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The Transition to Renewable Energy Is Difficult But Feasible

From the policy perspective, the question is: How do we alter the calculus that drives behavior?
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The United States Energy Information Agency estimates that 11 percent of the world's total energy comes from renewable sources, a number they project will grow modestly to 15 percent by 2040. They also estimate that 21 percent of the world's electricity came from renewable energy in 2011, and they expect that to grow to 25 percent by 2040. These percentage changes must be viewed in the context of worldwide growth in energy consumption. According to the United States Energy Information Agency: energy consumption will grow by 56% between 2010 and 2040, from 524 quadrillion British thermal units (Btu) to 820 quadrillion Btu. Most of this growth will come from non-OECD (non-Organization for Economic Cooperation and Development) countries, where demand is driven by strong economic growth. Renewable energy and nuclear power are the world's fastest-growing energy sources, each increasing 2.5% per year. However, fossil fuels continue to supply nearly 80% of world energy use through 2040. Natural gas is the fastest-growing fossil fuel, as global supplies of tight gas, shale gas, and coalbed methane increase.

These are the projections that need to be altered if global warming is to be placed under some degree of control. There are small, hopeful signs that the pace of change may accelerate, but there is no way to call these projected trends a transition to renewable energy. According to Justin Doom of Bloomberg News, in 2014:

About $175 billion was spent globally on renewable energy projects during the first three quarters, up 16 percent from the same period last year, with Chinese solar investment at a record, according to a Bloomberg New Energy Finance report. Spending in the third quarter gained 12 percent to $55 billion from $48.9 billion a year earlier, the London-based research company said today in statement. Almost $20 billion of that was in China, where solar investing soared to $12.2 billion from $7.5 billion.

This modest trend toward renewable energy is promising, but the overall trend is discouraging. The Energy Information Agency sees continued increases in the use of fossil fuels, and increased release of carbon dioxide at least through 2040. Specifically, the agency reports that:

Energy-related carbon dioxide emissions are projected to increase by 46 percent by 2040 because of increased consumption of oil, natural gas, and coal. Developing Asia is expected to account for more than 70 percent of the increase in energy-related carbon dioxide emissions. China and India will be responsible for half of the world's increase in energy consumption as they use energy to fuel their economic growth. It is clear from EIA's assessment of the world energy picture that other nations will be using increasing amounts of energy of all kinds, but especially those from fossil energy sources, for decades to come.

The public policy dilemma is quite simple: How do we alter that trend line and accelerate the use of renewable energy while we decelerate the growth of fossil fuels and eventually reduce their use over the next quarter-century? I do not think there is a single solution to this question, and I believe that the U.S. government has a variety of tools it needs to deploy in order to influence the energy consumption of corporations, individuals, and even other nations.

In work I began with my colleague Sheldon Kamieniecki and his student Matthew Cahn a number of years ago, we discussed a strategic approach to regulation and detailed a variety of mechanisms that government could use to influence behavior. In our work, we rejected the idea that one need choose between market mechanisms and command and control regulation; instead, we viewed both as two tools of regulatory influence that ranged from highly coercive to non-coercive. One method of influencing behavior is to adopt a command and control rule that requires individuals to behave in a certain way. That works reasonably well with traffic lights, less well with speed limits, and failed miserably during the "Prohibition Era" when we made alcohol illegal.

Another way to influence behavior is to pay for people and organizations to do specific things. When we give grant funding to universities to conduct research in a certain area, it tends to move scientific work into that area. Scientists are willing to alter their research agenda as a way to keep their labs intact and food on their family's table.

There are also a variety of tax code provisions that we use to influence behavior. The federal income tax deduction for mortgage interest and property tax encourages home ownership. Favorable tax treatment for renewable energy encourages installation of home solar energy equipment. The oil depletion allowance encourages oil exploration and production.

In order to change the daunting trend lines presented in the Energy Information Agency's analysis, we will need to pursue many paths if we are to replace fossil fuels with renewable energy. I reject the idea that setting a price on carbon is the magic bullet that will spark this transition and I question the feasibility of it in the United States at the present time. However, I recognize that in certain places and at certain times it may well be the appropriate tool of influence. It is also true that a command and control regulation can really be a form of tax. If complying with a rule raises the price of a product, the increased cost of that product can be viewed as an indirect tax.

When we think of the transition to renewable energy, we need to think of our own behavior and the limits to change open to us as individuals. For example, I live in Manhattan, rent an apartment, have no access to a roof for a solar installation, and the building's owners control the energy source for my heat and hot water. I park my car in a garage about one-half mile from my apartment, and the garage currently includes a couple of electric charging stations that are always in use. My summer home in Long Beach, New York, is a small bungalow on a narrow street and I have no garage or parking space located near my home. In short, I have little incentive to buy an electric car or install solar energy in my main residence. My summer home could host a solar array, but after the renovations required by Hurricane Sandy, solar will need to wait. Those are my excuses; what are yours? In many ways, it does not matter. All of us face institutional, financial, and even psychological barriers to changing our behavior.

From the policy perspective, the question is: How do we alter the calculus that drives behavior? How do we encourage landlords and homeowners to install energy efficiency and renewable energy technologies? How do we make electric car charging stations more plentiful and convenient? Tax and building codes might be useful; rules and regulations might also be helpful. A grant program to pay local governments to install public charging stations would be instantly effective. Part of the current problem is the technology itself. When a car can hold a charge for a thousand miles instead of one hundred fifty, it becomes more convenient than a gasoline-fueled auto. If charging took five minutes instead of five hours, more people would buy electric cars. If electric cars were cheaper than conventional cars, more people would buy them. If a solar array were the size of a window instead of a patio deck, more people would install them. If the price of all this new technology went down, adoption would grow as well.

The improved technology is not unimaginable, but it will require massive amounts of basic and applied research before it becomes commercially viable. We know the world economy is very good at adopting and utilizing new technologies. The best recent example is the cell phone. There are now over seven billion of them in use on this planet. We like them and they have become fully integrated into the way we live. Imagine if a similar technological development and commercialization process were applied to solar energy. Just as the smart phone has transformed the way we live, a renewable energy breakthrough could alter the future of the planet. It will take such a breakthrough, along with many other policy-driven incentives, to alter the trend lines projected by the Energy Information Agency. Hastening the transition to a renewable energy economy is a difficult but feasible task.