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America can win the clean energy race

1. America has the geographic advantage

America is fortunate to have good domestic opportunities for solar power, unlike countries like Japan, Germany and South Korea, where the sun doesn’t shine as brightly and where the solar industry needs more government support.

America also has good wind and geothermal energy available, allowing a clean energy mix to be built that can power the entire continent, provided sufficient support is given to such facilities, as well as electricity transmission capacity, smart meters, electric vehicles for storage and V2G, etc.

2. America has the socio-economic background to make it work

The size of its skilled workforce and its industrial output combine with a huge spending power by consumers, making America the biggest and most innovative market in the world. America has numerous innovative industries that can be flexible and mobile if needed. This puts America in an ideal position to shift to a clean energy economy, with all its benefits including the numerous domestic job and investment opportunities.

America is the biggest economy in the world and is open and attractive for investers from around the world. America has a history of accommodating innovative industries, while American industries are also good at outsourcing activities abroad.

3. Americans love their cars . . . and their health

Americans have a long history of driving cars. Vehicles are ingrained in society. Given the many benefits of electric vehicles, Americans – of all people – will be the first to embrace them.

Exhaust fumes of vehicles are a major health hazard. Electric vehicles are an essential element of a sustainable economy, both in terms of financial health, personal health and environment health.

4. The American market has plenty of scope for electrification.

America is the largest vehicle market in the world, according to recent research.

Of the 204 million personal vehicles, the average U.S. household owns 1.9 vehicles, which is slightly more than the average number of drivers per household. The fact that so many American households have a second car makes it easy for them to swap one of them for an all-electric car and use it mostly for urban commuting, shopping, etc.

As shown on the image left, based on UITP data, passenger transport emits far more CO2 in US cities than in cities elsewhere. This means that electrification of vehicles in America will have more impact on the environment than anywhere else.

Transport is powered predominantly by petroleum products, as shown on the image on the left below.

The image below further shows that Americans pay far more for petroleum products than for any other forms of energy.

This means that there is much more scope for fees to be raised on transport-related pollution in America than elsewhere. In turn, this means that there is much more potential to raise revenues for transport electrification in American cities, compared to cities elsewhere in the world.

Using the revenues of fees on petroleum products to help local transport electrification programs would be more effective than anywhere else — American cities would get far more value-for-money, compared to similar programs in cities elsewhere in the world.

 

As the above image shows, the amount of money people are paying in America for energy is rising, proving there is plenty of elasticity in the price of energy.

Much of the rise is caused by higher gasoline prices. Powering vehicles by electricity is much cheaper than by gasoline. Americans may have a lot of money to spend, but they are also keen to have the best deal.

While there already are taxes on transport fuels in the U.S., such taxes are low compared to elsewhere in the world, as shown on the image left.

In other words, the U.S. situation offers plenty of scope to raise funding for transport electrification.

Such funding could lower the price of electric vehicle more rapidly in America than anywhere else. This will in turn revitalize the American vehicle industry, with plenty of good job and investment opportunities and scope for exports.

Other countries have already raised taxes on petrol and vehicle sales and registration to much higher levels, and they have used the revenues for all kinds of purposes.

This means that it will be much harder for other countries to add further fees on petrol and on vehicles to raise funding for transport electrification.

5. Age of power plants

Coal-fired power plants in America are old and due to be replaced by new (preferably clean) facilities.

As a recent study points out, the mean age of power plants operating in China is 12 years. In America, the mean age of power plants is 32 years, in Japan it’s 21 years and in Europe it’s 27 years. This makes it harder for China than for America to decommission all their coal-fired power plants. Few new coal-fired power plants have been built in America over the past few years anyway, while many older power plants should have been decommissioned years ago. As Joshua Frank wrote at the close of 2010: In the last 25 months not one coal-fired power plant broke ground for construction in the United States. In 2010 alone a total of 38 proposed plants were erased from the drawing board, the most ever recorded in a single year. Utilities also announced 12,000 MW in coal plant retirements.

In the light of the EPA announcement of CO2 emission standards for fossil fuel power plants, it’s a good time to consider clean alternatives.

6. The EPA can be the catalyst for a more comprehensive climate and energy policy

As said, the EPA has announced it will act on emissions from fossil fuel power plants and petroleum refineries and this can act as a catalyst. Standards are not the most efficient way to facilitate the shift to clean energy. Standards encourage small incremental changes within obsolete technologies, rather than the more radical switches to the clean technologies that are needed instead. The looming prospect of EPA standards can make politicians consider feebates, as the most effective way to facilitate the necessary shift to clean energy.

In the past, politicians have tried to introduce a carbon tax in America. Politicians have also tried to introduce a national cap-and-trade system. Each time, politicians failed to fully integrate a rapid transition to electrified transport. Combining fees and rebates is the way to achieve this. Fees on polluting cars and on fossil fuel will benefit the competitive position for the clean industries that are needed instead. Moreover, when the revenues of such fees are subsequently used to fund rebates on clean alternatives, those clean industries will benefit twice. That is the way to give America the much needed clean job and investment opportunities. It is the fastest track to electrified transport, with all the benefits for consumers and the people at large. 

Indeed, the most effective way to shift to a sustainable economy is by imposing fees on polluting products, and then each time spending the revenues of such fees on the better local alternatives, such as transport electrification and producing energy with facilities such as wind turbines, solar panels, etc.

While the EPA does have an important role in setting standards, such standards lack the financial clout and thus effectiveness of feebates to facilitate the much-needed shifts. Politicians care about effectiveness and should therefore look at feebates. It is sad that America has not implemented carbon-reduction policies, but on the other hand this also means that America isn’t locked into specific policies yet and can therefore embrace feebates without reservations. 

Now is the time for comprehensive climate and energy policy. In the past, a country’s economic success was decided by factors such as population size, cost of labor, access to resources and an educated workforce. But in the race for clean technologies, effectiveness in policy is the key.

The Recovery Act has provided the necessary traction to revive the economy, further helped by the Tax Package. Importantly, these are short-term policies, focused on dealing with economic recession. Precisely because it isn’t locked into specific policies for years to come, America can now adopt the necessary longer-term feebate policies that will both generate economic success and reductions in greenhouse gas emissions.

7. Balancing the budgetFeebates versus tax and subsidies

America has a lot of elasticity in taxes on products and on income. According to OECD data, tax revenue in America was only 28% of GDP in 2008, compared to a 34.8% average for the OECD. In most countries, governments have already imposed high consumption taxes on the price of cars and gasoline, making it harder for them to raise prices further. Americans are thus in a better position to increase prices without too much hardship, which became evident when gas prices went up significantly in the past. In America, there’s more scope for the prices of polluting cars and fossil fuel to rise, before even reaching levels already common abroad. Thus, the U.S. economy can remain competitive, even with higher taxes.

Of course, while America has plenty of scope for higher taxes, Americans dislike both taxes and government running businesses. This situation actually puts America in a good position to adopt the more effective policies of local feebates, i.e. fees on fossil fuel each time funding local rebates on clean energy and transport electrification programs.

East Asian and West European countries, who have to import much of their energy, are well aware of the economic potential and importance of clean energy. Rather than sending money abroad to buy fossil fuel or pouring it into associated moribund industries, they are investing heavily into the clean industries of the future, using the revenues from their already substantial exports, as well as the revenues of their higher taxes on cars, gasoline, etc. Such countries typically have higher taxes, while using the revenues to subsidize selected industries and products, a policy sometimes referred to as ‘dirigism’ or ‘picking winners’. In many respects, their policies are fixed for years to come.

As said, Americans dislike such policies. However, not acting on climate change isn’t an option. Industries will be hesitant to make investments, as long as America remains hesitant about directions for the future. This is only ameliorated by the Financial Crisis that has put many investments in America on hold.

Many other countries have already shifted significantly to consumption taxes. So, compared to many other countries, America has more scope to make a similar shift. Consumption taxes work better than income taxes, as consumption taxes reward productivity and success, rather than hold them back. Consumption taxes also create less of a black economy. Consumption taxes can be very effective in raising revenue and in facilitating change.

Feebates are more effective than raising income taxes to finance further tax credits and subsidies. Compared to most other countries, America is in a better position to introduce feebates.

The size of the American debts and its budget deficits make it imperative to consider feebates, which can be budget-neutral, so they won’t increase national debts or compromise scheduled budgets. Therefore, this makes it even more easy for the U.S. to choose for feebates, the most effective policies.

As above image shows, oil imports are responsible for a large part of the American trade deficit. There’s a huge additional military cost to secure oil supply from areas such as the Gulf.

Most oil is used for transport, causing huge amounts of pollution, in turn causing health problems, climate change, etc. Efforts to increase fuel economy make only little difference, as the image on the left shows, as people buy more SUVs and travel more, as illustrated by the image below. To reduce the trade deficit and pollution (such as CO2 emissions) transport needs to go electric.

Transportation causes huge amounts of greenhouse gas emissions, constituting a growing part of total emissions, as the image below shows. In California, transportation fuels are responsible for over 40% of annual greenhouse gas emissions (2005 data). 

A shift to EVs is imperative to achieve the much-needed reductions in tailpipe emissions. Additionally, as fossil fuel gets used less, there will also be less emissions caused by mining and drilling for fossil fuel and by transport and distribution of fossil fuel. There will also be less need for America to maintain a global military presence to secure oil supply from sometimes politically-volatile regions.

As above image shows, transportation caused 28% of U.S. greenhouse gas emissions in 2007. Moreover, when taking into account all pollutants over a 20-year period, road transport tops the list in terms of radiative forcing, as illustrated by the image on the left. 

Furthermore, EVs can store surplus power generated by wind turbines at times when there’s little or no demand on the grid, and then feed their surplus power back into the grid at times of peak demand. In this way, EVs increase the potential for wind energy, which already is one of the most economic ways to generate electricity.  

The price of oil (image above) is likely to rise again, especially the price of oil imports in the light of decreased value of the American dollar. 

Earlier this year, the national average price for gasoline hit $3.12 per gallon, as the price of oil rose to about $92 a barrel.

In London, the price of Brent crude oil rose to $95.50 a barrel.

Former Shell Oil President John Hofmeister predicts that increased worldwide demand and lower U.S. production will push up the price of gasoline. “We’re looking at $5 a gallon gas in 2012,” says Hofmeister.

“In the U.S., we use 20 million barrels a day. We produce about seven. We’re not drilling. We’re going to produce about six a year, year-and-a-half from now. That means we have to import more oil.”

Apart from supply and demand, there are further factors that influence the price of oil in the U.S. Pressure by increased oil imports on trade deficits and national debt will push the value of the dollar down, causing further rises in the price of imported oil, in a vicious cycle as pictured on the left.

Republicans will likely be pushing for more oil drilling, in a repeat of the failed political stunt that marked their 2008 election campaign.

Energy Secretary Steven Chu makes more sense; while he agrees that oil prices in the mid- and long-term future will be higher, he says that the U.S. should use the oil we need as efficiently as possible, and also to begin to transition away from oil. For example, electrification of vehicles and things like that.

Apart from oil, imported vehicles also contribute to the trade deficit, as illustrated by the graph below.

As said before, East Asian and West European countries, who have to import much of their energy, are well aware of the economic potential and importance of clean energy. Rather than sending money abroad to buy fossil fuel or pouring it into associated moribund industries, they are investing heavily into the clean industries of the future, using the revenues from their already substantial exports, as well as the revenues of their higher taxes on cars, gasoline, etc.

Electrification of transport can create many domestic job and investment opportunities, reduce trade and budget deficits, improve health, bring troops back from overseas, help with climate change, save the American car industry and the many industries and jobs that depend on them, etc, etc. Traffic convenience, the future of American industries, our energy independence, the electric grid, clean local job and investment opportunities, they each benefit from transport electrification. Combined, they make a rapid shift to electric transport imperative.

8. It’s the right thing to do Feebates are as American as apple pie

Americans like to do the right thing. They don’t like the kind of deceit that is being spread by climate denialists. Increasingly, Americans will demand more effective policies, not only because it’s imperative to adopt them for so many reasons, but also because they benefit all Americans and the world at large.

Americans also understand the power of market economics. Local feebates work better in ways that Americans appreciate, i.e. they optimize market mechanisms and consumer choice, and give local skills and enterprise a go as to what’s best produced and sold in their area.

Sam Carana's picture

Thank Sam for the Post!

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Recent Comments

Rick Engebretson's picture
Rick Engebretson on March 1, 2011

We have already lost, here’s partly why.

Motive electric power is now highly controlled. The electronics industry has reached a level of sophistication where microcontrollers work with milliwatts, using semiconductor designs measured in nanometers, and manufacturing technology scaled in millimeters, producing product sold in cents. The days of big iron, big grids, big transformers, big power plants is almost over.

Sophisticated companies are desperate to keep up. We are not shifting resources overseas, we are moving there to be part of the change.

I started 30 years ago playing with the RS232 UART interface on an 8 bit microprocessor computer. Today, a colorful, better computer fits in a pocket, works as a telephone, records video.

People who do it, know it.

Sam Carana's picture
Sam Carana on March 1, 2011

Good point, Rick, electronics is a vital part of the clean energy economy of the future, especially in areas such as smart meters, electric vehicles and chargers. Sophisticated electronics will also appear in all kinds of other smart devices and equipment. The market for this will be huge, not only for the hardware, but also for the software to operate them and the user-programs running on top of this.

America has some great companies to produce all this, such as Intel, IBM, GE, Apple and Cisco, as well as plenty of small, flexible and innovative companies that, with the help of venture capital, can grow very rapidly when they become succesful. Furthermore, America welcomes companies from abroad, offering a skilled workforce, a great infrastructure and a huge consumer market.

The key issue here is for America to adopt the policies to make it all work and to move rapidly into the clean energy economy.

Geoffrey Styles's picture
Geoffrey Styles on March 2, 2011

Sam,

Thanks for a very interesting piece, though I could quibble with your choice of data and interpretation of several of the charts, such as the one on trade deficits.  My bigger concern is that I find the whole “race” analogy enormously unhelpful.  We’re not in a “clean energy race”.  Instead, US clean energy manufacturers are competing in a growing global clean energy market, only a portion of which–and perhaps not even the most important one–is here in the US.  That’s because the energy solution for the US must and will be different than for Europe, China, or Brazil, because we each have different economies, different resource endowments, and different legacy infrastructure.  And if you look at what our clean energy policies actually do, rather than what their designers and advocates claim, we are putting more emphasis on deploying renewable energy hardware regardless of where it was made (or even what it costs), than on promoting clean energy manufacturing, where any real “green jobs” or global competitiveness benefit lies.  That might be appropriate if our primary concern is emissions reduction, rather than employment or economic growth, but if anything, many of our current policies will have the effect of making us less  globally competitive overall, by embedding expensive energy at the heart of the US economy. 

Sam Carana's picture
Sam Carana on March 3, 2011

Thanks for commenting, Geoffrey, I read some of your posts, such as the one where you wonder if high speed rail will be worth the cost. I have no doubt that the cost benefits of high speed rail and electric vehicles are overwhelming.

Just look at the health costs alone. Let me point at the conclusion of a study that the vehicle sector caused $56 billion in health and other non-climate-change damages in America in 2005. The EPA just released a report showing that its emissions control programs to reduce air pollution from smokestacks and tailpipes will save America some $2.0 trillion in 2020, preventing over 230,000 early deaths, at a compliance cost of a $65 billion.

We’re not even talking about CO2 yet, just about short-lived pollutants such as soot and precursors to ozone, which have a dramatic impact on global warming as well. Measures to reduce such pollutants, as proposed in a recent UNEP report, could reduce warming in the Arctic in the next 30 years by two-thirds, as well as avoid 2.4 million premature deaths and result in 1% to 4% higher crop yield.

Such figures support a rapid shift to clean energy, with the promise of a huge global clean energy economy. I used the term race because it appears that America does not fully embrace clean energy yet, but the longer America waits, the harder it will be to produce a share of the global market for components of high speed rail, electric vehicles, rechargers, smart meters, wind and solar power facilities, high voltage transmission, LED-lights, etc.

As my post points out, America does have plenty of scope to get into clean energy, and this is best done through feebates that impose fees on polluting products while using the revenues to help local transport electrification and clean energy programs.

Sam Carana's picture
Sam Carana on April 19, 2011

Geoffrey: “I could quibble with your choice of data and interpretation of several of the charts, such as the one on trade deficits.”

You did, Geoffrey, at Oil prices soar in spite of sharp increase in U.S. production under Obama, but let’s leave it at that. 

Geoffrey: “My bigger concern is that I find the whole “race” analogy enormously unhelpful.” 

Guess who do appear to find it helpful: 

President Obama, March 30, 2011, in:
BLUEPRINT FOR A SECURE ENERGY FUTURE
blueprint_secure_energy_future.pdf
from:
page 32:
“A global race is underway to develop and manufacture clean energy technologies, and China and other countries are playing to win.
and page 28:
“Race to Green”
Secretary Steven Chu on April 18, 2011, in
We’re in the Global Clean Energy Race to Win: Federal Investment in California Solar Energy Plant
“Today, we are in a global race to develop and deploy clean energy technologies.  We can either sit on the sidelines and watch the competition pass us by or we can get in the race and play to win. 
When we rev up the great American innovation machine, we can out-compete any other nation.”

President Obama said, March 30, 2011, in Blueprint for a secure energy future:

page 32: “A global race is underway to develop and manufacture clean energy technologies, and China and other countries are playing to win.”

page 28: “Race to Green”

Secretary Steven Chu, April 18, 2011, in We’re in the Global Clean Energy Race to Win: Federal Investment in California Solar Energy Plant:

“Today, we are in a global race to develop and deploy clean energy technologies.  We can either sit on the sidelines and watch the competition pass us by or we can get in the race and play to win. When we rev up the great American innovation machine, we can out-compete any other nation.”

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