I recently wrote an op-ed in the Washington Post about the deficiencies of an isolated cap-and-trade or carbon-pricing bill, and the vital importance of promoting technology-neutral "carbon-reduction capacity building" through a low-carbon electricity standard, low-carbon fuel standard and aggressive efficiency standards.

I argued these policies would cost the least in the long run, foster American jobs, create new 'Googles' in the energy sector and drive development of radically low-carbon technologies.  Furthermore, I asserted that developing countries would willingly adopt these technologies because of the competitive advantages provided by the efficiency and economics. 

Op-eds offer a limited platform for discussion, so I've decided to take the opportunity provided by Greentech Media, unconstrained by word count, to expand my position, specifically in relation to low-carbon electricity, explaining not just why a cap is a bad approach, but also addressing why a renewable energy standard (RES) is inadequate.

In order to determine what type of legislation is best, we need to establish exactly what problem we're trying to solve.  If it's how the U.S. can decrease its carbon emissions the fastest in the near term (e.g., 17 percent by 2020), then the answer may well be a utility carbon cap with the appropriate targets. 

However, I think the far more important goals for any legislation are how we (1) develop the technology and capacity to reduce carbon emissions rapidly and radically, (2) realize our goal of economically reducing the world's emissions by 80 percent by 2050 or earlier, and (3) ensure that the U.S. leads the way in clean technology innovation and implementation.

In short, how can we legislate to address the challenges of both the environment and the economy?

Let's first think through the effects of a utility-only carbon cap like the one currently being discussed in Washington, D.C.  In order to comply, utilities will pursue small incremental changes in efficiency and emissions.  For example, a utility can achieve virtually all of the carbon reduction goals slated for 2020 by closing their oldest coal plants, upgrading a few burners to more efficient ones, repowering some coal plants with natural gas, and increasing the capacity factor of existing or new natural gas plants.

There's nothing wrong with pursuing efficiency or shutting down old coal plants, but all of these actions do nothing for the development of next-generation, ultra-low-carbon technology.  By having legislation that gives utilities tacit support that what they're doing is enough, we will delay next-generation, ultra-low-carbon technologies, hurting our carbon reduction capability. After all, it will be almost impossible to commercialize next-generation low-carbon technologies if there is no domestic demand. If utilities become less interested in immediate deployment of radically lower carbon technologies, then venture capitalists and corporations will be less interested in deploying capital in America for low-carbon technology.  This trend could lead to the suffocation of American clean energy innovation.

Still, let's say that we as a country continue to play the incremental game for a while, achieving 15 percent to 17 percent carbon reduction over the next decade without developing any fundamentally new technology.  In the meantime, India, China and the rest of the developing world will (conservatively) double their emissions, thus making our reductions irrelevant.  More problematically, we will not be any more prepared for achieving the greater challenge of the next 65 percent of reductions, nor will we be ready should we need to dramatically accelerate carbon reduction in the face of new climate information (non-linear systems are notoriously hard to predict). If we want to make a significant difference, we need to get on the path to reducing carbon worldwide by 80 percent now by focusing on what I call 'carbon reduction capacity building' -- in other words, we need to develop radical carbon-reduction technologies.

A utility cap (or a carbon price) won't build capacity -- it will just increase our utility costs and decrease our manufacturing competitiveness without any increase in our technological competitiveness.

On the other hand, although a policy that promotes capacity building will increase research investments in the short term, it will likely decrease overall electricity costs in the medium to long run (through the magic of competition, technology and regulatory certainty), while simultaneously reducing carbon.

Disruptive technologies require investment; they don't come from the status quo.  I mentioned carbon reduction capacity building in the op-ed, using Craig Venter's sequencing of the human genome faster and more cheaply than the Human Genome Project (HGP) as an analogy. Instead of focusing on gene sequencing, Venter focused on developing technology for rapid sequencing. While the government HGP project labored on sequencing for more than a decade, once Venter developed his new technology, he sequenced the genome in about three years. And he was also much better positioned to sequence the next genome.

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Tags: cap-and-trade, carbon capture, carbon capture and sequestration, ccs, khosla ventures, low-carbon electricity standard, policy, renewable energy standard, res, solar, vinod khosla, wind