October 21, 2009
Unfinished Business: The Missing Elements of a Sustainable Energy and Climate Policy
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The Missing Elements of a Sustainable Energy and Climate Policy
In its recently released report, The Balancing Act: Climate Change, Energy Security and the U.S. Economy, Business Roundtable concludes that investments in a balanced portfolio of advanced energy efficiency and production technologies, combined with strong policy leadership to speed deployment and market penetration of those technologies, can achieve significant reductions in greenhouse gas (GHG) emissions and enhance energy security while imposing manageable costs on the U.S. economy. Assuming a price on GHG emissions, the report concludes that the combination of investments in a balanced technology development portfolio and policy leadership is the only approach that will simultaneously advance the nation’s environmental, economic and energy security interests and place the U.S. economy on a pathway toward truly sustainable growth.
As The Balancing Act report title suggests, the key to achieving the greatest GHG emissions reductions at the least cost is simultaneous, aggressive, forward movement on six advanced technology development pathways and further development of additional enabling technologies, together with policies that encourage market penetration. The economic analysis behind the report shows that balance is the critical factor. Balanced investments and policy choices that advance development along each of the available technology pathways and additional enabling technologies are the most efficient means of achieving significant GHG emissions reductions while preserving economic growth and enhancing our national security.
When examined through the lens of the technology investment and policy leadership recommendations laid out in The Balancing Act report, it is apparent that current U.S. energy policy is not well positioned to achieve the greatest GHG emissions reductions at an affordable cost while enhancing our national security. To satisfactorily address our energy and climate needs, a commitment to energy efficiency and all forms of energy production, including expanded oil and natural gas production, will be required. A balanced, comprehensive portfolio of options will best ensure that we have adequate and diversified sources of energy available at reasonable prices to power our economy while taking those steps necessary to develop new technologies needed to address climate change. Any policy promoting only a subset of a comprehensive portfolio to the exclusion of the other elements Business Roundtable 4 will fall short of meeting our needs while imposing unreasonable costs on our economy.
This report identifies those areas in which technology investment and policy leadership are lacking and recommends action to rebalance U.S. energy policy. A balanced approach to energy technology investments and policies will lead to an energy future that is more diverse, more domestic and more efficient, and it will place the United States on a clear path to sustainable growth.
In recent years, persistently high and volatile energy prices have placed enormous stress on family budgets, squeezed American businesses and slowed the U.S. economy. A variety of factors have contributed to this volatility, including rapid global economic growth, supply disruptions, and increased geopolitical instability and uncertainty. As a consequence of these and other factors, world oil prices surged from roughly $50 per barrel in January 2007 to more than $140 per barrel in June 2008, placing substantial burdens on U.S. consumers, U.S. businesses and the larger U.S. economy. Although oil prices have dropped sharply in the face of the global economic recession, the tension between supply and demand will remain a significant challenge when growth resumes.
The United States is expected to need increasing quantities of oil and natural gas in coming decades to support a growing population and expanding economy. While U.S. production can and should be expanded, energy independence (the elimination of energy imports) is not realistic. Increasing and diversifying global supplies of oil and natural gas will be essential to enhancing the nation’s economic and energy security. As stated in the 2007 National Petroleum Council Global Oil and Gas Study, “there can be no U.S. energy security without global energy security.”
Elevated oil and gasoline prices last year were particularly hard felt, but they were not unique. By mid-2008, natural gas prices were three to four times higher than they were at the end of the last century, while electricity prices increased by approximately 60 percent over the same period.
In addition to the stress occasioned by high fossil fuel prices, there is increasing evidence that the Earth’s climate has been warming over the last century and that increases in temperature are affecting many global ecosystems. At the same time that warming has been occurring, GHG concentrations in the atmosphere have increased due to rising worldwide GHG emissions. To address the consequences of global warming, the Obama Administration has proposed and Congress is considering legislation designed to reduce substantially GHG emissions. Since the Business Roundtable 6 primary source of manmade carbon dioxide emissions (a key GHG) is the burning of fossil fuels, climate legislation is likely to increase significantly the cost of these fuels to encourage greater energy efficiency and the transition to alternatives that emit fewer GHGs.
While the United States can and should use energy more efficiently and use costeffective renewables and other new sources of energy where possible, the reality is that we likely will continue to rely on oil, natural gas and coal for the majority of our energy for decades to come. Renewables and other alternatives, no matter how aggressively we pursue them, cannot be scaled up quickly enough to displace oil, natural gas or coal within the next several decades, even if we couple these efforts with an expanded commitment to energy efficiency. Today, wind, solar and geothermal energy resources generate less than 2 percent of our electric power, while ethanol and biodiesel contribute only about 4 percent of our nation’s transportation fuels. All forms of renewables, including hydroelectric power, solar, wind, geothermal, biofuels and biomass, today supply only about 7 percent of our energy. While all of these alternatives hold promise, each have resource (e.g., hydropower, biofuels) and economic limitations that make it unlikely that they will displace traditional fossil fuels any time soon.
Ultimately, achieving America’s long-term environmental objectives must not come at the expense of its economic or energy security, or we simply will have exchanged one unsustainable approach for another. To satisfactorily address our energy and climate needs in a more sustainable manner, a widespread commitment to energy efficiency and all forms of energy production, including expanded oil and natural gas production, will be required.
III. Congress Has Taken Aggressive Action To Encourage Energy Efficiency and Promote Renewables
Over the past four years, legislation has been enacted into law that aggressively promotes energy efficiency, renewable power production and biofuels use. In the Energy Policy Act of 2005 (EPAct 2005), Congress:
- required the U.S. Department of Energy to develop more stringent new appliance energy efficiency standards
- extended production tax incentives for renewable power
- imposed on refiners, blenders and importers a renewable fuels standard (RFS) mandating 7.5 billion gallons of renewable fuels be used in the nation’s gasoline supply by 2012, increasing to an expected 8.6 billion gallons in 2022
- imposed new energy efficiency targets on federal buildings
- encouraged states to update building codes for new residential and commercial buildings.
EPAct 2005 also contained numerous tax provisions designed to promote energy conservation and efficiency, including an extension and expansion of the renewable electricity production tax credit, tax credits and deductions to promote energy efficiency and conservation in residential and commercial property, tax credits for investments in solar technology, and an expansion of the research tax credit to encourage development of new technologies. Although the tax incentives geared toward residential and business property expenses were originally set to expire on January 1, 2008, they were renewed for one year by the Tax Relief and Health Care Act of 2006. The Emergency Economic Stabilization Act of 2008 further extended the tax provisions of EPAct 2005.
In the Energy Independence and Security Act of 2007, Congress:
- revised and expanded the RFS to require the use of 36 billion gallons of renewable fuels annually by 2022, of which only 15 billion gallons can Business Roundtable 8 be ethanol from corn starch and the remainder from advanced cellulosic biofuels
- updated certain appliance efficiency standards, established time lines for the promulgation of standards for certain appliances, and now requires periodic review and updating of existing standards when appropriate
- established new lighting efficiency requirements
- mandated new federal building efficiency standards; w required state regulators to consider mandating that utilities employ integrated resource planning and establish rates for supply-side resources that put energy efficiency expenditures on par with utility investments
- authorized funding for a variety of “green building” and other efficiency initiatives.
In the American Recovery and Reinvestment Act of 2009 (ARRA), Congress provided more than $60 billion to improve residential and commercial building efficiency, extend production and investment tax credits for renewable power facilities, expand residential and commercial efficiency tax credits, support advanced vehicle technologies, and provide loan guarantees for biofuel facilities, and it extended and expanded tax credits for new hybrid and electric vehicles. Congress also appropriated monies to help state and local governments improve their energy efficiency and encourage them to purchase more fuel efficient vehicles. A small amount of funding was provided for carbon capture and storage (CCS) research, and a significant amount of “smart grid” funding was provided. Finally, Congress recently passed and the president has signed into law legislation promoting modernization of the transportation fleet by encouraging vehicle owners to purchase new and more energy efficient vehicles that will remove less energy efficient vehicles from the nation’s highways. Under this program, vouchers of up to $4,500 were available to owners of less fuel efficient vehicles to purchase new, more efficient vehicles.
IV. Unfinished Business: What Remains
Substantial tax and regulatory incentives are in place to encourage more efficient energy use and the development of renewable energy resources over the near to intermediate term. While more remains to be done in these areas, as we recommend below, and the current Congress and Administration seem poised to provide further leadership addressing these critical issues, existing government policies are inadequate to support the renaissance of nuclear power and maintenance of coal (that now generates almost half our electricity) as a viable option to generate electric power in the future, to modernize and expand the electric grid to improve reliability and provide access to remotely located resources, and to increase needed oil and natural gas production in the United States.
1. Further Progress on Energy Efficiency
Increasing energy efficiency can be one of the cheapest and most immediate ways of improving our energy security, reducing energy costs and curtailing GHG emissions. Residential and commercial buildings consume approximately 40 percent of all energy we use annually, making this sector our nation’s single largest consumer of energy. Increasing the energy efficiency of buildings will reduce energy costs and GHG emissions and will improve our energy security. Updating and increasing energy efficiency and enforcing model residential and commercial building codes developed by the International Code Council and the American Society of Heating, Refrigerating and Air-Conditioning Engineers above existing code levels are essential to increase energy efficiency in this sector. However, as new residential homes and commercial structures make up less than 2 percent of the nation’s building stock, and they are already the nation’s most energy efficient buildings, the benefits of enhancing their energy efficiency will not be immediate or even midterm, but rather long term and cumulative. Accordingly, we also encourage and support development of policies that promote significant energy efficiency increases in existing residential and commercial buildings. In the industrial sector, combined heat and power technologies can significantly improve the efficiency in industrial processes. The U.S. Department of Energy recently released a report that indicated that if we were able to increase Business Roundtable 10 the use of combined heat and power from 9 percent of the U.S. electricity supply to 20 percent, some 60 percent of the growth in U.S. GHG emissions could be avoided. Continued support for combined heat and power technologies will allow us to achieve these savings. While Business Roundtable has not taken a position on a federal renewable energy standard (RES) for electric utilities, if Congress mandates a federal RES, energy efficiency should be considered as an eligible resource for purposes of meeting such a standard. Finally, regulatory and legislative barriers that discourage new investments in technologies that reduce emissions and improve the efficiency of existing power plants and factories should be modified to encourage these investments. Business Roundtable encourages Congress to adopt these recommendations as a means to improve our nation’s energy efficiency.
2. Maintain Coal as a Viable Option To Generate Electric Power
Coal today is used to generate nearly 50 percent of the electricity we use. Although decarbonizing the electric power supply will require significant investments in low-carbon fuel technologies (e.g., wind, solar, nuclear), it also will require technologies that fundamentally transform the way we use conventional fossil fuels. Fossil fuels remain the primary energy source for most of the world’s economies, and coal, in particular, has the potential to power the U.S. economy for centuries to come. Major emerging economies, such as India and China, view coal in a similar light. Subsequently, accelerating the development and deployment of technologies that enable fossil fuels to be consumed in a more environmentally acceptable manner is central to meeting the sustainable growth challenge. CCS is a promising but largely undemonstrated technology for significantly reducing the GHG emissions associated with fossil fuel consumption. The CCS pathway is especially important to reducing GHG emissions from coal-fired power plants, which represent one-third of total U.S. GHG emissions. Promising applications also exist for other large stationary GHG emitters, such as industrial gasification facilities, natural gas power plants, petroleum refineries, and heavy oil production and cement manufacturing plants. With the potential to eventually capture and store more than 90 percent of GHG emissions from stationary sources, the CCS pathway has the capacity to deliver large-scale emissions reductions. Ultimately, Unfinished Business: The Missing Elements of a Sustainable Energy and Climate Policy 11 by decoupling the link between the consumption of fossil fuels and the release of GHG emissions into the atmosphere, CCS technology can simultaneously advance the nation’s economic, environmental and security objectives.
A robust program combining research and development investment, cost sharing, regulatory and legal framework reform, and financial incentives to close the commercialization gap will be necessary to ensure that CCS technologies are developed and incorporated in the U.S. and global energy and manufacturing infrastructure as soon as possible.
3. Encourage the Expansion of Our Nuclear Fleet
Nuclear power currently generates approximately 20 percent of the power we use. As the only existing scalable, low-carbon baseload generation technology, nuclear power will be critical to managing the impending turnover in baseload capacity in a sustainable manner. The United States will need new nuclear plants to replace retiring plants and to maintain nuclear energy’s current share of electricity supply, which will grow to meet rising demand. An expansion of nuclear energy beyond its current size also will reduce the nation’s GHG emissions profile while providing affordable and reliable electricity to an expanding economy. Technology, financial, regulatory, political and market barriers stand in the way of a next generation of nuclear power plants.
Prudent, cost-effective expansion of the U.S. nuclear fleet, beyond the modest growth already supported by public policy, requires additional measures that will enable the industry to bear the high costs of nuclear plant construction, create an environment of regulatory stability and predictability, and forge a credible federal program for long-term management of nuclear waste.
4. Expand and Modernize the Electric Grid
A modernized electric power grid can play a multifaceted role in meeting the sustainable growth challenge. Improving grid efficiencies can reduce the substantial losses associated with electricity transmission and distribution, Business Roundtable 12 decreasing the amount of generated electricity required to support a given level of demand. Integrating demand-side management technologies into the grid will provide consumers with information to make more economical decisions and the tools to implement them. Extending the grid to locations rich in renewable resources can enable greater deployment of renewable power. The grid investments required to realize the full potential of wind and solar are likely to be significant. For instance, American Electric Power and the American Wind Energy Association recently collaborated on a study analyzing transmission needs associated with allowing wind energy to supply 20 percent of the nation’s electricity needs by 2030. According to the study, approximately 19,000 miles of extra-high-voltage (765kv) lines would provide a robust interstate overlay to accomplish this goal at a cost of about $60 billion in today’s dollars. Congress, in the ARRA, appropriated $4.5 billion for cost-shared investments in “smart grid” technology. In addition, investment tax incentives are available for investments in these new technologies.
A balkanized transmission planning process, fragmented siting authority and the issue of cost allocation are significant barriers to expansion of our nation’s transmission grid to improve reliability and accommodate renewable power as a viable source of energy. Policy leadership at the federal level with respect to cost allocation, planning and siting of transmission is needed.
5. Provide Access for Oil and Natural Gas Exploration and Production
The transition to a low-carbon economy will be measured in decades, not years. Alternative sources of energy must be developed, new infrastructure must be constructed and advanced technologies must be deployed. While an alternative system emerges, evolves and matures, it is imperative that we ensure the availability of affordable energy supplies. Measures that enhance domestic supplies of oil and natural gas, in particular, will be necessary to maximize the likelihood that the prevailing energy system will remain as secure, stable and affordable as possible. A variety of exciting technologies are enabling producers to explore, extract and transport petroleum and natural gas supplies with minimal impact on Unfinished Business: The Missing Elements of a Sustainable Energy and Climate Policy 13 the environment. For example, new directional drilling and hydraulic fracturing technologies have made it possible to produce economically vast quantities of natural gas from shale formations that until recently were thought to be either economically or technically impossible to develop. Natural gas, which emits only about half the carbon dioxide on an energy equivalent basis as coal, promises to be an important fuel for many decades to come because of its environmental attributes and domestic availability. In addition, new drilling technology, including directional drilling techniques that allow multiple wells to be drilled from one drill site, has reduced significantly the footprint associated with oil and natural gas development, both on and off shore.
Unfortunately, too many significant oil and natural gas prospects are now officially or unofficially off limits. In 1982, Congress first enacted a prohibition of the use of funds to conduct leasing activities in a sizeable portion of the Outer Continental Shelf (OCS). In 2008, this leasing moratorium was not extended. However, a portion of the Central Gulf of Mexico Planning Area and most of the Eastern Gulf of Mexico Planning Area along the Florida coast are under restriction until 2022 as part of the Gulf of Mexico Energy Security Act of 2006. The lapse of the OCS leasing moratorium will not result in the immediate leasing of areas originally included in the moratorium. The Minerals Management Service conducts all offshore leasing activities pursuant to a five-year plan. The Bush Administration proposed and expanded a leasing program shortly before it left office. The Obama Administration has withdrawn the revised five-year leasing plan to consider what areas to include in a revised plan.
Greater access to areas currently off limits will be required to provide us with the reliable supplies of oil and natural gas that we will need for decades to come.
Without more supportive government policies in these areas, we will not be able to address satisfactorily our energy or climate needs. These are the missing elements of a sustainable energy policy and the unfinished business facing the Administration and Congress.