EAS 401-403 FALL 2010

FINAL PAPER

Top Ten Energy Recommendations

1. A direct carbon tax. A carbon tax is an environmental tax that is levied on the

consumption of carbon containing fuels i.e. fossil fuels – coal, petroleum and natural

gas.

Why carbon tax and not cap and trade? Robert Shapiro, Chair and co-founder of the US

Climate Task Force is a staunch supporter of the carbon tax as opposed to cap and

trade. After reading through his editorials on the subject, he has effectively convinced

me that the costs and lessons of the financial crises have effectively swamped the

prospects for cap and trade (for more detailed reasons as to why cap and trade is more

or less a dead policy see point number 4) – and therefore levying a carbon tax is the way

to go. I am going to discuss his stand here in some detail as well as add my opinions to

what he has to say.

The first reason why a carbon tax is the right policy is that it lends predictability to oil

prices. With carbon taxes planned out for multi-year phases, future energy and power

prices can be predicted with a certain degree of reliability – which in turn influences the

making of millions of energy-critical decisions such as designs for new electrical utilities

to personal decisions such as whether or not to purchase a new car. This is crucial

because the real target for us is to reduce overall carbon emissions; setting carbon-

appropriate price sets will encourage that.

 Secondly, carbon taxes will yield in quick results and a faster progression towards our

goal. Taxes can be designed and adopted overnight – the problem of environmental

pollution is current and must be addressed now. Carbon tax will provide the most

effective way of doing that. All it requires is passing a little piece of legislation (loaded

statement, I know, but think of how much more intellectual and political conundrum

will go into designing an effective cap and trade system and carbon taxes seem much

more speedier).

Third, for those of us who are not economists, carbon taxes are much easier to

understand and assimilate. The government imposes a tax per ton of carbon emitted,

which is easily translated into a tax per KWh of electricity, gallon of gasoline or natural

gas. Other than that they are also transparent and block the potential for profiteering

(see my spiel on transparency under point number 5). Another reason to support

carbon tax is that they target carbon emissions in each and every sector – be it energy,

industry or transportation.

Lastly, a carbon tax is equitable. Revenues from this tax can be returned through

dividends or can be used to fund progressive tax-shifting to reduce regressive payroll or

sales taxes. All of these reasons combine together to provide a strong argument as to

why a carbon tax is something which has to be imposed now before any other measure.

2. Subsidize renewable energy production. While most people will argue that there is

already an influx of subsidies from the government into the alternative energy market

there isn’t nearly as much. The first thing to realize is that when it comes to renewable
energy there is no such thing as “a free market”. Existing energy sources, fossil fuels

have been subsidized lavishly over a century of subsidies and infrastructure

development as compared to their relatively newer “green energy” counterparts and

obviously have the upper hand that renders the market inequitable.

A new report from the Environmental Law Institute and the Woodrow Wilson

International Center for Scholars states that during the time period 2002-2008 fossil

fuels received vast majority of federal subsidies – about $72 billion as compared to the

$29 billion received by renewables. Most of these were categorized as “tax breaks” or

incentives to develop fossil fuel energy sources.

So where does that leave us? Learning from models successfully implemented in other

countries is a good place to start. Alternative energy is most developed in countries

where government subsidies have been in place for some time. Germany put in place

strong incentives in the early part of this decade to encourage demand for solar

modules, to encourage installations of wind farms and to support the biofuels industry.

Companies in countries with a more progressive alternative energy policy framework

therefore developed technology and intellectual property at an earlier state. Other

European countries such as Denmark, Spain and Portugal also embraced alternative

energy therefore companies tend to be more mature in Europe. However the potential

for growth in the United States is greater, and once a longer-term framework has been

put in place, we could catch up with these countries fast.

Another strong reason to increase subsidies in renewable energy is that the nature of

technologies and their system embedded-ness, the role of government funding and
 policy support are important constituents in transforming the current fossil fuel based

energy system to one towards cleaner and greener forms of energy source.

3. Nuclear Power. There are several reasons why nuclear power deserves this high spot on

my energy list and all of them begin and end with maximum energy efficiency. The

reason why most of academia is still optimistic about nuclear power is that the energy

produced per amount of material consumed is the highest available. Costs are

competitive with coal, the major source used in the world. Uranium, the source

material, is abundant. Plutonium, a by-product of commercial nuclear plant operation,

can also be used as a fuel. The amount of waste produced is the least of any major

energy production process. All of these factors point towards nuclear power being an

ideal solution to our energy problem.

The stunning thing about nuclear power is that tiny quantities of raw material can do so

much. A bundle of enriched-uranium fuel-rods that could fit into a two-bedroom

apartment in Hell’s Kitchen would power the city for a year: furnaces, espresso

machines, subways, streetlights, stock tickers, Times Square, everything—even our cars

and taxis, if we could conveniently plug them into the grid. Environmentalists don’t

want to hear it, but nuclear power makes the most environmental sense, too. Nuclear

wastes pose no serious engineering problems. Uranium is such an energy-rich fuel that

the actual volume of waste is tiny compared with that of other fuels, and is easily

converted from its already-stable ceramic form as a fuel into an even more stable glass-

like compound, and just as easily deposited in deep geological formations, themselves
 stable for tens of millions of years. The best argument to put forward for the

development of nuclear power is – the energy has to come from somewhere. Solar,

wind, geothermal cannot come close to supplying energy at the scale of which nuclear

power plants have the potential of doing.

However, nuclear remains a dangerous if not highly volatile topic that is avoided by

most people in a position to make such a policy. Nuclear energy policy issues facing

Congress include the implementation of federal incentives for new commercial reactors,

radioactive waste management policy, research and development priorities, power

plant safety and regulation, and security against terrorist attacks.

4. Cap and trade. With caps each large-scale polluter will have a carbon permit that sets a

limit to how much that polluter can pollute. The government would also limit the number of

permits it issues and there permits would be tradable in a market i.e. they would be

“marketable permits”. Firms that have a low marginal cost of reducing pollution sell their

permits and firms that have a high marginal cost of reducing pollution buy them. Each firm

buys and sells permits until its marginal cost of pollution equals the price of a permit. This

method is successful because it provides a strong incentive to find lower-polluting

technologies because the price of a permit to pollute rises as the demand for permits

increases.

However, here are the reasons why it is not such a good idea as is widely believed: because

cap and trade is enforced through the selling and trading of permits, it actually perpetuates

the pollution it is supposed to eliminate. If every polluter’s emissions fell below the
incrementally lowered cap, then the price of pollution credits would collapse and the

economic rationale to keep reducing pollution would disappear. To compound matters, the

cap would also encourage “offsets” — alternatives to emission reductions, like planting

trees on degraded land or avoiding deforestation in Brazil. Caps would be raised by the

offset amount; even -if such offsets are imaginary or unverifiable (it is very difficult for the

government to access all the information about the polluting industry which is usually kept

private, also the cost of maintaining a huge inventory of each company’s practices would be

very costly and time consuming). Also, we need to keep in mind the fact that stopping

deforestation in one area does not reduce demand for lumber or food-growing land, so

deforestation simply moves elsewhere.

Secondly, because of the urgency of the climate crisis, we do not have the luxury of waiting

while the myriad details of a cap-and-trade system are resolved through lengthy

negotiations. Another reason to oppose cap and trade is that it will aggravate the price

volatility of energy systems that historically has discouraged investments in less carbon-

intensive electricity generation, carbon-reducing energy efficiency and carbon-replacing

renewable energy. Wall Street is poised to make billions of dollars in the “trade” part of

cap-and-trade. A cap-and-trade system’s complexity opens it to exploitation by special

interests and perverse incentives that can undermine public confidence and undercut its

effectiveness.

The market for trading permits to emit carbon appears likely to be loosely regulated, to be

open to speculators and to include derivatives. All the profits of this pollution trading
 system would be extracted from the public via increased energy prices thereby causing

increased level of personal spending.

5. Oil transparency. My argument here is that if we realize more comprehensively how much

oil is left in the ground, we are in a better situation for figuring out what to do about it. The

lack of certainty about our energy future enables most of us to sit where we are

complacently and rest on the laurels of fossil fuels. Making oil reserves data public

worldwide (as many countries have not been forthright about their reserves) will fuel (for

lack of a better adjective) people to action. This data might also help us predict when the

world will reach peak oil so that we are better prepared for after.

And while we are on the topic of transparency – clarity of the energy policy making process

is also crucial. Often when it comes to energy policy Businesses involved in the energy

industry are tired of being told “that’s confidential information” or having decisions made

that significantly impact production without their knowledge or input. However, one thing

to keep in mind while thinking of this is that while transparency does deal a body blow to

corruption and mismanagement, it raises the question of exactly how much transparency is

healthy?

6. Wind Power. Among all the non-controversial alternative energy options wind is a front-

runner for a variety of reasons. Electricity produced by wind turbines is green power in that

it causes no environmental pollution. No greenhouse gases which contribute to climate

change are produced either. Wind power generation can be on a large scale, which is the
 case with most commercial projects, or on a small scale as with homeowner turbines.

Wind is the cheapest form of renewable energy without a doubt. And when it comes to

renewable technologies if it’s green and it’s cheap you have a winner. All other alternative

sources such as solar, geothermal are very expensive to set up and operate as compared to

wind farms. Also, the percentage of energy produced from the same amount of wind is

much more efficient as compared to solar which is highly inefficient.

Despite its revered status within the orthodox environmental community, wind power

poses several major dilemmas. First, wind remains uneconomic despite heavy subsidies

from ratepayers and taxpayers over the last two decades. Second, from an environmental

viewpoint, wind farms are noisy, land intensive, unsightly, and hazardous to birds, including

endangered species. With the National Audubon Society calling for a moratorium on new

wind development in bird-sensitive areas, and an impending electricity industry

restructuring that could force all generation resources to compete on a marginal cost basis,

wind power is a problematic choice for future electricity generation without a new round of

government subsidies and preferences.

7. Investing in green technology. Skyrocketing crude oil prices, limited supplies, increased

demand and the undeniable politics of the oil industry make investing in green technologies

a smart decision. These high prices force exploration into alternate green energy sources

like solar, nuclear, wind, and ethanol.

Public opinion has turned and people are increasingly asking corporations to make greener

products. According to Forrester Research, 12% of U.S. adults are willing to pay extra for
 products that use less energy. Investing in green technologies is truly investing in the future.

All of these statistics point towards a promising future for renewables. The best time to take

advantage of these upcoming technologies is now. Take an interest in your college solar

team or nanotech society – these are the engineers and scientists who will lead the next big

technology revolution – the revolution of the renewables.

8. Biofuels and ethanol. There are a lot of benefits to using bio-fuels and ethanol. The most

important one is that these are produced as a by-product of agriculture and are definitely

renewable. By using them we are making use of a resource that would have anyways been

thrown away as waste. Another reason is that this is an industry in its infancy and investing

in plants that convert bio-fuel into electricity could create a lot of jobs.

However, a major dark head that looms over this option is that bio-fuels seem to consume

more energy during generation than they have the capacity to produce. After factoring in

the energy needed to grow crops and then convert them into biofuels, Cornell University

researcher David Pimental concludes that the numbers just don’t add up. His 2005 study

found that producing ethanol from corn required 29 percent more energy than the end

product itself is capable of generating. This makes it an economically unviable option of

producing energy.

9. Take an active part in environmental interest groups and organizations. The best way to

get all the above mentioned policies implemented is through public support and pressure.

The first step is to learn as much about the subject as you can. Joining an environmental

interest group, taking a course on earth and environmental sciences – all of these will
 enable you to better understand the concerns facing us today and make well-informed

decisions about what sort of energy policy should be in place. The more you show up to

local council meetings, the more active role you play as an energy planner in your

community, the more passionate you are about your goals regarding energy use – the more

likely you are to succeed.

10. Lastly, EVERY SMALL STEP COUNTS. If you are not in the habit of switching of your lights,

fans and air-conditioning already - start getting into the habit of doing it. If you have not

been separating your trash into paper, waste, compost and recyclable then it’s high time

you started doing so. Find out more about concerns that are specific to your community,

question politicians and senators if and when they visit your county on their energy policy

recommendations. It is foolish to imagine implementing a policy on the national level if you

are not doing your individual bit towards curbing energy over-use.
Charu Jangid

Candidate for B.S.E | SEAS

University of Pennsylvania’ 14

Bibliography

Websites:

- http://www.city-journal.org/html/15_1_nuclear_power.html

- http://energy.foreignpolicyblogs.com/2010/03/09/will-transparency-save-the-world/

- http://www.cato.org/pubs/pas/pa-280.html

- http://www.sciencenews.org/

Books:

- American Theocracy: Kevin Phillips

- Renewable Energy Policy: Paul Komor