By Kenneth B. Medlock III, Regina M. Buono and Shih Yu (Elsie) Hung
Central to the mission of the Center for Energy Studies (CES) at Rice University’s Baker Institute is facilitating substantive discussion by experts and other stakeholders regarding important policy issues. In October 2015, the CES, in partnership with the French Consulate in Houston, held a conference regarding climate policy. What follows is the commentary of the CES, offering insight into how decision-makers should and can approach policy related to climate change. The full document is available here.
To begin, it is crucial that, as humans transition the energy mix toward lower carbon sources, policymakers take a long-term view in planning and coordinating the retirement of existing power generation sources in favor of lower carbon options. Emission reduction targets are important, but blunt policy to reach an abstract figure without careful consideration of the implications for supply, demand, and grid stability in the near- and long-term can cause significant problems.
Flexibility in policy mechanisms is also critical as increasingly binding regulations are implemented. Policymakers and regulators must allow time and space to adapt to new targets to avoid unintended negative consequences. Mechanisms must, however, be in place to ensure that reactive modifications in policy design do not undermine global efforts to curb CO2 emissions. Accordingly, it is important that negotiators for global carbon emissions agreements keep these objectives in mind. They must also recognize differences in cultures, political systems, and economic standing, so as to avoid exacerbating tensions that could undermine desired outcomes.
Appropriate market signals and funding for research and development (R&D) are necessary parts of any solution. Innovation has always been critical in propelling human civilization to better living standards and prosperity. It has time and again rebuffed Malthusian predictions, and addressing CO2 emissions is no different. Importantly, innovation comes from both private and public sector efforts. Market design that allows price to incentivize innovation in the private sector is very important in promoting the adoption of technologies that can help to begin the transformation of the energy system in a reasonable time frame. Moreover, while we must think about nudging the energy transition in the near term, it is also important in the longer term as new technologies and ideas progress from the drawing board to the marketplace.
Longer term considerations dictate that an appropriate level of funding for basic R&D be made available. In other words, the “drawing board” cannot be ignored; doing so is myopic and dangerous. In fact, it is entirely possible that the next great energy technology of the future has yet to be conceived. As such, it is important to focus on both adoption of existing technologies and development of new ones. This is imperative for a sustainable energy future because the world is never in stasis, something policy should recognize. Therefore, governments must consider policies that incentivize adoption of existing technologies that have the desired goal of reducing CO2 emissions while at the same time conceiving of ways to adequately fund basic R&D in the energy sector. Moreover, these funding mechanisms must remain unbiased because picking winners and losers could eliminate some ideas with transformative potential.
The speakers in the conference touched on the notion that command-and-control regulation, subsidies, and carbon pricing may not be sufficient to rapidly increase the number of carbon neutral or zero-carbon power generation resources. Many also noted that as technology evolves, advanced integration systems will be needed to properly integrate new technologies in order to balance volatile electricity supplies and demands. These points highlight a basic fact that must be recognized if we are to successfully address the issue at hand. Namely, the energy system is massive, and scale matters. Despite what some may say, introducing new energy technology and having it take significant market share is not as simple as the mobile phone displacing the land line. The process of “leap-frogging” is significantly more capital intensive when it comes to delivered energy services that support economic growth. In fact, a rapid energy transition would require an unprecedented amount of capital investment and entail significant stranded costs for displaced capital assets. These are realities that cannot be ignored. Accordingly, policymakers must design a path forward in order to propel a new energy vision that is both workable and affordable. Such a task is very likely doable, but it requires flexibility, creativity, and foresight. Energy assets are long-lived and transformations occur in decadal time scales because of their capital intensity. This extends beyond any single politician’s lifetime in office, meaning policy must be flexible enough to meet shifting social, economic, and political priorities and have the longer term squarely in focus.
Stakeholder participation and robust dialogue are crucial to designing and implementing sound public policy. The expanded participation in Paris relative to the meetings in Kyoto (1997) and Copenhagen (COP15, 2009) is an encouraging sign that a concerted effort to reduce CO2 emissions is emerging and that the dialogue is indeed expanding. The level of engagement across individuals, organizations, and governments must continue to grow to ensure advancement of future negotiations and guarantee that agreements are implemented effectively.
The demonstrated commitment of the United States, as well as other global economic leaders, was crucial to the Paris negotiations, and it will be increasingly important if binding policy commitments are to emerge. Steadfast leadership will be a linchpin for successful implementation of various climate policies. Given that the existing commitments emerging from COP21 are non-binding and without explicit form, leadership will come in the form of actually demonstrating how a nation can successfully meet a stated emission reduction objective. Thus, as the U.S. forges ahead, it will create a template for other countries to follow. Whether others actually follow will depend entirely on whether the U.S. is successful in meeting its goals in a cost-effective manner.
One conference speaker noted that the word for “crisis” in Chinese is危機, which contains the characters for “danger” (危) and “opportunity” (機). The world is at a point where it must address the challenges presented by the status quo, but addressing this challenge provides an opportunity to forge a more environmentally sustainable future. In wearing the leadership mantle on climate policy, the U.S. is presented with an opportunity to reshape the global energy landscape. Importantly, it must also recognize the path from here to there is not short. As a result, reshaping the global energy will require deployment of existing technologies as well as the development of transformative and new energy technologies, especially if the energy transition is to be cost-effective and sustainable.
Kenneth B. Medlock III is the Senior Director for the Center for Energy Studies at Rice University’s Baker Institute for Public Policy.
Regina M. Buono is the Baker Botts Fellow in Energy and Environmental Regulatory Affairs at the Center for Energy Studies at Rice University's Baker Institute for Public Policy.
Shih Yu (Elsie) Hung is Research Associate at the Center for Energy Studies at Rice University's Baker Institute for Public Policy.
