9

Policy Drivers

The final session of the workshop was aimed at policy drivers for deployment of deep decarbonization technologies. Speakers discussed the political considerations, legal pathways, and potential sequencing options for climate policies that could be implemented in the United States to accelerate decarbonization.

K. John Holmes (National Academies of Sciences, Engineering, and Medicine, moderator) noted that while much of the workshop was spent discussing decarbonization technology deployment, we know that technological pathways are themselves insufficient to lead the transition. In addition, we need to consider societal pathways, as well as the policy drivers that can encourage and accelerate deployment of decarbonization technologies. Holmes introduced the three speakers: Ryan Costello (Americans for Carbon Dividends), Michael Gerrard (Columbia University), and Kelly Sims Gallagher (Tufts University).

THE CARBON DIVIDENDS PLAN—A CENTER-RIGHT APPROACH TO ADDRESSING OUR CLIMATE CHALLENGE

Ryan Costello, Americans for Carbon Dividends

Ryan Costello introduced Americans for Carbon Dividends, the 501(c) (4) arm of the Climate Leadership Council. Costello is a former Congressman from Pennsylvania and the policy approach supported by American for Carbon Dividends is a center right solution to achieve substantial carbon dioxide emissions reductions. Costello highlighted the importance

of considering the current political environment in the United States, and suggested that the proposed policy represents the best political approach to begin tackling deep decarbonization.

Costello referenced a National Review article¹ and described the finding that carbon pricing is the best fundamental trigger to spark carbon emissions reductions in the United States. He quoted from the article: “A carbon tax would drive investment in new technologies and spur innovation both by providing a financial incentive to reduce emissions and by giving markets a steady price signal.” Americans for Carbon Dividends proposes setting a carbon price at $43 per metric ton of carbon dioxide with gradual scheduled increases, generating the market certainty needed to make long-term investment decisions. All revenue generated by the program would be remitted to taxpayers, as any other use of these funds would be politically unpalatable, he said. Economic models suggest that around 70-80 percent of Americans will end up better off financially with the carbon dividend, projected to be around $2,000 remitted annually for a family of four.

Costello mentioned four pillars of the plan, including the following:

1. Carbon pricing with the dividend remitted to taxpayers.
2. Regulatory simplification.
3. A border adjustment for carbon pricing.
4. A carbon price anchored to a significant emission reduction trajectory, with the goal being to shift private investment away from coal to clean energy generation.

Costello noted that every national economic advisor of the last 25 years (except one) has agreed that a carbon price is the best mechanism to encourage investment, innovation, and infrastructure for the transition to clean energy. He added that pricing is more efficient and effective than additional regulation.

In terms of political feasibility, Costello mentioned former Senator Inhofe’s famous snowball speech in Congress as representative of the challenge of convincing Republicans to consider decarbonization legislation. Costello believes that Republican views on climate change are changing significantly, and he shared a quote from conservative Congressman Frank Lucas as evidence. Costello quoted Lucas as saying “every so often nature messes with you and it’s been that way forever. That said, I have, as a farmer, watched in the last decade as things have changed. It seems as

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¹ J. Sweeney, “Could a Revenue-Neutral Carbon Tax Be the First Step to Fight Climate Change?,” National Review, June 19, 2019, https://www.nationalreview.com/2019/06/revenue-neutral-carbon-tax-climate-change-plan.

if all the usual cycles have become more extreme. The droughts are drier and longer, their worse. The wet periods are wetter. I’ve been watching all this as a farmer, and that as much as anything made me want to learn more. Then I went to the South Pole and they should me the records of carbon dioxide emissions they’d been tracking since the 1950s, and those numbers can’t be denied. So now what I’ve been watching from home as a farmer, I can put together with the science.”

Costello concluded that while the Green New Deal does not go far enough for some Democrats, others feel it is too far-reaching and too prescriptive. Either way, it is clear that the Democrats have been far more active on this issue, but the solution will require both parties to act. On the center right, some Congressional members are interested in developing clean energy technologies through innovation, but Costello believes that innovation alone will not be sufficient to address our decarbonization goals. Therefore, Americans for Carbon Dividends seeks to build a political coalition—anchored at the center—to accelerate decarbonization by focusing not only on innovation, but also on the benefits of decarbonization to agriculture, insurance, infrastructure, and public health.

LEGAL PATHWAYS TO DEEP DECARBONIZATION IN THE UNITED STATES

Michael Gerrard, Columbia Law School

Michael Gerrard discussed the ways that U.S. federal, state, and local laws need to change to achieve deep emissions reductions. Gerrard and his colleagues recently wrote a book² on the subject, offering 1,500 specific recommendations for action at the federal, state, and local levels. The book addresses the fundamental methods of decarbonization (e.g., energy efficiency, conservation, fuel switching, electricity decarbonization, fuel decarbonization, carbon capture and negative emissions, non-CO₂ pollutants) and the implications for each sector, including the current legal and regulatory structure and recommendations for changes to these structures. He suggested various cross-cutting approaches to reducing emissions, including carbon pricing, technological innovation and financing large-scale projects.

Gerrard stated that there are legal tools available to encourage decarbonization in the United States besides regulation, and that these tools would create economic, social, environmental, and security benefit in addition to reducing greenhouse gas emissions. He listed various types

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² M.B. Gerrard and J.C. Dernbach, eds., Legal Pathways to Deep Decarbonization in the United States, Environmental Law Institute, Washington, DC, 2019.

of tools, including regulation, reduction or removal of legal barriers, market-leveraging approaches, removal of incentives for fossil fuel use, tradable permits or allowances, information and persuasion, facilities and operations, infrastructure development, research and development, insurance, property rights, and social equity.

Gerrard believes that carbon pricing is a necessary but insufficient tool in addressing decarbonization. For example, a carbon price will not solve a variety of existing issues including local opposition. Gerrard noted that local opposition was a powerful force that has halted the Cape Wind offshore project for 15 years. Additionally a carbon price will not solve the issue of hard-to-measure emissions such as in natural gas leakage. A carbon price also does not address principal-agent problems where those exposed to the carbon price are not the people making decisions on the installation of energy-efficient and emission reducing equipment. Sectors with low price elasticity such as in some HFC uses are not addressed through a carbon price. Gerrard continued that if the money from a carbon tax goes into a dividend and returned to people it does not leave funds for the construction of public infrastructure necessary for decarbonization.

Gerrard noted that different levels of government have different roles in decarbonization. Among the many tools available to the federal government are levying a carbon tax and providing tax incentives, setting motor vehicle emissions and efficiency standards, setting national air pollution standards, and setting appliance energy efficiency standards. Additionally, the federal government has oversight over the country’s aircraft fleet, nuclear and hydropower generation facilities, natural gas pipelines, wind and solar projects on federal lands and offshore, R&D funding, and international trade. It is the responsibility of the states to regulate utility-scale electricity generation (both fossil and renewable), siting of electric transmission lines, electricity and natural gas distribution lines, and pricing of electricity and natural gas to consumers. Additionally, states regulate oil, gas, and coal extraction on private lands, may regulate carbon sequestration projects, oversee forestry on private and state-owned land, regulate the insurance industry, and could set HFC emissions standards. Local municipalities are generally responsible for setting building and zoning codes, urban transportation and land use plans, have jurisdiction over distributed energy generation, could build EV charging infrastructure, and manage solid waste.

To encourage implementation of their recommendations, Gerrard and his colleagues have launched a program seeking pro bono help from law firms to draft model laws and regulations based on these recommendations. Additionally, another partnered group provides pro bono legal services to communities that are facing legal obstacles and local opposition in building wind and solar generation facilities.

POLICY APPROACHES TO DEEP DECARBONIZATION IN THE UNITED STATES

Kelly Sims Gallagher, Tufts University

Kelly Sims Gallagher introduced her research, which focuses on analyzing various climate policies around the world and their efficacy. Her group studies policies which have already been enacted at various levels of jurisdiction around the world, searching for the best policy outcomes. She described a recent publication in which her group studied the observed effects of carbon pricing policies that were implemented in 44 jurisdictions worldwide to determine which design details mattered. Gallagher outlined a typology of climate mitigation policies, and pointed out the need for different types of policies working together to address climate change, including fiscal, regulatory, legal, information-based, diplomatic, and innovation policies. While the carbon dividend approach would be useful, it would be insufficient in meeting our climate goals without supportive R&D and diplomatic policies, she said.

Gallagher discussed the consequences of delay and introduced the idea of emissions budgeting. To avoid substantial climate change, society should adopt to emissions budgeting in which annual emissions are capped at a predetermined level. The recent Intergovernmental Panel on Climate Change report³ indicated that the climate is more sensitive than previously estimated, highlighting the need for an ambitious global emissions budget, estimated at around 1,100 gigatons of carbon dioxide emitted globally in the 21st century to have an approximately 50 percent chance of limiting global warming to 2°C. Gallagher pointed to the success of the UK carbon budget policy set in 2008. As of 2017, the United Kingdom was on track to meet their emissions reduction goals without causing attributable economic harm, and the carbon budget is credited with helping to focus long term and short term legislative efforts toward meeting time-dependent goals, and with clarifying policy gaps that needed to be filled with complimentary policies.

Gallagher discussed also the consequences of policy uncertainty. While scientific uncertainty regarding climate change has decreased over the past 30 years, climate policy uncertainty has not in the United States.

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³ Intergovernmental Panel on Climate Change, IPCC 2018: Global Warming of 1.5°C. An IPCC Special Report on the Impacts of Global Warming of 1.5°C Above Pre-Industrial Levels and Related Global Greenhouse Gas Emission Pathways, in the Context of Strengthening the Global Response to the Threat of Climate Change, Sustainable Development, and Efforts to Eradicate Poverty (V. Masson-Delmotte, P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C. Péan, R. Pidcock, S. Connors, J.B.R. Matthews, Y. Chen, X. Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, and T. Waterfield, eds.), in press.

Around 2010, U.S. clean energy investment leveled off while Chinese investment continued to increase, and attributable to the higher level of policy certainty in China that attracted investors to the space. Gallagher added that if the United States continues to avoid implementing stable, long-term clean energy policies, there will be continued investment in high-carbon technology and infrastructure, leading to carbon lock-in and/or stranded assets. In addition, U.S. investors pay high interest rates for low carbon investments because of perceived financial risk, a direct consequence of policy instability. Other consequences of policy uncertainty include loss of technological leadership, knowledge depreciation, loss of green manufacturing capacity and related jobs, higher costs for steep emissions reductions required by continued delay, and higher costs due to ad hoc, redundant, contradictory, or fragmented policy approaches.

Gallagher described sectoral and economy-wide approaches to climate policy. Sectoral emissions trends often deviate from economy-wide trends and from each other, requiring combinations of policies that effect different sectors differently. From 1990 to 2017, the U.S. transportation sector has seen a 22.2 percent increase in emissions, while the industrial sector emissions are down 5.2 percent and electricity sector emissions are down 11.8 percent. Gallagher discussed the idea of policy sequencing, in which you determine which policies must come first to enable other policies to follow. She noted that countries that have started implementing green industrial policy are more likely to adopt carbon pricing, as shown by the policy sequencing schematic in Figure 9.1. In the United States, we have reduced emissions while still growing the economy, and thus starting with green manufacturing may be the appropriate policy sequence, paving the way for a carbon price and additional climate policies. Gallagher presented a few approaches to ratchet up climate policy over time, including the following:

1. Market-based approaches with the right price. So far, the politically-achievable carbon prices have had little impact on emissions.
2. Politically-achievable incremental progress, such as starting with a $1 per ton carbon price.
3. Using hidden prices (e.g., regulatory approaches), currently the most common type of climate policy implemented in the United States.
4. Fiscal approaches that mobilize finance and technology deployment (e.g., feed-in tariffs, auctions).
5. Green industrial and innovation policies.

Gallagher noted the importance of the interaction of policies, as they can complement or undermine each other. She suggested thinking more

holistically about our approach to climate policy, and urged the workshop to consider mitigation, adaptation and resilience, and economic growth when considering policy options. For every investment, consider whether there’s an alternative approach which would confer mitigation benefits as well as adaptation benefits as well as economic growth. She concluded with four examples of synergistic benefits of technologies and policies:

1. Green buildings, which can be more resilient to storms and lower carbon emissions. Unfortunately, when FEMA rebuilds damaged buildings, they must replace the building rather than rebuild a more resilient or energy-efficient design.
2. On-site solar panels can provide resilient electricity during power outages.
3. Zero-budget natural farming practices that confer resilience benefits to the plants as well as carbon mitigation benefits to the atmosphere.
4. Increasing forested areas can lead to increased land resilience, a larger carbon sink, and economic opportunities for the local area.

DISCUSSION

Holmes opened the discussion by asking what will be the short-term drivers and motivators on climate policy—will it be weather events, innovation, job growth, collateral benefits? Gerrard believes the short-term drivers will be a combination of natural disasters and job growth in the clean energy sector and in building retrofitting. Costello added that the most likely, low-hanging fruit is energy efficiency and accelerating innovation through programs like ARPA-E, which generally garners bipartisan support. He believes that some of the more ambitious proposals discussed in this session will require a lot more political will and coalition building to enact.

A participant mentioned that carbon pricing is a price elasticity-driven policy, in that it assumes that price elasticity is sufficiently high that, by itself, carbon pricing can change markets. In power sector modeling, the default assumption is that decreasing electricity use by 25 percent requires doubling electricity prices. In Maryland in 2006 the negotiated electricity price caps expired, doubling retail rates, but electricity use did not decrease. Another development that did make an impact was states implementing energy efficiency and renewable portfolio standards, which drove massive increases in renewable deployment and have flattened electricity demand in the United States, resulting in 20-25 percent reductions in electricity use with only a 2 percent increase in price. The participant asked the panel to comment on the differences here between a

broad economy-wide policy like a carbon price versus a targeted sectoral policy like a renewable portfolio standard. Gerrard noted the difficulty of separating the outcomes from the various policies at play (i.e., how much of the effect was caused by price change). He noted also the difference between short-term and long-term price elasticity, suggesting that sometimes price elasticity takes a long time to reach equilibrium.

A participant asked Costello about the role of government versus the role of individuals in society with respect to climate policy. The participant mentioned that the Americans for Carbon Dividends plan places an emphasis on the contribution of individuals and away from the federal government. He asked, do you think the Republican party will “snap back” toward its traditional emphasis on individualism and personal responsibility over strong federal government control? Costello noted his skepticism that the Republican party falls in line with President Trump’s views on climate change. He said that young Republicans (aged 40 and under) view climate as a top five issue, while most Democrats view climate as a top three issue. He added that many Republicans have now acknowledged that climate change is real, that human activity contributes to it, and that the solution will require more than technological innovation.

A participant asked: how can policymakers begin to weigh different climate policies and discover which work together and which are deleterious to each other. She asked also which policies and issues may elicit Republican support. Costello said that when you start talking about adaptation in terms of environmental threats to coastal cities, you can very quickly garner bipartisan support. He mentioned a Senate transportation bill being marked up currently that includes money for EV charging infrastructure. One additional area of agreement is FEMA mapping, standards, and flood insurance, in which there is bipartisan support not to deal with in a substantive way, but to subsidize it. He mentioned the need to update old engineering standards for a world with more frequent and more severe storms, such as the 500-year flood levels which are now exceeded on a yearly basis in many U.S. towns. With respect to policy sequencing, Gallagher mentioned that power sector reform must occur during the early stages of the policy sequence. She mentioned that China has recently plateaued in non-fossil energy generation because they have not completed power sector reform. They currently have curtailment of renewable energy facilities that have already been constructed because they cannot get on the grid, the result of a guaranteed dispatch system. Their feed-in tariff was extremely effective in achieving massive installations of new renewable energy generation, but they won’t achieve their policy goal without power sector reform.

A participant asked what areas of basic scientific research should be prioritized in energy policy and energy science funding. Gallagher

said that in terms of energy innovation, basic energy science is crucial but inherently uncertain. As private sector R&D in energy continues to decrease, public spending should increase to ensure adequate funding. In addition to basic research, applied R&D is important for moving us along the cost curves, making technologies perform better and cost less. Gerrard added that both basic and applied scientific research is essential, but because of uncertainty of breakthroughs in the area, we cannot rely solely on innovation.

Holmes asked what benefits, other than emissions reductions, are policymakers interested in when deciding between policy options. Costello said that the primary benefit is avoided costs. He noted that the cost of inaction is very high to public health, agriculture, industry, insurance, national security, and other sectors. Gallagher added that opportunities to promote equity will interest some, and economic opportunities will interest all parties. Gerrard mentioned that citizen activism is important and that elected officials are rarely technocrats.

Holmes asked: is there a separation between the public good, the public want, and public policy? Costello mentioned that the phrase public good can be elusive, as it will depend on the timeframe in question. Gerrard and Gallagher agreed that there is an enormous gap between the public good and our current public policy, as the United States has no coherent climate policy.

A participant mentioned the importance of communicating with the public about climate change issues on a locality-specific basis, so the public can visualize how climate change might affect different regions and communities. Costello stated that the person with the most credibility on climate is the local newsperson. The challenge remains not just how to communicate the issue, but who can deliver the message effectively. Gallagher added that teaching in the classroom helps with climate communications. She cautioned against being too alarmist, because the psychological impacts can be defeating. She said that we should focus much of our communication on the opportunities available to give people a sense of energy and exciting in attacking this global problem.

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