When I was a kid, my Dad was more than just my Dad. He was also the leader of my YMCA club, 15 rambunctious boys who gathered one evening a week to learn lessons of respect, trust and responsibility, followed by time to play games (the primary incentive to attend) in the gym.
During the school year, we would play various sports on Saturday mornings against other clubs. For a dozen years or more, my Dad led Y clubs for my older brother and then me, no easy task as you can imagine. He used to talk about his philosophy for imposing discipline upon the chaos we would naturally generate: “firm but fair.” It meant the rules applied to everyone, all the time, but they also had to be fair, neither arbitrary nor capricious.
It meant my brother and I got no special breaks because Dad was the leader. Nor did it help the fast-talking, “yeah-but” kid that could normally sell milk to the dairyman. It wasn’t until I was older and in the working world, and eventually when I was a dad myself, that I came to fully appreciate and understand his approach and its applicability in many other situations – even including energy policy.
Our nation’s energy and climate policy is a mish-mash of tax breaks, rules and regulations that differ according to which industry has the best sales pitch at any given time. We have tax breaks for oil and gas development. We have breaks for wind and solar electricity production, but not for providing heat energy.
We have had tax policies and special programs, through grants or low-interest loans with government guarantees, to grow biomass to boost ethanol production and then requirements to blend a certain percentage into gasoline.
There have been programs to support biodiesel production, with laudable, well-intentioned goals: to reduce our dependence on oil imports, or to reduce the use of fossil fuels that produce greenhouse gas emissions.
But through this process of trying to find the “right” solution, we distort the marketplace and give some products an advantage over others, creating disincentives to more efficient solutions, whether that be economic efficiency or carbon pollution efficiency.
An example is our fixation on addressing heat energy separately from electrical energy. Renewable heat energy gets no subsidy, wind and solar get the highest electrical subsidy, with lower amounts for geothermal and biomass and nothing for hydroelectric. Yet we still have subsidies for oil and gas which are used for heat or electricity.
One of the greatest efficiency gains and thus fossil-carbon pollution reductions is through combined heat and power (CHP) systems. Yet there are no incentives for doing that, and in the regulated utility world the system generally rewards keeping them separate.
A utility gets to pass on the cost to customers for electrical production and distribution and for heat (natural gas) production and distribution. And they are allowed an appropriate profit margin on both. Thus the disincentive: If producers are more efficient by combining the two systems, their profits go down because they can have one plant producing both and the profit margin is only allowed for the one plant.
I have friends in the wood energy world who decry the waste of using wood in a straight-up electrical power plant. Using it for heat is twice or more efficient. Treesource’s recent story about exporting pellets to Europe to replace coal likely drives those folks crazy because we could make much greater progress in fossil-carbon reduction if we used the pellets to replace fuel oil and propane heating system or CHP.
The problem is that in the U.S. and the global developed society, we have made massive economic investments in these long-lived, 30- to 50-year plants.
Relatively low-cost fossil energy has been the driver of society’s development of science and technology that has resulted in phenomenal medical advances, almost doubling life expectancy. It has allowed us to develop arts and entertainment accessible to the masses; it has fueled educational opportunities for billions of people.
So how do we shift our policies to be firm and fair in the direction we need to go? How do we avoid the major economic and social disruptions of closing plants before they are amortized and avoid the continued production of greenhouse gases that disrupts our environment, economy and social systems? These are hugely significant questions we need to resolve and soon.
I support suggestions by economists on the left and right who contend that heeding market signals will allow for the most efficient and effective transition. We externalized (unknowingly for most of the time) the costs of greenhouse gas emissions for 150 years. Internalizing the cost of fossil carbon will incentivize the desired behaviors.
Numerous studies by companies, academics, think tanks and military analysts indicate the price of fossil carbon should be in the range of $50 to $80 per ton. But setting the price at that level would immediately provide a major disruption. Starting out at $30 to $35 per ton with a built-in annual escalation of 7 percent would send the appropriate signal throughout the economy to start and continue making changes in light of the continually rising cost of releasing GHGs. It would be relatively simple to implement (firm) and very hard to cheat (fair).
We could eliminate all the subsidies and programs described above, as the market price would change behaviors. We know this works because the years when oil and gas was at or above $100 a barrel we changed our investments as a result. The majority of the money collected would be rebated per-capita to citizens, providing individuals and families with funds to invest in a more efficient car or a clean-burning wood heating system or to install solar panels on their roof.
Businesses and governments would look at heat only or combined heat and power systems like the District Energy systems in St. Paul, Minn., Seattle and Montpelier, Vt., and on college campuses and hospitals across the country.
Coal, gas and oil-fired plants would have an economic incentive to improve and install carbon capture and storage technologies. It would incentivize the use of low-energy materials like wood in place of energy intensive materials like steel, concrete and aluminum. The steel, aluminum and concrete producers would change their methods to remain competitive.
Businesses will adjust if they have consistency and know the rules of the game.
A firm but fair system would facilitate the open, innovative competition that America prides itself on. In this system, I am confident sustainable forest management will compete well.