Build the Green Economy

Build the Green Economy

By Robert Pollin
Boston Review 

Here is the fundamental challenge we confront with climate change. As of 2010, total annual greenhouse gas emissions were at 45 billion metric tons of mostly carbon dioxide (CO2), along with smaller amounts of methane, nitrous oxide, and other gases. The Intergovernmental Panel on Climate Change (IPCC) estimates that to stabilize the global average temperature at its current level of around 60.3°Fahrenheit, which is 3.6° above the pre-industrial average of 56.7°, total emissions will need to fall by 40 percent by 2030, to 27 billion metric tons annually, and by 80 percent in 2050, to about 9 billion metric tons.

We are not on track to meet these goals. As long as global economic growth proceeds along roughly the trajectory it has taken over the past century, and especially the past fifty years, global emissions will not fall at all, but rather will rise over time as more and more fossil fuels—oil, coal, and natural gas—are burned to meet increasing demands for energy. The greenhouse gas emissions generated by burning fossil fuels account for nearly 80 percent of all emissions.

In 2010 the United States produced about 17 percent of global emissions, even though we represent only 4 percent of the world’s population. To make our minimally fair contribution toward reducing global emissions, we need to cut our own by at least what the IPCC recommends. Other countries—starting with China, which generates about 20 percent of worldwide emissions—will also need to make comparable cuts. Even though China’s emissions exceed those of the United States, our per-capita emissions are roughly three times higher. The United States therefore bears a special responsibility to deliver dramatic reductions.

Meeting these reduction targets will be challenging, but the goal is not out of reach. This article proposes a transformative U.S. clean energy investment program that can meet the 40 percent reduction target over the next twenty years. I have developed this program in collaboration with Heidi Garrett-Peltier, James Heintz, and Bracken Hendricks, and with the support of the Center for American Progress (CAP). CAP will publish a book-length version of the study this fall, which includes all the analysis and calculations on which this article is based.

Our program goes well beyond what is being advanced or even contemplated by the Obama administration, though Obama’s agenda mostly pushes in the right direction. The program is also economically and politically realistic, offering a framework for action at all levels of public policy, community activism, and private business investments. Critically, this program will not require ordinary Americans to sacrifice job opportunities or overall economic well-being.

There will certainly be grounds for debating many aspects of the approach I develop here. But my overarching purpose is to demonstrate that sharp emissions reductions are feasible and that hugely painful tradeoffs are avoidable.

The 1.2 Percent Solution

The basics of the program are simple. It entails about $200 billion of public and private investments in clean energy every year for twenty years. This is a massive amount of money, but it is only about 1.2 percent of U.S. GDP. Nevertheless, it is about four times the current level of U.S. clean energy investment. The challenge of ramping up will be formidable.

Investments will need to be focused on two areas: dramatically raising energy efficiency standards in buildings, transportation systems, and industrial processes, and, equally dramatically, expanding the supply of renewable energy sources—solar, wind, geothermal, small-scale hydro, and clean bioenergy.

We need $200 billion of investment—a massive amount of money, but only 1.2 percent of US GDP.

Some analysts consider “clean energy” to include nuclear power and carbon capture and sequestration (CCS) technologies. I do not. Nuclear power does generate electricity without producing CO2 emissions, but it also creates major environmental and public safety concerns, which have only intensified since the March 2011 meltdown at the Fukushima Daiichi power plant in Japan. Similarly CCS presents hazards. These technologies aim to capture emitted carbon and transport it, usually through pipelines, to subsurface geological formations, where it would be stored permanently. But such technologies have not been proven at a commercial scale. The dangers of carbon leakages from flawed transportation and storage systems will, in any case, only increase to the extent that CCS technologies are commercialized. As such, the most cautious program for clean energy demands investments in technologies that are well studied, already improving rapidly, and will not pose significant public safety and environmental problems. This means directing the yearly $200 billion to energy efficiency and renewables.

Such an investment will create roughly 2.7 million more jobs per year than will spending the same amount of money on our existing fossil fuel–based energy system. There are two main reasons for this disparity. First, clean energy investments require spending more on employing people than on buying land, buying buildings, and operating machines. Second, clean energy investments rely more on domestic resources than on imports, foreign oil in particular.

This 2.7 million net increase in jobs would come after we account for declines in U.S. fossil fuel production and consumption. In order to meet emissions reduction targets over the next twenty years, coal consumption will need to fall by about 60 percent, oil consumption by 40 percent, and natural gas consumption by 30 percent. Fossil fuel companies will not accept these cuts without a fight, of course. Their assets still in the ground will lose about $3 trillion in value, according to a recent study by Carbon Tracker and the Grantham Institute at the London School of Economics. But there is no alternative if we are going to make a serious commitment to controlling climate change.

Why This Approach Over Others?

The Obama administration has consistently voiced its commitment to meeting the 2030 IPCC target. It has also advanced several ambitious policy initiatives: a $90 billion clean energy spending program within the overall $800 billion economic stimulus package of 2009, strict new auto fuel efficiency standards requiring most cars to operate at Toyota Prius efficiency levels by about 2030, a procurement policy requiring the U.S. military to purchase 25 percent of its energy from renewable sources by 2025, and tight enforcement of “carbon pollution” standards for electricity-generating power plants. Yet even if the Obama administration successfully implements these initiatives, emission levels in twenty years will still be about 40 percent higher than the IPCC target. U.S. climate policies need to embrace the Obama initiatives but also move decisively beyond them.

As a first step, many serious analysts and activists argue that the U.S. economy needs to stop growing, or even contract. A significantly smaller economy—with people living and working in more modest spaces, commuting and traveling less, and producing fewer goods and services—would reduce energy consumption. But it would also almost certainly entail diminishing opportunities for good jobs and broadly shared economic gains. Such hits to decent job prospects and overall well-being would come on top of the losses working people have already faced as a result of the Great Recession, along with forty years of wage stagnation and rising inequality. Even though the gains from U.S. economic growth have persistently favored the rich for forty years, the prospects for reversing rising inequality will be far greater when the overall economy is growing than when the rich are fighting everyone else for shares of a shrinking pie.

The program I describe would instead create job opportunities across the U.S. economy, at all levels of the labor market. There would be more jobs for electricians, roofers, steel workers, machinists, engineers, truck drivers, research scientists, lawyers, accountants, and administrative assistants. Of course, as the fossil fuel industries contract, there will be job losses for coal miners, petroleum engineers, and construction workers building oil and gas pipelines. So a successful clean energy agenda must include assistance and transitional programs for workers, families, and communities tied to the fossil fuel sectors.

Besides creating jobs, the investment program I propose would most likely promote overall GDP growth and certainly will not impede growth. The economy’s overall growth trajectory will be stimulated by investments in new clean energy products and by myriad technical innovations. In short, the necessary contraction of the American oil, coal, and natural gas industries will be more than compensated by the flourishing of the clean energy economy.

Prospects for Energy Efficiency

As a first order of business, the United States will need to implement major improvements in energy efficiency in all three major areas of energy consumption: buildings, industry, and transportation.

Investments in buildings should focus on improving their thermal shells and raising the functioning of heating, cooling, ventilation, and lighting systems. Investments in industry should focus on combined heat-and-power systems, which transform a fuel into electricity, capture the hot waste gas generated as a byproduct, and use that gas to heat space and water. Investments in transportation should focus on raising the fuel efficiency standard for automobiles. This can be achieved through implementing the agreement reached in 2011 between the U.S. auto industry and the Obama administration, which would see the average fuel efficiency standard for new cars raised to 54.5 miles per gallon by 2025. Expanding public transportation systems will also be beneficial, but we cannot depend on it to reduce emissions. Public transportation usage is so low throughout most of the country that even if we were to double usage over the next two decades, the impact on emissions reduction would be tiny compared to reductions we would achieve if everyone drove cars that operate at a Prius level of fuel efficiency.

Nuclear power and carbon capture and sequestration technologies are not sources of clean energy.

How much would these investments cost? Working from research reported by the National Academy of Sciences and the Department of Energy, my collaborators and I have estimated the total money needed to reduce U.S. energy consumption from its current level of about 98 quadrillion BTUs (Q-BTUs) to about 70 Q-BTUs. The figure we got is on the order of $1.8 trillion, or $90 billion a year over twenty years. Our estimate is about 30 percent higher than that produced by the leading business consulting firm McKinsey & Company. Importantly, our estimate assumes that the economy will not experience any slowdown in economic growth.

These efficiency investments won’t just help us to reduce emissions. They will also save consumers significant amounts of money. Efficiency investments are, in that sense, self-financing. In a typical case, a building retrofit for efficiency should pay for itself three to five years. As such, the main requirement for mobilizing energy efficiency projects will not be subsidizing them, but rather organizing effective financing systems, with a range of options available for both consumers and investors. Below, I discuss one important example of how this can work.

Finally we need to consider the prospect that large-scale efficiency investments may not have their intended effect of reducing greenhouse gas emissions. The problem is termed the “rebound effect”: better energy efficiency could encourage consumers to expand their energy-using activities. The economist William Stanley Jevons first described this phenomenon in 1865, when he observed that the invention of more efficient steam engines led to more, not less, coal consumption in nineteenth-century Britain. However, unlike British coal users in Jevons’s time, most U.S. energy consumers today will not want to heat, cool, and light buildings, drive long distances, or operate appliances much more than they already do. Any rebound effect that may emerge as a byproduct of an economy-wide energy efficiency investment will not be large enough to counteract the significant environmental benefits.

Nevertheless, the most effective way to limit rebound effects is to combine efficiency investments with complementary measures to change the economy’s overall energy mix. It is crucial that we expand the supply of clean renewable energy and raise the prices of oil, coal, and natural gas relative to renewables in order to discourage consumers from relying on fossil fuels. I consider these policies below.

Prospects for CLEAN Renewable Energy

In 2010 all renewable energy sources combined contributed about 8 Q-BTUs of energy to the U.S. economy, roughly 8 percent of total supply. Most renewable energy sources are emissions-free, so expanding their use will be critical to reaching the IPCC’s emissions reduction target. My collaborators and I estimate that overall renewable supply will need to double by 2030–35 if we are going to have a chance of achieving the target.

However, the challenge is substantially greater than it appears, since nearly 90 percent of all renewable energy produced and consumed in the United States now comes from either bioenergy or hydro power. Significant problems exist with both of these sources. The most important problems result from the production of corn ethanol, which is the most heavily utilized source of bioenergy. Total emissions from consuming corn ethanol are no less than those from burning oil. Moreover, relying on corn and other food products as the raw material for producing biofuels can create a major strain on global food supplies.

Hydro power produces energy without generating CO2 emissions, but the best sites in the United States for building large-scale dams have long since been developed. There would also be negative environmental impacts resulting from constructing additional large-scale dams. There is some promise for hydro, though: there are roughly 5,000 rivers and streams where small-scale hydro projects could be developed at low cost without dams and the attending environmental consequences.

Still, the long-term future of renewable energy will depend on solar, wind, and, to a lesser extent, geothermal power. They are the cleanest and most abundant renewable energy sources, but they will need help developing. Collectively, these three sources account for just slightly more than 1 percent of the U.S. energy supply. The contribution of solar is a puny one tenth of one percent.

The biggest barrier to expansion of these renewables has been their high cost relative to fossil fuels or nuclear power. However, even the Department of Energy’s conservative cost projections find that, by 2017, wind and geothermal energy, along with hydro and clean bioenergy, will be at cost parity with coal and nuclear power under average conditions. The Department of Energy does project a significantly greater range of costs for renewables throughout the country, given different endowments of, among other things, sunshine, wind, and fast-flowing rivers at assorted regions and specific locations. But this wider range of costs can be controlled through policies that utilize the most cost-effective combination of renewable sources within any given setting.

The DOE also projects that natural gas could be supplied more cheaply than renewables, coal, and nuclear power. But producing cheap natural gas depends on the expanding use of hydraulic fracturing technology, or “fracking,” for extracting gas from shale rock formations. As has been widely publicized, fracking imposes severe environmental and public safety problems, including groundwater contamination, release of toxic methane gases into the atmosphere, and rising susceptibility to earthquakes. Most importantly, we will never achieve our emissions reduction target if we increase consumption of natural gas, no matter how that gas is obtained.

Unlike other renewables, solar is not likely to be at cost parity with coal and nuclear power by 2017, according to the DOE’s estimates. But solar costs are diminishing rapidly. Through technical innovations and expanded market opportunities over the next two decades, solar promises to become the cleanest, safest, and most abundant renewable energy source. This longer-term prospect is what prompted former Federal Energy Regulatory Commission Chair Jon Wellinghoff’s recent observation that “solar is growing so fast it is going to overtake everything . . . . It is going to be the dominant player. Everybody’s roof is out there.”

Based on DOE figures, my collaborators and I estimate that the country will need around $2.1 trillion in new investments in order to expand the clean renewable energy supply—that is, exclusive of corn ethanol and large-scale hydro plants—from around 3.5 to 15 Q-BTUs over the next twenty years. This amounts to about $107 billion per year. Tack on the $90 billion in energy efficiency investments described above, and you get a grand total of about $200 billion per year, or 1.2 percent of GDP.

Getting from Here to There

At every level of government, there are already in place policies aimed at promoting clean energy investments and reducing CO2 emissions. The task is not so much to design new measures as to strengthen the policy framework that already exists. We can obtain a good sense of the challenges ahead by considering three major policy initiatives: the federal government’s building retrofit program, federal and state-level carbon caps, and existing worker adjustment assistance programs.

We should not be distracted by the false tradeoff between jobs and a stable climate.

Federal building efficiency program. In 2007 Congress passed the Energy Independence and Security Act, which mandates that 75 percent of the more than 300,000 buildings owned by the federal government undergo efficiency retrofits. The goal is to reduce energy usage by 30 percent by 2015, relative to 2003 levels. But even though the bill passed with bipartisan support, there has been little progress in bringing the project to scale. By May of this year, only 1,702 buildings had been retrofitted, about 0.3 percent of the number targeted. Yet the government reports that even this modest level of implementation produced $840 million in annual energy savings for taxpayers. Advancing the project would easily save taxpayers tens of billions of dollars per year. It would also demonstrate to private building owners how much they can save through retrofitting.

Pricing carbon emissions. Pricing carbon emissions can be accomplished either through a carbon cap or carbon tax. A carbon cap establishes a firm limit on the allowable level of emissions for major polluting entities, such as utilities. The first major cap program in the United States began operating in California last year; it requires utilities and other large-scale polluters to reduce emissions by 3 percent per year. Such measures will also raise the prices of oil, coal, and natural gas by limiting their supply. A carbon tax, on the other hand, would raise fossil fuel prices directly. Either approach can be effective as long as the cap is strict enough, or tax rate high enough, to significantly reduce fossil fuel consumption and as long as there are few exemptions to the law.

As we design a carbon cap or tax, we must be mindful of its distributional impact. All else equal, increasing the price of fossil fuels would affect lower-income households more than affluent households, since gasoline, home-heating fuels, and electricity absorb a higher share of lower-income households’ consumption. An effective solution to this problem is a so-called cap-and-dividend policy, such as the one proposed in 2009 by Senators Maria Cantwell and Susan Collins. This approach would limit emissions by requiring large fossil fuel consumers to purchase emission permits. Auctioning the permits would drive dividends back into households, offsetting the higher cost of energy.

A transitional “superfund” for workers. It is critical to establish a generous adjustment assistance program to compensate fossil fuel industry workers who lose their jobs. How expensive would such an assistance program have to be? One reference point is the federal Trade Adjustment Assistance program, designed to help workers displaced by shifts in U.S. global trade policies. The program supports wage subsidies, health insurance, counseling, retraining, relocation, and job search. The overall cost is about $10,000 per worker per year, and workers, on average, benefit for about two years. However, the labor movement has long derided this level of funding as paltry, the equivalent of burial insurance. More adequate support would be in the range of $40–$50,000 per year for each displaced worker. Funding at this level would come close to approximating labor leader Tony Mazzocchi’s idea of a “superfund” to support workers displaced by necessary environmental transitions. As Mazzocchi said, “There is a superfund for dirt. There ought to be one for workers.”

Assuming about 100,000 jobs will be lost, the average annual cost of a clean energy “superfund” would be about $800 million, or about 0.02 percent of the current federal budget. This amount could be recouped many times over through the savings from the full-scale federal building retrofit program.

The Plan Can Work, but Will It?

Dramatic emissions reductions are within reach. We can advance a viable agenda for a clean energy economy while addressing the legitimate concerns of workers and communities that will find themselves hurt by this agenda. In the fight to control climate change, we should not be distracted by the false tradeoff between jobs, economic growth, and an adequate energy supply on the one hand and the environment, a stable climate, and public safety on the other.

At the same time, there is no guarantee that this 1.2 percent solution will succeed. One major obstacle is institutional inertia. We see this vividly with the federal building retrofit program. It is already saving taxpayers hundreds of millions of dollars every year, so why haven’t Congress and the Obama administration brought it to full scale? The only explanation is that doing so entails a sense of purpose that does not presently exist in Washington. Similarly, within the private sector, obtaining affordable financing for energy efficiency and renewable energy projects is challenging because they are still largely unfamiliar to investors and banks. Such investments appear riskier than investments in oil pipelines or fracking.

There is, still, one critical tradeoff that cannot be avoided: the fossil fuel industry will inevitably have to experience major cutbacks and, over the longer term, near-total demise. There is simply no choice in the matter if we believe the research produced by climate scientists. The profits of oil, coal, and natural gas companies will have to yield to the imperative of sustaining life on earth.

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