NASA scientist Jim Hansen: “We have to stabilize emissions of carbon dioxide within a decade, or temperatures will warm by more than one degree – warmer than it has been for half a million years.” (Feb. 2006)
Toward A Global Energy Transition
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The three interacting strategies include:
· in industrial countries, the withdrawal of subsidies from fossil fuels and the establishment of equivalent subsidies for clean energy sources;
· the creation of a large fund – perhaps through a small tax on global commerce – to transfer clean energy technologies to developing countries; and,
· the incorporation within the Kyoto framework of a progressively more stringent Fossil Fuel Efficiency Standard that rises by 5 percent per year.
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This paper contains a set three interactive strategies which we believe would reduce carbon emissions by the 70 percent required by nature – at the same time as it would create millions of jobs around the world, especially in developing countries.
This is one of the few plans available that is appropriate in scope and scale to the magnitude and urgency of the impending climate crisis.
To set the plan in its starkest context: the deep oceans are warming, the tundra is thawing, the glaciers are melting, infectious diseases are migrating and the timing of the seasons have changed. And all that has resulted from one degree of warming. By contrast, the earth will warm from 3 to 10 degrees later in this century, according to the IPCC.
As NASA scientist Jim Hansen said in February, 2006: “We have to stabilize emissions of carbon dioxide within a decade, or temperatures will warm by more than one degree – warmer than it has been for half a million year.”
At the risk of exaggerating their potential, we believe these solutions could, at the same time, address several other major problems facing us as well.
The most obvious, given our newfound vulnerability to guerrilla attacks, is that a worldwide transition to renewable energy would dramatically reduce the significance of oil – and with it our exposure to the political volatility in the Middle East.
A second security-related connection is that a renewable energy economy would have far more independent sources of power – home-based fuel cells, stand-alone solar systems, regional windfarms – which would make the nation’s electricity grid a far less strategic target for terrorist attacks.
Perhaps a more relevant connection is that the continuing indifference to climate change by the U.S. – which generates a quarter of the world’s carbon emissions – will likely provoke more guerrilla attacks from people whose homelands are going under from rising seas, whose crops are destroyed by weather extremes and whose borders are overrun by environmental refugees.
Conversely, a properly-funded global energy transition would represent the kind of proactive policy needed to begin to redress the economic inequity that threatens to split humanity irreparably between rich and poor. Just as runaway carbon concentrations are threatening to destabilize the global climate, runaway economic inequity can only continue to destabilize our global political environment.
For its own security, the U.S. needs to abandon its traditional posture toward developing countries – which has been by turns defensive and coercive – and replace that with a new set of policies which are expansive, inclusive and geared toward real poverty alleviation. It seems to be an article of faith among development economists that energy investments in poor countries create far more wealth and jobs than investments in any other sector. Were the U.S. to lead a wholesale transfer of clean energy technologies to developing countries, that would do more than anything else in the long term to undermine support for anti-U.S. terrorism.
On the economic front, it seems clear the entire global economy is susceptible to periods of stagnation, even recession. Not long ago, some members of the Federal Reserve were even talking about deflation. A truly floundering economy seems relatively immune to tax cuts and interest rate reductions. I think any recipe for stable, long-term economic health must include a component of public works programs – in this case, a program to rewire the globe with clean energy.
Without question, that would be the most productive investment we could make in our future. Within a decade, it would generate a major and continuing worldwide economic lift-off.
Finally there is the climate crisis itself:
Unintentionally, we have set in motion massive systems of the planet with huge amounts of inertia that have kept it relatively hospitable to civilization for the last 10,000 years. We have reversed the carbon cycle by more than 400,000 years. We have heated the deep oceans. We have loosed a wave of violent and chaotic weather. We have altered the timing of the seasons. We are living on a very precarious margin of stability.
Against that background, we are offering this set of strategies.
The Plan involves three interacting strategies which include:
· in industrial countries, the withdrawal of subsidies from fossil fuels and the establishment of equivalent subsidies for clean energy sources;
· the creation of a large fund through a small tax on global commerce to transfer clean energy technologies to developing countries; and,
· the incorporation within the Kyoto framework of a progressively more stringent Fossil Fuel Efficiency Standard that rises by 5 percent per year.
While each of these strategies can be viewed as a stand-alone policy, they are better understood as a systemic set of interactive policies which could speed the energy transition far more rapidly than were they to be implemented in piecemeal fashion.
Subsidy switch: the United States currently spends more than $20 billion a year to subsidize fossil fuels. Industrial country subsidies for fossil fuels have been estimated at $200 billion a year.
We are proposing that, in the industrial countries, those subsidies be withdrawn from fossil fuels and equivalent subsidies be established to promote the development of clean energy sources. (Clearly a small portion of the U.S. subsidies must be used to retrain or buyout the nation’s 50,000 or so coal miners.) But the lions’ share of the subsidies would still be available for use by the major oil companies to retrain their workers and re-tool to become aggressive developers of fuel cells, wind farms, and solar systems. In other words, we envision the subsidies as a tool to help oil companies transform themselves into renewable energy companies.
Energy Modernization Fund: One attractive source of revenue to fund the transfer of clean enegy to developing countries lies in a small tax on global commerce to preserve the global environment. This tax on international currency transactions was conceived by the late Nobel prize-winning economist Dr. James Tobin as a way of damping the volatility in capital markets. But it would also generate enormous revenues. Today the commerce in currency swaps is approaching $2 trillion per day. A tax of a quarter-penny on a dollar would net out to about $300 billion a year for wind farms in India, fuel-cell factories in South Africa, solar assemblies in El Salvador, and vast, solar-powered hydrogen farms in the Middle East.
Since currency transactions are electronically tracked by the private banking system, the need for a large, new bureaucracy could be avoided simply by paying the banks a fee to administer the fund. That administrative fee would, to some extent, offset the banks’ loss of income from the contraction in currency trading that would result from the imposition of the tax.
The only new bureaucracy we envision would be an international auditing agency to monitor transactions to ensure equal access for all energy vendors and to minimize corruption in recipient countries.
(Several developing country commentators have suggested that corruption could be further curtailed by requiring recipient governments to include representatives of local NGOs, indigenous minorities, universities and labor unions in making decisions about the procurement and deployment of new energy resources.)
If a Tobin Tax proves unacceptable, a tax on airline travel or a carbon tax in industrial countries, while more regressive, could fulfill the same function. Florentin Krause, of the IPCC’s Working Group III, and Stephen DeCanio, former staff economist for the Reagan Council of Economic Advisers, estimate that if carbon emissions were taxed at the rate of $50 a ton, the revenue would approximate the $300 billion from a tax on currency transactions.
(Parenthetically, at this point, we have not calculated what would happen to transitional prices of carbon fuels if subsidies were removed and a carbon tax imposed at the same time. That may, or may not, be an economically viable step.)
Regardless of its revenue source, the fund – on the ground – would be allocated according to a United Nations formula based on climate, energy use, population, economic growth rates, etc. to determine what percentage of each year’s fund would go to each developing country.
If India, for instance, were to receive $5 billion in the first year, it would then decide what mix of wind farms, village solar installations, fuel cell generators and biogas facilities it wanted.
The Indian government (in this hypothetical example) would then entertain bids for the windfarms, solar panels and fuel cells it wanted. As contractors reached specified development and construction benchmarks, they would then be paid directly by the banks. And the banks, as noted, would receive a fee for administering the fund.
As self-replicating renewable infrastructures took root in developing countries, the fund could simply be phased out. Alternatively, progressively larger amounts of the fund could be diverted to other global environmental and development needs.
Progressive Fossil Fuel Efficiency Standard: The third – and unifying – strategy of the plan calls on the parties to Kyoto to subordinate the uneven and inequitable system of international emissions trading to a simple and equitable progressively more stringent Fossil Fuel Efficiency Standard which goes up by about five percent per year.
This mechanism, if incorporated into the Kyoto Protocol, would harmonize and guide the global energy transition in a way that emissions trading can not.
Even if all the shortcomings involving monitoring, enforcement and equity could be resolved, international carbon trading would most appropriately be used as a fine-tuning instrument – to help countries attain the final 10 to 15 percent of their obligations. It is not the workhorse vehicle required to propel a worldwide energy transition. We simply can’t finesse nature with accounting tricks.
Instead, we are proposing that the parties to the Kyoto talks adopt a progressively more stringent Fossil Fuel Efficiency Standard which we believe would be simple to negotiate, easy to monitor and ultimately fair. (National “cap-and-trade” regimes could be useful in helping countries meet the progressive standard.)
Under this mechanism, every country would start at its current baseline to increase its Fossil Fuel energy efficiency by, say, 5 percent every year until the global 70 percent reduction is attained. That means a country would produce the same amount of goods as the previous year with five percent less carbon fuel. Alternatively, it would produce five percent more goods with the same carbon fuel use as the previous year.
Since no economy can grow at five percent for long, emissions reductions would outpace long-term economic growth.
The fact that every country would begin at its current baseline would eliminate the equity controversies inherent in the “cap-and-trade” system – and would, in tandem with the Fund – assure the participation of developing countries.
For the first few years of the efficiency standard, most countries would likely meet their goals by implementing low-cost or even profitable efficiencies – the “low-hanging fruit” – in their current energy systems. After a few years, however, as those efficiencies became more expensive to capture, countries would meet the progressively more stringent standard by drawing more and more energy from non-carbon sources – most of which are 100 percent efficient by a Fossil Fuel standard.
That, in turn, would create the mass markets and economies of scale for renewables that would bring down their prices and make them competitive with coal and oil.
This approach would be far simpler to negotiate than the current Protocol, with its morass of details involving emissions trading, reviews of the adequacy of commitments and differentiated targets.
It would also be far easier to monitor and enforce. A nation’s compliance would be measured simply by calculating the annual change in the ratio of its carbon fuel use to its gross domestic product. That ratio would have to change by 5 percent a year.
This approach has a precedent in the Montreal Protocol, under which companies phased out ozone-destroying chemicals. That protocol was successful because the same companies that made the destructive chemicals were able to produce their substitutes – with no loss of competitive standing within the industry. The energy industry must be reconfigured in the same way. Several oil executives have said in private conversations that they can, in an orderly fashion, decarbonize their energy supplies. But they need the governments of the world to regulate the process so all companies can make the transition in lockstep without losing market share to competitors. A progressive Fossil Fuel Efficiency Standard would, I think, provide that type of regulation.
The plan, then, would be driven by three engines: the subsidy switch would propel the metamorphosis of oil companies into energy companies; the progressive fossil fuel efficiency standard would harmonize the transformation of national energy structures, create a level field of predictable regulation for the world’s multi-national corporations, and jump renewable energy into a global industry; the competition for the new $300 billion a year market in clean energy would power the whole process.
(c) Ross Gelbspan
