You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

Climate Calculus: Price + Innovation = Transformation

Alright, here we go on the climate front. After nearly a year of secretive discussions, Sens. Barbara Boxer (D-CA) and John Kerry (D-MA) will release global warming legislation Wednesday intended as a “starting point” for Senate negotiations that they hope will lead to an eventual conference with the House. That’s good. Congress needs to get back to work on climate. But more than that, it needs a good serious public deliberation that gets straight on what really matters in a bill.

So let’s go over this again, then, and repeat our frequent watchwords: To produce a useful and valuable climate bill, the Senate needs, yes, to set a price on carbon through a cap-and-trade system but also to greatly increase the flow of revenue to research on low-carbon technologies.

Price signals (sent through a carbon tax or cap-and-trade system) are necessary to get industry and consumers to invest in the deployment of existing carbon-neutral or low-carbon technologies in the near term. This is the so-called “low-hanging fruit” that Energy Secretary Steven Chu talks about. As detailed in a new National Academy of Sciences (NAS) report, such near-term clean-up runs from replacing incandescent lights and improved building efficiency to improved fuels and motors in the transportation sector to improved energy distribution systems and wider use of solar and wind energy. Accelerated deployment of such technologies could reduce energy use by 15 percent by 2020 relative to a “business-as-usual” reference projection, according to the NAS. And the way to get those gains is through carbon pricing. Such pricing, whether delivered by direct taxes or through a cap-and-trade system such as the Senate will now contemplate, will boost the demand for clean energy and products and place a premium on such solutions all across the private sector.

But pricing can’t do everything. As it happens, we don’t have all the technologies we need to secure the 80-percent greenhouse-gas emissions cuts necessary by mid-century, as the Metro Program argued in a report earlier this year. Instead, radical scientific and technological breakthroughs and their commercialization will be essential. And yet, persistent “market failures” dissuade firms in the energy sector from conducting the R&D needed to secure those breakthroughs since they are frequently unable to capture all of the associated benefits—for example, if other firms are able to quickly copy and profit from the new technology. All of which means that it won’t be enough to simply set a price on carbon and expect the rapid development of the needed next generations of clean technologies. Instead, government support of early-stage R&D will be essential--starting now--to support the more revolutionary reinvention that industry needs but won’t achieve on its own.

All of which points to the fundamental two-part challenge facing the Senate this fall. For the near term especially, lawmakers need to deliver a sound carbon-emissions cap and a cap-and-trade pricing scheme robust enough to get industry and consumers to accelerate the deployment of existing clean technologies. Yet to ensure longer-term progress, the senators also need to channel a significant share of any trading regime’s revenues to early-stage technology innovation and its commercialization. How much is enough? According to that Metro Program paper earlier this year, the nation needs to invest as much as $20 to $30 billion per year on energy R&D alone. By contrast, the House climate bill directs just $9 billion or so to R&D and deployment activities. Assuming the latter figure falls way short of the needed target, let’s figure the Senate needs to dedicate enough percentage points of its cap-and-trade system’s revenue to double or triple the House figure. That’s a heavy lift. But it’s worth it. With such a research and job-creation program in place, the nation and its transitioning metropolitan economies will finally have in place a solid base for achieving the long-term transformation of the U.S. energy system.