RESEARCH & POLICY
Ending the Energy
Stalemate
This report presents key
findings from an intensive,
three-year effort to develop
consensus recommendations
for future U.S. energy policy.
Bringing together a diverse and bi-partisan group of leaders from business, government, academia, and the non-profit community, the National Commission on Energy Policy has sought to establish a constructive center in the often polarized debate about energy and to advance a coherent strategy for meeting the energy challenges of the 21st century that has the economic, environmental, and political integrity to overcome the current stalemate in national energy policy.
KEY CHALLENGES
The challenges that must be addressed are at once familiar and new. Long-standing anxieties about the nation’s underlying energy security have resurfaced at a time of record high oil and gas prices and in the wake of the largest cascading power outage in U.S. history. Recent developments in world oil markets, including rapid growth in global demand and the emergence of terrorist threats to oil facilities, are bringing new urgency to perennial concerns about the nation’s exposure to oil price shocks and supply disruptions. Similar price and supply concerns increasingly apply to natural gas markets where sustained price increases and extreme volatility have begun to signal a steadily widening gap between domestic supply and demand for this economically and environmentally valuable fuel. At the same time, the uncertain state of restructuring efforts in the nation’s electric industry is prompting urgent questions about the prospects for needed investment in an infrastructure that is essential to nearly every facet of modern life.
All of these issues present formidable challenges in their own right, even as the inability of the 108th Congress to pass comprehensive energy legislation in 2003 and 2004 demonstrated the political difficulty of addressing them. Meanwhile, the overall picture is vastly complicated by the inescapable linkages between energy production and use and the environment. In particular, the risk of global climate change from emissions released by fossil fuel combustion will exert a profound influence on the world’s energy options and choices over the decades ahead. In this context, the old notion of energy security acquires new dimensions. Reliable access to the energy resources needed to support a healthy economy remains the core imperative, but in the 21st century energy security also means reducing the macroeconomic and terrorism-related vulnerabilities inherent in the current geopolitical distribution of oil supply and demand and coming to grips with the environmental impacts of the current energy system.
GOALS
The pages that follow set forth the Commission’s specific recommendations for addressing these linked objectives, beginning with oil security and climate change risks — arguably two of the most difficult issues for U.S. energy policy. Thus, the first chapter of this report describes a package of measures designed to improve U.S. oil security by increasing global oil supply and reducing growth in domestic demand. The next chapter proposes a mandatory, economy-wide tradable permits system for limiting emissions of carbon dioxide and other greenhouse gases. The third and fourth chapters describe a set of complementary proposals for, on the one hand, substantially improving energy efficiency throughout the economy (i.e., in buildings, equipment, industry, and transportation) and, at the same time, promoting energy supply options that advance a number of cross-cutting policy objectives, from reducing the nation’s exposure to resource constraints and supply disruptions to reducing climate change risks.
Specifically, Chapter IV recommends a number of policies to help ensure adequate supplies of natural gas and to promote the expanded deployment of low-carbon energy alternatives — including advanced coal technologies with carbon sequestration, next-generation nuclear technology, and renewable sources for electricity production and transportation fuels. Recognizing that a robust and resilient energy infrastructure and healthy markets provide the necessary foundation for ensuring continued access to needed energy resources, Chapter V addresses the need to site critical infrastructure, protect key energy facilities from terrorist attack, and improve the performance and reliability of the nation’s electricity system. Finally, the Commission recognizes that continued technological advances are essential to ensure that clean, secure, and affordable energy will be available in the quantities required to sustain long-term economic growth for the United States and the world. In Chapter VI, the Commission therefore recommends that the federal government promote technology innovation in both the public and private sectors by significantly expanding and refocusing federal energy research and development programs.
POLICIES THAT WORK TOGETHER
It is important to emphasize that the Commission’s various recommendations were designed to be mutually reinforcing and are intended to function as a package. Each component of that package is the product of extensive discussions and rigorous analysis, informed by many of the nation’s top energy experts. The resulting consensus is a product of detailed technical exploration, substantive debate, and principled compromise. Early on, Commissioners agreed that a strong economy, affordable energy, and adequate energy supplies were essential prerequisites for tackling all other policy objectives; that markets — appropriately regulated — should be relied upon wherever possible to produce the most efficient solutions; that policies must be designed and implemented with great care and due appreciation for the law of unintended consequences; and that gradual adjustments are generally preferable to dramatic interventions.
REJECTING MYTHS ON THE LEFT AND RIGHT
Equally important, Commissioners found common ground in rejecting certain persistent myths — on the left and on the right — that have often served to polarize and paralyze the national energy debate. These include, for example, the notion that energy independence can be readily achieved through conservation measures and renewable energy sources alone, or that limiting greenhouse gas emissions is either costless or so costly as to wreck the economy if it were tried at all. Most of all, Commissioners rejected the proposition that uncertainty justifies inaction in the face of significant risks.
Given current trends, the consequences of inaction are all too clear. Under business-as-usual assumptions, the United States will consume 43 percent more oil and emit 42 percent more greenhouse gas emissions by 2025.(1) At the global level, oil consumption and emissions will grow 57 and 55 percent respectively over the same timeframe(2) and the Earth will be heading rapidly — perhaps inexorably — past a doubling and toward a tripling of atmospheric greenhouse gas concentrations. In the Commission’s view, this is not a scenario that should inspire complacency, nor is it consistent with the goal of reducing the nation’s exposure to potentially serious economic, environmental, and security risks.
POLICY CRITERIA
In choosing among a large number of potential policy options, the Commission applied several general criteria, including: economic efficiency; cost-effectiveness and consumer impacts; ability to provide appropriate incentives for future action; flexibility for adjustment in response to further experience, new information, and changed conditions; equity; political viability; and ease of implementation, monitoring, and measurement.
REVENUE NEUTRALITY
Another important consideration was impact on the U.S. Treasury. Here the Commission sought to ensure that, as a package, its proposed policies achieved revenue neutrality; that is, they are expected to roughly pay for themselves (see Table 1).(3) Commission estimates suggest that implementing these recommendations will require additional federal outlays of approximately $36 billion over ten years. To cover those outlays, the Commission outlines proposals that would raise about the same amount between 2010 and 2020 from the sale of a small portion of emission allowances under the proposed tradable-permits system for greenhouse gases.
Taken together, the Commission’s recommendations aim to achieve a gradual but nevertheless decisive shift in the nation’s energy policy. Their near-term impacts, by design, will be modest, and some will undoubtedly find them grossly inadequate to the challenges at hand. Others will criticize the same recommendations for going too far, precisely because they initiate a process of long-term change with consequences that no one can fully predict. These refrains are familiar. They characterize the stalemate in views that has too long resulted either in outright gridlock or in a piecemeal, special interest-driven approach to energy policy. These outcomes are no longer acceptable. It is time for the stalemate to end.
1. United States Department of Energy, Energy Information Administration, Annual Energy Outlook 2004 with Projections to 2025 DOE/EIA-0383 (Washington, DC: Energy Information Administration, 2004), 8, 95, http://www.eia.doe.gov/oiaf/aeo/index.html.
2. United States Department of Energy, Energy Information Administration, International Energy Outlook 2004 DOE/EIA-
0484 (Washington, DC: Energy Information Administration, 2004), 28, 137, Fig. 72, http://www.eia.doe.gov/oiaf/ieo/index.html.
3. Expected auction revenue over the first decade of program implementation (i.e., from the beginning of 2010 to the beginning of 2020) amounts to a discounted and annualized value of $2.6 billion per year. Expected safety valve revenues contribute an additional $1.0 billion per year. Over ten years, the total revenue generated is projected to equal roughly $36 billion.
This report presents key
findings from an intensive,
three-year effort to develop
consensus recommendations
for future U.S. energy policy.
Bringing together a diverse and bi-partisan group of leaders from business, government, academia, and the non-profit community, the National Commission on Energy Policy has sought to establish a constructive center in the often polarized debate about energy and to advance a coherent strategy for meeting the energy challenges of the 21st century that has the economic, environmental, and political integrity to overcome the current stalemate in national energy policy.
KEY CHALLENGES
The challenges that must be addressed are at once familiar and new. Long-standing anxieties about the nation’s underlying energy security have resurfaced at a time of record high oil and gas prices and in the wake of the largest cascading power outage in U.S. history. Recent developments in world oil markets, including rapid growth in global demand and the emergence of terrorist threats to oil facilities, are bringing new urgency to perennial concerns about the nation’s exposure to oil price shocks and supply disruptions. Similar price and supply concerns increasingly apply to natural gas markets where sustained price increases and extreme volatility have begun to signal a steadily widening gap between domestic supply and demand for this economically and environmentally valuable fuel. At the same time, the uncertain state of restructuring efforts in the nation’s electric industry is prompting urgent questions about the prospects for needed investment in an infrastructure that is essential to nearly every facet of modern life.
All of these issues present formidable challenges in their own right, even as the inability of the 108th Congress to pass comprehensive energy legislation in 2003 and 2004 demonstrated the political difficulty of addressing them. Meanwhile, the overall picture is vastly complicated by the inescapable linkages between energy production and use and the environment. In particular, the risk of global climate change from emissions released by fossil fuel combustion will exert a profound influence on the world’s energy options and choices over the decades ahead. In this context, the old notion of energy security acquires new dimensions. Reliable access to the energy resources needed to support a healthy economy remains the core imperative, but in the 21st century energy security also means reducing the macroeconomic and terrorism-related vulnerabilities inherent in the current geopolitical distribution of oil supply and demand and coming to grips with the environmental impacts of the current energy system.
GOALS
The pages that follow set forth the Commission’s specific recommendations for addressing these linked objectives, beginning with oil security and climate change risks — arguably two of the most difficult issues for U.S. energy policy. Thus, the first chapter of this report describes a package of measures designed to improve U.S. oil security by increasing global oil supply and reducing growth in domestic demand. The next chapter proposes a mandatory, economy-wide tradable permits system for limiting emissions of carbon dioxide and other greenhouse gases. The third and fourth chapters describe a set of complementary proposals for, on the one hand, substantially improving energy efficiency throughout the economy (i.e., in buildings, equipment, industry, and transportation) and, at the same time, promoting energy supply options that advance a number of cross-cutting policy objectives, from reducing the nation’s exposure to resource constraints and supply disruptions to reducing climate change risks.
Specifically, Chapter IV recommends a number of policies to help ensure adequate supplies of natural gas and to promote the expanded deployment of low-carbon energy alternatives — including advanced coal technologies with carbon sequestration, next-generation nuclear technology, and renewable sources for electricity production and transportation fuels. Recognizing that a robust and resilient energy infrastructure and healthy markets provide the necessary foundation for ensuring continued access to needed energy resources, Chapter V addresses the need to site critical infrastructure, protect key energy facilities from terrorist attack, and improve the performance and reliability of the nation’s electricity system. Finally, the Commission recognizes that continued technological advances are essential to ensure that clean, secure, and affordable energy will be available in the quantities required to sustain long-term economic growth for the United States and the world. In Chapter VI, the Commission therefore recommends that the federal government promote technology innovation in both the public and private sectors by significantly expanding and refocusing federal energy research and development programs.
POLICIES THAT WORK TOGETHER
It is important to emphasize that the Commission’s various recommendations were designed to be mutually reinforcing and are intended to function as a package. Each component of that package is the product of extensive discussions and rigorous analysis, informed by many of the nation’s top energy experts. The resulting consensus is a product of detailed technical exploration, substantive debate, and principled compromise. Early on, Commissioners agreed that a strong economy, affordable energy, and adequate energy supplies were essential prerequisites for tackling all other policy objectives; that markets — appropriately regulated — should be relied upon wherever possible to produce the most efficient solutions; that policies must be designed and implemented with great care and due appreciation for the law of unintended consequences; and that gradual adjustments are generally preferable to dramatic interventions.
REJECTING MYTHS ON THE LEFT AND RIGHT
Equally important, Commissioners found common ground in rejecting certain persistent myths — on the left and on the right — that have often served to polarize and paralyze the national energy debate. These include, for example, the notion that energy independence can be readily achieved through conservation measures and renewable energy sources alone, or that limiting greenhouse gas emissions is either costless or so costly as to wreck the economy if it were tried at all. Most of all, Commissioners rejected the proposition that uncertainty justifies inaction in the face of significant risks.
Given current trends, the consequences of inaction are all too clear. Under business-as-usual assumptions, the United States will consume 43 percent more oil and emit 42 percent more greenhouse gas emissions by 2025.(1) At the global level, oil consumption and emissions will grow 57 and 55 percent respectively over the same timeframe(2) and the Earth will be heading rapidly — perhaps inexorably — past a doubling and toward a tripling of atmospheric greenhouse gas concentrations. In the Commission’s view, this is not a scenario that should inspire complacency, nor is it consistent with the goal of reducing the nation’s exposure to potentially serious economic, environmental, and security risks.
POLICY CRITERIA
In choosing among a large number of potential policy options, the Commission applied several general criteria, including: economic efficiency; cost-effectiveness and consumer impacts; ability to provide appropriate incentives for future action; flexibility for adjustment in response to further experience, new information, and changed conditions; equity; political viability; and ease of implementation, monitoring, and measurement.
REVENUE NEUTRALITY
Another important consideration was impact on the U.S. Treasury. Here the Commission sought to ensure that, as a package, its proposed policies achieved revenue neutrality; that is, they are expected to roughly pay for themselves (see Table 1).(3) Commission estimates suggest that implementing these recommendations will require additional federal outlays of approximately $36 billion over ten years. To cover those outlays, the Commission outlines proposals that would raise about the same amount between 2010 and 2020 from the sale of a small portion of emission allowances under the proposed tradable-permits system for greenhouse gases.
Taken together, the Commission’s recommendations aim to achieve a gradual but nevertheless decisive shift in the nation’s energy policy. Their near-term impacts, by design, will be modest, and some will undoubtedly find them grossly inadequate to the challenges at hand. Others will criticize the same recommendations for going too far, precisely because they initiate a process of long-term change with consequences that no one can fully predict. These refrains are familiar. They characterize the stalemate in views that has too long resulted either in outright gridlock or in a piecemeal, special interest-driven approach to energy policy. These outcomes are no longer acceptable. It is time for the stalemate to end.
1. United States Department of Energy, Energy Information Administration, Annual Energy Outlook 2004 with Projections to 2025 DOE/EIA-0383 (Washington, DC: Energy Information Administration, 2004), 8, 95, http://www.eia.doe.gov/oiaf/aeo/index.html.
2. United States Department of Energy, Energy Information Administration, International Energy Outlook 2004 DOE/EIA-
0484 (Washington, DC: Energy Information Administration, 2004), 28, 137, Fig. 72, http://www.eia.doe.gov/oiaf/ieo/index.html.
3. Expected auction revenue over the first decade of program implementation (i.e., from the beginning of 2010 to the beginning of 2020) amounts to a discounted and annualized value of $2.6 billion per year. Expected safety valve revenues contribute an additional $1.0 billion per year. Over ten years, the total revenue generated is projected to equal roughly $36 billion.
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