Change the Rules, Change the Future

It’s been raining Khosla for sometime now here. In a Gristmill article, Timothy E. Wirth, Vinod Khosla and John D. Podesta write about the economic rules that create new markets and how they can make a difference in the clean energy market.

Voters, investors, activists, business leaders, and policy experts are pushing for clean energy to create jobs, limit climate change, and reduce America’s dependence on foreign oil. And yet, progress is slow: oil imports and carbon emissions continue to rise. Why?Because the rules of the game — the laws, regulations, subsidies, and tax credits that shape the energy market and the way it acts — continue to make fossil fuels a less expensive, more convenient choice for consumers.

These rules are both the heart of the problem, and the key to a solution.

…Change won’t come until the price is right. That price is set by the market, the market is shaped by rules, and the rules favor fossil fuels.

If we want to change the future, we have to change the rules…

The rules today give oil and gas companies — the most profitable industry in the history of the world — billions of dollars in tax breaks and research subsidies…The rules perpetuate our energy habits…We need new rules that will make the best choice for the country also the best choice for consumers.

…Today, we are on the cusp of a similar revolution in energy, but the old rules are still in place. There is a lot of money ready to invest, but too few good investment opportunities. To enable those emerging products and technologies to succeed, the most important thing we can do is change the rules…

The future of energy is not terribly complicated to envision:

  • Clean energy: We’ll use new, renewable sources of energy: more biofuels and less oil, more wind and solar, and less coal and natural gas.
  • Energy efficiency: Our homes, office buildings, cars, and appliances will require less energy, and we’ll have better ways to manage that use.
  • Carbon capture: Emissions from coal-fired power plants will be captured and pumped underground.
  • A “smarter” grid: Digital technology will finally come to the electric power grid, making it more efficient, more reliable, and better able to draw on renewable resources. It should become a national grid, like our highway system, so any renewable or non-renewable electricity generated in any part of the country can be transmitted to market.

Here are five more rule changes that would reduce emissions, give consumers new choices, launch new businesses, and accelerate the profitable transition to new energy technologies:

Put a price on carbon.

Putting a price on carbon dioxide — through a cap-and-trade system similar to the one that reduced acid-rain pollution at low cost — would end the use of the atmosphere as a free garbage dump and create a market for any technology that reduced global-warming emissions.

Set “carbon efficiency” standards for vehicles.

The debate over fuel efficiency standards has bogged down in finger-pointing between Washington and Detroit. To break the impasse, Congress should pass tough standards for “carbon efficiency.” If companies had to reduce the average carbon emissions of their fleet, it
would encourage them not only to build lighter, more efficient vehicles, but also to build cars that can run on biofuels and on electricity — rather than simply updating the internal combustion engine.

Make energy efficiency the business of utilities.

Today, in almost every state, utilities make more money as their customers use more energy. We should flip those incentives. Utility companies in California are compensated for helping their customers reduce their energy use. They make money by helping customers install better insulation and use more energy-efficient products. When a utility can make more money helping people save energy rather than use energy, that’s a smart set of rules.

Modernize the electric power grid to be more efficient and better deliver clean energy.

Nearly every sector of the economy has been made more efficient with the introduction of information technology — but not the electric power grid, which still operates on 50-year-old technology. A modernized, digitally connected national electricity grid will be more secure, reliable, and resilient, allowing quicker restoration of power after outages and the ability to avert large-scale blackouts. Renewable electric power should be given priority access to such a grid.

Increase government support for clean energy.

No industry of any consequence to the country has grown and thrived without government support. According to the Government Accountability Office, the oil industry alone received more than $140 billion in subsidies and tax breaks between 1968 and 2000. In the 21st century, the U.S. government has just as much interest, if not more, in the success of clean energy.

These five rule changes will help build a market-based system in which companies and consumers can advance the national interest by acting in their own self-interest.

…We can try to scold people into embracing sacrifice — and change nothing — or we can offer the kind of choice that can change the world, which is choice that is cheaper, cleaner, better. Choice is what markets do best, but not if government is standing in the way with old rules that favor the industries of the past.

Climate change and oil dependence are pushing us toward a clean, renewable, efficient energy future. The profits to be made in making and selling these technologies are pulling us in the same direction. With one strategic leap, we can wipe out two of the biggest threats to our children’s well-being while creating the high-tech industries that will employ them in the future.

If we just change the rules.

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