclear power plant project to conclusion, we can safely say that there will be no net increase in U.S. nuclear generation by 2020.

How much will solar contribute? Next to nothing. Contrary to the absurd spin in a recent Tech Review, solar electricity is still far from commercial viability. It's destined to remain a niche player as far ahead as one can look.

In terms of significant zero-carbon power sources that can displace fossil-fueled generation, that leaves only wind. It is sure to account for a growing share of the electricity mix and contribute to lower emissions, as fossil generation is taken out of service. But wind growth rates are highly uneven, O&M costs have been mounting, and the best sites may be getting used up. To remedy what it sees as a boom-bust cycle, the industry is pressing for a national renewable energy standard--another awkward supply-side measure (one that produces predictable results by administrative fiat, to be sure, but at completely unpredictable costs).

That leaves the smart grid, a topic so sweeping and complex it deserves and will receive separate treatment. Suffice it to say for now that we won't know for a few years, at the earliest, whether the concept is actually producing hoped-for reductions in energy  use and emissions.

To sum up, if the United States somehow meets its 2020 greenhouse gas production target, it will not be by deliberate design but because of forces largely beyond control of the U.S. government: Specifically, a grassroots anti-coal rebellion that has made it impossible, for all practical purposes, to build a new coal-fired plant in the United States; and shalegas developments, which imply that there may be enough to gas to replace coal very rapidly and on a very large scale.

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