Article Share: Unrealistic Green Expectations

From The Wall Street Journal:

Unrealistic Green Expectations

I’m an alternative-energy investor, but let’s not kid ourselves: Change will be gradual and needs fossil fuels.

By Jeffrey Leonard

Oct. 6, 2014 7:08 p.m. ET

The Rockefeller Brothers Fund, and heirs to the Rockefeller fortune, recently pledged to divest fossil-fuel holdings, joining endowed institutions, local governments and wealthy individuals representing over $50 billion in assets. Sun Microsystems founder Vinod Khosla recently told CNN’s Fareed Zakaria that the federal government should revitalize the Energy Department’s $6 billion loan-guarantees program to spark commercialization of new technologies.

The intention is to catapult America toward the end of the fossil-fuel era, evoking historical images of the Manhattan Project or Apollo Program. Yet America lacks a strategic vision to move the economy on an accelerating path toward cost-effective, low-carbon energy sources. The increased production of domestic oil and natural gas in the U.S. heartland provides a needed boost to the economy, so this must form part of the equation for a long-term transitional strategy. This is not just about climate change. More-efficient energy technologies are keys to future global competitiveness.

A transitional bridge to lower-carbon energy is already forming in America’s vast electricity supply system, as coal is in natural decline. But lower-carbon-emitting natural gas is essential for this transition, displacing coal, almost megawatt for megawatt. The fallacy of the no-fossil-fuel movement is that elimination of natural gas would stunt the transition, and cause untold harm to our economy due to energy shortages and high-cost electricity. Wind and solar power alone will not be enough to meet America’s bulk electricity needs. Yet, due to more renewables and natural gas, greenhouse-gas emissions associated with electricity production have fallen.

Also, the Nuclear Regulatory Commission is extending the licenses of most U.S. nuclear power plants for another 20 years. These plants currently account for 20% of baseload U.S. electricity generation capacity. If they were shut down now they could only be replaced by repowering mothballed coal plants.

These trends buy time to develop new energy technologies. America can use the cushion of booming natural-gas production and the renewal of existing nuclear plants to put in place a national energy strategy to boost the economy and cut greenhouse-gas emissions. The pillars of such an energy strategy are: 1) a multi-decade commitment to invest in the basic research and development behind a multiplicity of new energy technologies; and 2) a gradual and incremental tax on carbon emissions.

We need diverse technological R&D paths because we don’t know where the winners will come from. For example, a new generation of more-efficient nuclear technologies—with lower capital costs and waste challenges resolved—could pay big dividends for the future—just in time for the end of life of current nuclear plants.

A long-term commitment to revitalizing federal energy R&D programs should harness America’s world-leading university research facilities and national laboratories—which have seen funding for basic research chopped. Such programs should focus on basic science, not commercialization subsidies. The strengths of American corporations and venture capitalists are precisely in mobilizing capital and the creativity of commercialization when linked into the basic science—as demonstrated by successful commercial spinoffs from prior federal R&D programs such as Advanced Research Projects Agency Network (Arpanet).

As an economist, I believe that a carbon tax on energy producers and users will inevitably change energy markets to favor lower and noncarbon fuel sources. A carbon tax could be gradually introduced for bulk electricity generators. If state and federal regulators don’t allow these added costs to be passed on to consumers through the rate base, this will bite into the profits of heavy carbon users. A user tax on industries and households, based on the carbon content of their energy sources, would induce consumers to push for efficiency gains across the entire electricity system—spawning new investments in power-generation technologies such as cogeneration, waste-heat recovery and improved transmission and distribution systems.

A carbon tax would also initiate a race among manufacturers to develop more efficient motors, pumps, data centers and other electricity-using technologies. No other more complex solutions—e.g., cap and trade, which fascinates academics and tax accountants—would have such a profound, permanent and positive impact on the energy landscape of the future.

To engage the public in a two-pronged program of R&D plus carbon taxes, and make it budget neutral, 30-year energy R&D bonds could finance the technology-development programs. The annualized amortization of these bonds would be supported by the carbon taxes collected from energy users.

It is not very complicated, but the agenda has to be incremental and ironclad to be successful. Not a leapfrog moon shot to find some carbon-fuel alternative overnight. And not subject to pork-barrel earmarks or periodic review by a politicized Congress.

Mr. Leonard is CEO of Global Environment Fund, an alternative-asset investment-management firm, and a member of the board of New America, an independent think tank.

Original Article