Building a Green Economy

The Economics of Carbon Pricing & the Transition to Clean, Renewable Fuels

(A Report for Citizens Climate Lobby)

EXECUTIVE SUMMARY

Putting a price on carbon creates a contextual incentive for diversification and innovation in the energy economy. When Germany shifted its tax-base from income to energy, it spurred a decade of aggressive public and private investment in renewable resources. In just four years, it became the world leader in clean energy export, taking 70% of the world market just eight years after the initial policy shift.

German firms are driving investments of €400 billion in the Desertec solar project in North Africa, part of a plan to connect two continents via multi-gigawatt undersea transmission cables and advanced smart-grid technology. The project will revolutionize the energy sector in Europe and Africa, creating wealth for businesses and communities large and small. Morocco, for instance, plans to use its desert and mountain terrain, as well as its wind-intensive coastal areas, to generate enough renewable energy to become an export leader for the European market. This model can be duplicated in mountainous, desert-rich and coastal states across the U.S.

Concerns that coal country will be adversely affected by a price on carbon are understandable but somewhat unfounded. Communities dependent on coal for employment are not generally more prosperous than the national average, so a transition to clean renewable resources can help to overcome problems of endemic persistent poverty. Studies comparing cost-benefit analysis for mountaintop removal mining and wind energy show wind is more effective at generating prosperity over the long term, for all but a narrow group of interests.

The regional disparity in impact from a carbon tax is projected to be negligible, starting at just two-thirds of one percent and moving to just one-third of one percent over time. If revenue from a carbon fee is returned to all households, any wider regional disparity might be reduced by targeted dividend adjustments. Communities in remote areas, or which rely on coal for cheap energy or for employment, can benefit economically from diversifying into and taking ownership of clean renewable-energy technologies.

Job creation will be the hallmark of the clean energy revolution. Studies show the potential for millions of new jobs in industries ranging from manufacturing to installation and maintenance, as well as administration, marketing, energy efficiency and other related fields. The potential for efficiency gains from clean energy and smart-grid technologies will free up massive amounts of consumer spending over time and relieve dependence on fossil fuels from hostile states.

CONCLUSIONS

Clean energy & emissions reduction are a national imperative.

A transition toward a clean-energy economy, resulting in CO2 levels of 350 ppm or less, is a national imperative. Our economy, environment and security depend on it. The transition will require investment, but all costs need not be borne by the U.S. government or households and consumers. Studies cited show a commitment in both form (legislation) and function (incentives, standards, goals) from government can shift investment priorities in the private sector.

Carbon pricing is an engine for major private investment.

Germany’s success in spurring private-sector investments through effective public policy has made it the world leader in exporting clean energy technology. Some of its leading industrial and financial firms are now world-leading stakeholders in the clean energy future. It is estimated that provisions of the American Recovery and Reinvestment Act, coupled with legislation that puts a price on carbon dioxide emissions, would lead to $150 billion per year in mostly private investments, over the next decade, creating millions of new jobs.

Renewables will out-compete fossil fuels with policy shift.

Conventional wisdom holds that renewable resources like wind and solar are “intermittent” and do not have the capacity to meet current energy demand. This is true insofar as the current infrastructure is not sufficient to meet active demand with clean energy. However, the potential for expansion of existing clean energy technologies is sufficient to cover energy needs if a sufficiently smart power grid is deployed to correct for localized fluctuations in wind flow or solar intensity. Putting a price on carbon dioxide emissions can steer investment to energy sources like wind and solar that are more sustainable, economical and environmentally healthy.

Regional disparities in carbon tax impact are minimal.

The American Enterprise Institute has found that regional disparities in the economic impact —primarily energy costs— resulting from a carbon tax are “sufficiently small that one could argue that a carbon tax is distributionally neutral across regions.”[1] Wider disparities can be minimized with targeted dividend adjustments and other incentives.[2]

Clean energy & energy efficiency = Massive job creation.

Job creation resulting from a transition to a zero-combustion transport economy and clean renewable energy resources, along with industries that foster energy efficiency, have the potential to create millions of new jobs essential to the resulting economic landscape, jobs that could not be outsourced.

Rural & coal-intensive communities will benefit.

Rural communities, and communities tied to the coal industry will experience an injection of new capital and the expansion of new economic opportunity. The job market in rural and coal-intensive communities will not only expand, but will see income levels rise, if the right investments are made for developing clean energy resources. Major impacts to human and environmental health related to coal will be reduced and/or eliminated. The very same companies that presently depend on mining or burning coal for their revenues can benefit from diversifying into a broad-spectrum clean energy portfolio.

U.S. could lead a global clean energy economy.

The United States enjoys a unique geographical wealth in terms of clean energy resources, with some of the most abundant reserves of easily accessible wind, solar and geothermal energy. It could, with astute policy planning, take the global lead both in clean energy production and in manufacturing and exporting clean energy technology. The United States military is actively participating in the clean-energy transition, with major investments in R&D, retrofitting and efficiency, and could be a testing-ground for consumer-level technologies.

Sustainable energy policy is a matter of national security.

“A business as usual approach to energy security poses an unacceptably high threat level from a series of converging risks.”[3] Competition among leading regional and minerals markets —China, E.U., Russian Federation, OPEC, North America— means the rapidly expanding demand for combustible fuels is a threat to agriculture and the security of the world food supply. Diplomatic independence requires energy independence, which in turn requires distributed, localized clean renewable resources, an advanced smart grid, and the new enterprises that come with building and managing this new paradigm.

Leading now costs less than catching up later.

The costs inherent in building a clean energy economy now will ultimately be far lower, given the negative externalities —including environmental, economic and political security risks— inherent in not moving away from carbon-based fuels. Whether one accepts or rejects projections about mounting, compounded fallout from global climate destabilization, a wide array of security-related and economic costs can be mitigated or averted by moving ahead with the clean energy transition now. Using carbon-pricing policy to motivate this transition is the most responsible economic response. It will create jobs and provide clarity of cost-projection for businesses and investors.

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[1] Hassett, et al., p. 3.

[2] Resources for the Future reports that regional disparities could reach as high as 2% of total annual income, but planning with regard to how dividends are paid from a carbon pricing plan can reduce that disparity. In later years, a steadily increasing fee, coupled with a 100% uniform dividend, could also potentially cover such a disparity.

[3] CNA, 2009, p. ix.

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The following is a presentation of this report, as given at the Corning Energy Security conference, on November 12, 2011…