Rescuing the Low-Carbon Energy Transition From Magical Thinking

In the past few years, the United States has taken important initial steps toward creating a low-carbon energy system. Total carbon-dioxide emissions peaked in 2007 and had fallen by about 9 percent in 2014. Carbon intensity, the amount of carbon emissions per unit of energy consumption, has declined at an even faster rate.

Buoyed by this modest success, the United States helped shepherd the most recent round of global climate negotiations to a successful conclusion in Paris last year. The United States’ Intended Nationally Determined Contribution (INDC), as commitments in Paris are known, is to reduce net greenhouse gas emissions by 26 to 28 percent below 2005 levels by 2025. The United States also committed to reduce emissions by 80 percent or more by 2050.

If the nation is to fulfill these aggressive commitments, it must take many further steps along the low-carbon energy path. Energy use is responsible for 84 percent of total greenhouse-gas emissions. The substitution of natural gas for coal in electricity generation has driven recent emissions reductions, but natural gas will have to be replaced by even lower carbon resources in the not-too-distant future to meet this lofty goal. Transportation, now the nation’s largest greenhouse-gas-emitting sector, will have to shift dramatically away from its dependence on petroleum. Buildings, appliances, industrial processes, and other end uses will have to continue to become less energy- and carbon-intensive, but even more quickly than they have in the recent past.

This transition will not be easy. Americans spent about $1.4 trillion on energy in 2014. An enormous infrastructure extracts, processes, and delivers energy, and an even more enormous one uses it. The smooth operation of this infrastructure is essential to daily life. Our livelihoods, leisure, and well-being depend on it. The energy infrastructure is the supertanker of all supertankers—the source of the supertanker metaphor itself—and it will not change direction quickly. Prior transitions on this scale have taken roughly 100 years. None were driven by environmental concerns. The immediate needs of energy users and the price and performance of alternatives were the driving factors.

Climate change is a global problem, so the low-carbon energy transition must also be global. Other high-income nations face challenges comparable to the United States. Lower-income nations face the additional challenge of building out a low-carbon energy infrastructure that will reach billions of people who currently lack essential energy services (lighting, cooling, heating, etc.). If these nations follow the fossil fuel-dependent development path that the West paved, the environmental consequences will be horrific.

Given the enormity of the challenge and the dire consequences of failure, it is not surprising that magical thinking about the energy transition is abundant. Easy answers alleviate stress, avert change, and attract followers. Yet wishing that something is so does not make it so.

This paper describes four forms of magical thinking about the energy transition that are prevalent in the United States. “Climate-change denial” wishes away the need for any transition at all. “Science push” sees the transition as a mere matter of adequate investment in R&D. “Premature triumphalism” assumes that the necessary technology is available today and that the only barrier to the transition is willpower. “Carbon-price obsession” fixates on a single, simple policy that will by itself drive the transition.

Excepting the first, which must ultimately be overcome, each of the other three approaches has important contributions to make to a policy package that will accelerate the United States along a low-carbon energy path and, by doing so, help the world move in the same direction. Yet their advocates must also let go of certain illusions if they are to join together in the broad coalition that will be required to make a social change of this magnitude.

At the core of these illusions is certainty about the low-carbon energy path. A process as complex as this energy transition is intrinsically uncertain. No one technology nor policy nor behavioral adjustment is guaranteed to work. We need to generate innovative options, explore them in practice, gauge their value, and scale those that work as rapidly as possible. These options must include new technologies and new combinations of existing technologies, along with associated business models and behavior patterns.

All sectors of society will have to play important roles for the transition to occur. Businesses are especially important for exploration, valuation, and scaling of innovations. But government, especially the U.S. federal government, must lead. Neither markets on their current trajectory nor social movements in the most optimistic scenario will produce the innovations that we need.

Current federal policy falls far short, in no small part because of magical thinking. After reviewing the four forms of magical thinking, the paper concludes by advancing an aggressive, smart low-carbon energy innovation-policy agenda. The key items on the agenda include:

• Establishing a dedicated funding source for federal low-carbon energy-innovation investments.
• Steadily expanding federal investment in basic research fields that have the potential to dramatically accelerate low-carbon energy innovation.
• Dramatically expanding federal co-investment in applied research, demonstration, and infrastructural technologies for low-carbon energy.
• Enhancing connectivity and strengthening user pull along the low-carbon energy-innovation chain.
• Fostering regional collaboration for innovation in large-scale, low-carbon energy systems.
• Reforming low-carbon energy tax incentives, so they are permanent and technology-neutral, and phasing out support for each generation of technology as it matures.
• Using federal procurement strategically to build momentum for early deployment of low-carbon energy innovations.
• Encouraging business-model and regulatory innovation in conjunction with technological innovation in the electricity and transportation sectors.
• Tightening energy efficiency and carbon-control regulations in a predictable, innovation-inducing manner.