This week we read about energy and climate change policy instruments. The purpose of the blog assignment is to take a position on the use of joint vs. single instruments as a way to affect innovation. In the spirit of making our blog responses more interesting, I am attempting to take the contrary view to my peer (the only other student in the class this semester) and defend the use of single instruments as a good instigator of innovation.

According to Oikonomou et al (2010), there are four types of policy instruments for energy and climate policy: energy tax, subsidies for energy efficiency, labeling in buildings, white certificates, and carbon tax. They span four different types of measures – tax, subsidies, regulations, and certificates.  The article claims that each of the five policy instruments do very little for innovation and for raising climate awareness. When the instruments are combined, only four combinations create any value greater than that of a single instrument. Three of these four combinations include subsidies for energy efficiencies, which seems to work as a balance to additional costs related to taxes, certificates, and regulations.

However, something interesting emerges when the combinations of the five instruments are tested for their contribution to diffusing existing technology or spurring new innovative technologies. Of course, all combinations lead to greater diffusion of existing technology but all four of the highest combinations for innovation include a carbon tax. Could it be that a carbon tax is an ideal way to drive innovation? The data in this study suggest that in combination with other instruments it leads to innovation. But what about as a single instrument?

A closer look seems to suggest that innovative technologies follow a carbon tax. For example, the Copenhagen Economic’s work for European Commission DG TAXUD finds global evidence of a link between taxes and innovations. The report references findings of a study in the quote below:

A recent study carried out by the OECD finds that current and future expected carbon prices appear to have powerful effects on R&D spending and clean technology diffusion. The study assumes a global carbon price reflecting the CO2 emission trajectories necessary to keep temperature increases below 2˚ Celsius. Under this scenario new technologies will contribute with ca. 50 percent decarbonisation where current rates are ca. 35 percent. These calculations are based on a detailed description of the energy sector (bottom-up) and the carbon markets combined with a general description of the global economy (top-down, CGE).

Frankly, it’s easier to find support that carbon tax and cap-and-trade (and other instruments) do NOT lead to innovation. So, this is a tough position to argue…it seems that policy rarely inspires innovation.

But, I will end by pointing out that the single instrument does have the advantage of economy and simplicity, and supposedly greater efficiency. Those characteristics make it an appealing option. It is difficult to project whether a carbon tax in the US would lead to greater innovation or just long-term higher costs for the energy consumer. Regardless, it is an interesting concept to consider.

As I mentioned in my earlier blog post, the Intergovernmental Panel on Climate Change (IPCC) issued a report titled “Climate Change 2013: The Physical Science Basis” that removed any doubt about the role of humans in global warming. Although there has been some skepticism, the scientific community appears to accept the findings which raise questions about energy and environmental policy.

I can’t help but wonder what the role of sustainability and sustainability communication should be in companies’ responses to the recent news. Clearly, corporations need to continue to reduce emissions and begin to adopt more clean energy and renewable sources of energy. But, I would go one step further. As part of their social and environmental responsibility, corporations need to consider promoting sustainable behaviors to their audiences. Some of my prior research suggests that corporation spend a lot of time talking about their environmental good works but very little time trying to encourage the public to think critically about environmental issues or take action toward issues. Yet, engaging the public in solving environmental problems will lead corporations to greater respect and trust by the public.

Carbon Emission: Where do we go from here?

According to the EPA and IPPC, the energy supply contributes more greenhouse gas emissions than any other source.  However, the competition in the energy business is heating up as new energy sources are becoming more readily available – particularly natural gas from shale drilling. And, investment in emission reduction and new technology development does not seem realistic without incentives that balance the competitive landscape and reward environmentally responsible behaviors.

The findings from the climate change report are grim, and experts are calling for action. According to a column in the New York Times by Eduardo Porter “William Nordhaus of Yale, to cite one estimate, wrote recently that allowing uncontrolled carbon emissions would raise the world’s temperature 3.4 degrees Celsius (6.1 degrees Fahrenheit) above that of the preindustrial era by the end of the century and cost the world a fairly modest 2.8 percent of economic output.” Something really does need to be done.

Two popular options for motivating emission reductions are a carbon tax and a cap-and-trade system. Both have benefits and drawback, as we have seen in other countries and regions. For example, according to the National Renewable Energy Laboratory’s report Carbon Taxes: A Review of Experience and Policy Design Considerations, countries such as Finland, Norway, Sweden, Denmark, and some Canadian provinces have experienced success with a carbon tax. They have seen marked decreases in carbon emissions, and the tax funds have been redirected to environmental projects, and in some cases to reduce income taxes and other taxes. But, carbon taxes raise a number of concerns. First, while a carbon tax sets a known cost per pound of emissions, it does not inherently limit emissions. It may increase costs to businesses but not achieve the overarching goal – reduce emissions. Recently, the Australian government announced its intentions to repeal a carbon tax in the near future.

The other common approach is cap-and-trade, which seemed to be welcomed policy in 2009 when the American Clean Energy and Security Act was approved by the US House of Representatives. However, later, it was defeated in the Senate. In many ways the bill was similar to the European Union Emissions Trading System, which has had the greatest volume of CO2 allowance trades of any carbon market program. Despite a few bumps in the road, it has been successful in reducing carbon emissions. The advantage of a carbon market is the ability to set an emissions threshold and permitting allowances to be traded on the market, setting a reasonable price. As the economy improves, prices rise, and should the economy fall, prices follow.

But, as Newell, Pizer, and Raimi write in the journal article Carbon Markets 15 Years after Kyoto: Lessons Learned, New Challenges, “A key question for – and sometimes criticism of – current market-based policies concerns the degree to which they encourage long-term investment in new technologies rather than solely short-term fuel-switching and energy conservation” (p. 132).  Will cap and trade programs lead to the long-term goal of creating technologies that reduce emissions and/or use renewable energies?

To add a dose of reality, the current political environment in the US would hardly allow for either policy. Congress can’t even get a budget passed. That is why we see regulations on emissions coming from the Whitehouse and EPA in conjunction with programs that will fund research into new technologies that will help industry reach the regulation requirements. It’s not a perfect solution, but considering the current state of our political system, it may be the best solution to keep forward momentum.

According to the US Environmental Protection Agency and the Intergovernmental Panel on Climate Change, globally, the energy supply contributes 26% of greenhouse gas emissions measured in the environment. This does not include transportation (13%), industry (19%) or residential and commercial buildings (8%), among other industrial outputs. The emissions come primarily from coal, natural gas and oil use for heating (most often in the form of electricity). As reflected in transportation, this does not include fossil fuels used for air, road, and rail travel. Although coal and oil may be plentiful, the cost to the environment is significant.

In industry, it appears that some companies are not taking energy use and emissions seriously, or at least the disclosure of emissions (see: Amazon, Apple Among Companies Ignoring SEC Climate Change Risk Disclosure Rules). This is a problem, particularly considering recent findings by the Carbon Disclosure Project that 10% of world’s largest companies (Global 500) produce 73% of greenhouse gases.

So, how do we create stable energy policy that encourages more clean energy use and moves us away from high impact emissions? We saw two steps in the right direction this week in the form of energy and environmental policy coming from the White House. First, Obama announced higher standard for carbon emissions from power plants for the first time in the US. This ground breaking legislation would require the coal industry to lower its emissions to meet that of other fossil fuels, such as gas. Critics point out that the technology to reduce emissions to this level does not exist.  And, that makes Obama’s second proposal that much more appealing to the coal industry. The President announced an extension of a Department of Energy program that will fund loans for technological developments that reduce carbon emissions of fossil fuels, including coal and natural gas. The coal industry now has the resources to develop technology that will reach the standards set by the administration. This was a smart move that drives interest in both pieces of legislation. Access to loans will be more valuable with the looming standards for carbon emission. And, the higher standards are more readily accepted with access to loans to help develop technology that will clean up fossil fuel emissions.

However, cleaner fossil fuels only offer a short term answer. The greater question is how do we encourage transition to renewable energy? As Ann Carlson and Robert Fri suggest in their article Designing a Durable Energy Policy, goals of clean energy policy play outside of the marketplace – in other words, people don’t want to pay more (or be taxed) to have more secure energy or cleaner energy.  That makes the transition to a new energy source difficult to sustain.

There is no easy answer, but I believe businesses have a role to play in bring about the transition. As an important constituency of energy policy, their stance can influence legislators and the public. By adopting renewable sources of energy and demanding reasonably priced clean energy sources, they will affect the marketplace for these products. Sustainability has become a business strategy and part of the culture for many companies, and that can have a broad impact on energy use and emissions. Although some companies do not appear to have made the necessary commitment to move the business world forward, others have, and I think that is another step in the right direction.

This weekend I was reading through a new policy proposed by the Environmental Quality Board (EQB) in Pennsylvania to regulate the oil and gas industry. The regulations were posted on August 27, 2013, and the Board is taking public comments for 60 days. Apparently, an advisory board met many times over the past few years to develop this and other legislation relevant to the oil and gas industry in the state. I’m curious to know more about how the policy was developed and how the public comments will influence the final regulations.

Energy Policy vs. Environmental Policy

At first glance, I was thinking about the new regulations as energy policy for the state. Considering the source of the regulations (PA Department of Environmental Protections), the policy, of course, has many environmental aspects too. Sometimes it is difficult to distinguish between environmental and energy policies, particularly when a policy includes elements of both. According to the DEP website, the goals of the legislation are to:

Ensure the protection of public health, safety, and the environment.

Protect public resources to minimize impacts from oil and gas drilling.

Modernize the regulatory program to recognize advances in extraction technology.

Specify the acceptable containment practices to prevent spills and releases.

With a focus on health, safety and the environment, the policy includes elements of energy and environment. I’m still trying to determine which it is.

Should we keep energy policy and environmental policy independent?

William Lowry (2008) notably argued in  Disentangling Energy Policy from Environmental Policy that the two types of policy should be developed independently because the inclusion of environmental elements in energy policy makes the policy politically contentious and ultimately inhibits good policy development and implementation. Traditionally, the purpose of US energy policy is to ensure that citizens have access to an adequate supply of energy, to keep the costs of energy low, and to work toward energy independence. Environmental policy, on the other hand, tries to minimize the impact of business, personal, government and other actions on the environment as well as offer ways to encourage responsible use of environmental resources. When the two intersect (energy and environment), Lowry argues that they can work against one another.

Of course, he was not arguing against regulations of the energy industry, and the example of the recent PA regulations may not be a good one in this context. Maybe a better example would be national legislation such as the Energy Independence and Security Act from 2007 which provided funding for training for green jobs. Although green jobs are needed, some would argue that they should not be funded through energy policy.

That’s one perspective, but here’s what I think. There are advantages to including environmental elements in energy policy (and discussions about policy). First, one of the biggest hurdles in developing good energy policy is overcoming the lack of public will for energy policy when the economy is strong and the price of energy is low. However, I believe that including environmental values in the debate about energy could be a way to create a sense of urgency in good economic times, when cost and availability are not driving policy. I think we are seeing this with the calls for policy to help address issues of climate change. Although the cost of energy may not motivate changes in policy, the concern about the impact of fossil fuels on global warming may help spur some policy changes that move us toward renewable resources.

And, second, I think that our recent understanding of the link between energy use and global warming makes the inclusion of environmental elements in energy policy imperative. Energy policy that considers only resource availability, cost, and energy independence without addressing the impact of energy is not sustainable (and I would argue not ethical).

It is good to see PA address important issues regarding waste water treatment, public land use, and safety related to abandoned mines (all of which are in the regulations). So, regardless of whether the new regulations in PA are energy policy or environmental policy, they appear to be good policy for the state.

I just started reading the book The Power Surge: Energy, Opportunity, and the Battle for America’s Future by Michael Levi. From what I gather so far, he recommends that the US not focus on the “next” energy source with an eye toward transitioning from oil and gas to wind and solar energy. Rather, from his perspective an “all in” strategy is the best way forward, meaning that both new energy sources and fossil fuels be pursued simultaneously and leveraged in a way that helps the country move toward energy independence. This means developing new energy sources while seeking ways to make fossil fuels cleaner and more efficient. I’m not sure I agree with everything in the book so far, but it has me thinking about what his recommendations might mean for US energy policy.

Historically, energy policy has presented a challenge due to the artificial fluctuations in energy prices, often tied to unrest in the Middle East or the manipulation of pricing by OPEC. We have seen this play out again in recent weeks. A report published in early September found that the “primary drivers of higher crude oil prices over the past five weeks included an uptick in unplanned crude oil production outages and increased tensions in the Middle East.” As the US weighs a military intervention in Syria, energy prices appear, once again, to be in jeopardy. Most US citizens agree that moving away from dependence on oil from the Middle East is in our best interest.

As the Congressional Research Service notes, the debate around energy policy hinges on long-term vs.  short-term focus and a drive to increase supply vs. encourage conservation. Sometimes the best choices in this area are the least popular. As the report says:

An energy policy that would most effectively shield the nation and the economy from the worst effects of supply shortages would be a policy that might well deny the nation the full benefits of cheap and plentiful energy when markets are stable.

Although the book by Levi recommends developing new energy sources and pushing for cleaner fossil fuel standards, others believe that the only way forward it through transitioning to new sources. Historically, we have seen transitions in energy and technology – including the coal-powered steam engine, electricity, and petroleum use; however, projections suggests that a significant transition to new clean energy sources, such as wind or solar, would take decades in the current environment. That may be too late to prevent long term impact of global warming. As a recent article in the New York Times explains, “we have a lot of mainstream science that says if human society keeps burning fossil fuels with abandon, considerable land ice could melt and the ocean could rise as much as three feet by the year 2100.”

Considering that little has changed since the Congressional Research Service reported to Congress on Energy Policy: Historical Overview, Conceptual Framework, and Continuing Issues in 2004, the chances of a complete transition to a new form of energy seem unlikely at best. Rather, the policy of the current administration seems to parallel Levi’s, pursuing many energy sources at once.

Finding ways to balance the pursuit of multiple energy sources while encouraging meaningful change in current policies certainly raises challenges. However, some states appear to be pushing for alternative management processes. For example, California Public Utilities Commission has been encouraging power companies to increase energy storage to more efficiently manage the greater demand for energy in peak times. According to a recent TriplePundit story, California Moves Forward on Energy Storage, management of energy in this way “makes for better utilization of clean, renewable power, and, by extension, less pollution and carbon emissions.”

An important dilemma in the use of electricity as an energy source is the seasonal peaks of usage and the inefficiencies that it brings. Policies that encourage energy storage as well as clean sources for electricity generation will help work toward that balance.

I look forward to reading more of the book. I’ll share any good insights that I find.

Thank you for the warm welcome to the class. My name is Denise Bortree, and I am an associate professor in the College of Communications here at Penn State. I was just granted tenure in July, and as my husband says, I am on to the next big adventure, which is learning more about sustainability management and policy. This is my first class in the degree, and I’m eager to get started.

My research focuses on two areas of communication: corporate sustainability communication and nonprofit communication.  Recently I have been looking at volunteerism in the sustainability sector, which overlaps both areas of research. I’m confident in my knowledge about communication, both internal and external to an organization (I have a master’s and Ph.D. in mass communication), and I’m excited to be getting more formal training in sustainability management. I see my research benefitting from a greater depth of knowledge about sustainability practices and policies.

Before moving to State College in 2007, I spent 10 years in Jacksonville, Fla., and six years in Columbia, SC.  For nine of those years, I worked in the corporate world in finance, marketing, and communication management. It was great preparation for what I do now. I teach in the advertising/public relations department in the College of Communications. Most often I teach undergraduate classes in writing and campaign development. The classes are hands-on and teach writing and strategy skills for organizational communication. In the campaigns class, students work with local nonprofit organizations to develop and implement public relations campaigns. I truly enjoy being able to connect student learning to service projects in the community.

When I’m not writing or teaching, I love to cycle. I picked up the sport four summers ago – I hopped on a bike and haven’t looked back. Centre County has great roads for riding, lots of rolling hills and few cars. This summer I decided to take the commitment up a notch, and I joined a charity ride from Pittsburgh to Delaware Beach. In total we road about 450 miles in seven days. It was amazing!

Currently, I live in State College with my husband and daughter (8 years old). My daughter enjoys gymnastics and art. She is on a recreational gymnastics team this year, and she loves it. My husband works for a company in Atlanta but telecommutes from our house (which works out well for us). A few years ago he took a World Campus class too.

I’m looking forward to this class!