The Obama administration has recently received three letters or petitions regarding energy policy. As with any policy position they are shaped by the world views of the men and women who authored them.
Dr. James Hansen is head of the NASA Goddard Institute for Space Studies and a leading global climate change researcher. It is not surprising that his proposal revolves around a tax policy aimed at decarbonizing the American economy and reducing greenhouse gases.
Edward Mazria is an architect and creator of the 2030 Challenge, a voluntary pledge that all new buildings and major building renovation be constructed to a carbon-neutral (using no fossil fuel GHG emitting energy to operate) standard by 2030. Mazria’s proposal is centered on achieving building energy efficiency goals rewarded with lower mortgage rates in the case of residential construction and by accelerated depreciation in the case of commercial construction. If enacted, it claims to both create millions of jobs and reduce carbon emissions.
Richard Heinberg is senior fellow at the Post Carbon Institute and the author of The Party’s Over – Oil, War and the Fate of Industrial Societies, Powerdown – Options and Actions for a Post – Carbon World, and the Oil Depletion Protocol. Heinberg and the other authors of Post Carbon Institute’s “Real New Deal” marry the imperatives of climate change and the peaking and ultimate depletion of our fossil fuel resources into a comprehensive plan to transition the U.S. to a new energy economy.
All three proposals are valid and merit serious review, but only the Post Carbon Institute’s proposal offers a comprehensive view of the challenges we must face. As such, the Hansen and Mazria proposals are important subsets of what needs to be a much larger solution.
THE HANSEN PROPOSAL
Hansen sent an open letter to Barack and Michelle Obama. Here are some relevant excerpts from the letter:
A rising carbon price is essential to “decarbonize” the economy, i.e., to move the nation toward the era beyond fossil fuels. The most effective way to achieve this is a carbon tax (on oil, gas, and coal) at the well-head or port of entry. The tax will then appropriately affect all products and activities that use fossil fuels.
The public will support the tax if it is returned to them, equal shares on a per capita basis (half shares for children up to a maximum of two child-shares per family), deposited monthly in bank accounts. No large bureaucracy is needed. A person reducing his carbon footprint more than average makes money. A person with large cars and a big house will pay a tax much higher than the dividend. Not one cent goes to Washington. No lobbyists will be supported. Unlike cap-and-trade, no millionaires would be made at the expense of the public.
A carbon tax is honest, clear and effective. It will increase energy prices, but low and middle income people, especially, will find ways to reduce carbon emissions so as to come out ahead. The rate of infrastructure replacement, thus economic activity, can be modulated by how fast the carbon tax rate increases. Effects will permeate society. Food requiring lots of carbon emissions to produce and transport will become more expensive and vice versa, encouraging support of nearby farms as opposed to imports from half way around the world.
THE 2030 CHALLENGE STIMULUS PLAN
A Two-Year, Nine-Million-Job Investment Proposal
“The road to energy independence, economic recovery and reductions in greenhouse gas emissions runs through the Building Sector.” – Edward Mazria
The 2030 Challenge Stimulus plan is a two year investment commitment to create 9 million jobs overall and 4-million jobs in the construction sector. It is a jobs growth and carbon reduction plan rolled into one. In the residential sector it trades low interest rate loans off against investments to increase building energy efficiency. For an existing home, the interest rate provided would be a function of renovating that home to some level below the existing energy code requirements in exchange for a lower mortgage rate.
Mortgage Interest Rate (subject to market conditions) 2030 Challenge Energy Reduction
4.0% 30% below code
3.5% 50% below code
2.5% 75% below code
2.0% Carbon neutral
For example, a homeowner with a current $272,300 mortgage with equity of $12,000, would have a mortgage balance of $260,300. At an interest rate of 6%, the current monthly mortgage payment would be $1633. If this homeowner wants to qualify for the 2.5% interest rate, they will need to renovate their home to use 75% less energy than that required by code, immediately creating jobs and putting construction teams back to work.
The cost of renovation would be approximately $51,250, which includes a solar system, which would qualify for a $7000 tax credit. The cost of the renovation, minus the tax credit, would be added to the mortgage balance, so that the new mortgage is now $304,550. However, because of the significantly lower 2.5% interest rate, the new mortgage payment is just $1203, a savings of $430 per month. With the additional monthly savings on energy bills of approximately $145, this homeowner would save a total of $575 per month.
Because building construction historically represents about 10% of GDP, Mazria thinks that the private building sector may be the key to reviving the U.S. economy. He proposes that $96-billion be invested annually for the next two years in mortgage interest rate buy-downs and accelerated depreciation for commercial buildings. As a result, Mazria claims that with a participation of only 5.8% of homes and 3.1% of commercial buildings the program would generate 9-million jobs and $1-trillion in private sector spending, and pay for itself in the form of increased tax revenue.
In addition to the economic claims, Mazria calculates that over the five year period, the proposal would reduce CO2 emissions by 504 million metric tons and energy consumption by 6.47 Quadrillion Btu.
Even at a participation of only 5.8% (over 4-million) of homes, Mazria’s proposal may have a scaling problem, as the country finds itself lacking the architectural, engineering, and code verification talent to transform that many homes in the proposed time-frame. Conceptually however, this is a beautifully conceived plan and deserves serious attention.
POST CARBON INSTITUTE
The Real New Deal
Energy Scarcity and the Path to Energy, Economic, and Environmental Recovery
“The energy transition cannot be accomplished in four years or eight… What can and must be accomplished in a single administration is the essential change of direction.”
The Post Carbon Institute [PCI] argues that the current economic crisis provides the opportunity and potentially the political will to make a significant down payment on the transition to a renewable energy economy that would otherwise be inconceivable. In fact if we don’t act now, the current crisis may just merge with “peak oil” and the effects of climate change to create a decades long global state of emergency.
PCI outlines a comprehensive program comprising five different solution sets.
- A massive and immediate shift to renewable energy (Hansen’s proposal fits here)
- The electrification of our transportation system
- The transformation to a “smart” electrical grid
- The de-carbonization and localization of our food production and delivery system
- The retrofit of our building stock for energy efficiency and distributed power generation. (Mazria’s proposal fits here)
Since the cost of such a transition spread over 20 years would be in the order of $4.5-trillion the authors admit that given the current financial meltdown, private capital will not be forthcoming and deficit spending by the government along with significant policy changes will be required to launch the transition. To direct policy, the authors recommend creating “an Energy Transition Office, tied to no existing agency, specifically tasked with tracking and managing the transition and with helping existing agencies work together toward the common goal”.
The authors do not underestimate the enormous and unprecedented scope of their proposal. Aside from avoiding or mitigating the devastating impacts of peak oil and climate change the potential benefits are enormous and would include:
- eliminating the need to police oil exporting areas of the world, saving billions of dollars a year in military expenditures
- saving billions per year by creating a food system that substantially reduces obesity, cancer, and asthma
- helping to create and foster skilled, self-reliant and resilient communities
Although the plan as presented merely serves to outline the possible solutions and the scope of the problems we face, what sets it apart is it all-embracing view of the resource depletion and environmental perils we must resolve to survive.
Thoughts About a New Energy Economy
Calls for the transition to a new energy economy typically come from three main quarters. All three are valid, but only one sees the forest for trees.
The national security quarter recognizes that we depend too much on imports from countries and regions that are either unstable and/or hostile to our national interests. This argument for action plays well with the right, but does not recognize the environmental threat of global warming or greater economic peril of peak oil. Although it forms the basis of an argument for an energy transition, it can equally be used to justify a more robust military policy.
The climate change quarter is currently dominant in the minds of the public and with policy makers. It sees great peril and human suffering in the coming decades but doesn’t recognize that the peak oil is imminent and will soon take center stage. The economic devastation of peak oil will likely be additive to the current debt crisis and put global warming on the back burner. Ironically, the advent of peak oil will greatly reduce carbon emissions and mitigate the effects of global warming but the decline in oil supply alone will not be sufficient to drive atmospheric CO2 levels back to 350 PPM.
Peak oil is lesser known. There is a peak oil caucus in congress, but there is little political will to take action in a county where nearly half the population believes in the battle cry of “drill baby drill”. Unlike the effects of global warming which will be slow and indirect in coming, the effects of peak oil will be as sudden as the collapse of the World Trade Center and Lehman Brothers. More shock and awe than a slow rising of the tides. It will touch every corner of our economy with a combination of price shocks and shortages. It will leave us with one chance and one chance only to transform our energy infrastructure to solar, wind, and geothermal using what remains of our rapidly depleting fossil fuel resources.
As I look to the future, I see three possible courses of action:
Option one is that we recognize the problem of resource depletion and take action well in advance of the anticipated world wide peak in oil production. Since peaking is imminent and the transition will take approximately two decades, unfortunately the ship has already sailed on option one. Looking back we will someday wish we had paid much more attention to Jimmy Carter.
With the election of Obama, option two is already in play, and we have begin to take some action based on fears of climate change and for reasons of national security. However, our current actions are no where near sufficient to avoid extreme hardship. The ship of state is on a collision course with the iceberg and we have only just given the order to reduce speed. Our collision with destiny is now unavoidable and the question now is whether there will be a sufficient number of life boats. In addition, just as we need it the most, we lack sufficient capital to make the transition in the face of the global financial meltdown. This is not just another severe business cycle, this is the beginning of the realignment of the the post WWII global financial system and the end of American economic dominance. It is likely that peak oil will become evident just as the dollar loses its status as the world’s reserve currency and as a nation we may then be unable to fund the energy transition with either public or private funds. Essentially bankrupt and losing our grip on global influence and power the country may lurch to the right in a desperate attempt to reclaim global dominance.
Option three is to maintain a posture of “drill baby drill denial” in spite of reality. At this point the country may resort to engaging in “resource wars” to claim the world’s remaining oil reserves and to protect the American “way of life”. This would be a policy doomed to failure and assured of increasing human misery. It would also be a policy that will put us at risk of missing our only window to transition away from fossil fuels. Call this the Mad Max policy.
My hope is that we’ll stick with option two and muddle through to a new and sustainable energy economy. It promises to be extremely painful and disruptive decade or two of transition, but in the end we will find ourselves in a much healthier relationship with our environment and possibly with each other.