A plea to change the rules of the energy game

Vinod Khosla and two co-authors have prepared a nice little essay, posted on the Daily Grist, which argues that the rules that have defined energy markets and industry in the 20th century are no longer appropriate for the 21st century — in fact, they’re harming us and need to change.

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 do not factor in the indirect costs of oil — the cost of protecting oil supply lines to the Middle East, the cost of oil price shocks that lead to recessions, and the cost of intensified storms that make coastal property uninsurable. Insurers have priced insurance in Florida so high that the state has stepped in and pledged tens of billions of dollars in public money if a major hurricane strikes — despite the fact that neither the state’s catastrophe fund nor the state-chartered insurance company has anywhere near enough money to pay the claims.

The rules perpetuate our energy habits. Auto companies sell cars that get as little as 13 miles per gallon — something they could never do in Europe, Japan, or even China. Utility companies make more money when their customers waste energy and less when they save it. Developers build with energy-inefficient materials because they don’t have to pay the utility bills. And power plants use the atmosphere as a free garbage dump for their global-warming emissions.

We need new rules that will make the best choice for the country also the best choice for consumers. We don’t have to undo investments we have already made. We don’t need to take old cars off the road or shut down coal-fired power plants prematurely. But the next investments we make — the next cars and buildings we design, the next power plants we build — should follow new rules that reflect our need for clean, renewable, efficient energy.

And what should these new rules be? They argue for a price on carbon, and they want a “carbon efficiency” standard assigned to new vehicles. They want utilities to see energy efficiency and conservation as a business opportunity, not a threat to their revenues, and they want rules in place that would offer utilities a way to monetize investments in structural efficiency. They want serious investments in a smart grid, and increased government support of the clean-energy industry in the form of incentives for clean energy and R&D in future technologies, as well as demonstraton and deployment (funded, of course, by clawing back subsidies to the oil industry).

All the arguments against action — from “global warming is not proven” to “India and China have to go first” — share the same assumption: that accelerating the move to clean energy will impose huge economic costs on the country. That’s a false premise. As soon as we get the rules right, we will create a multibillion-dollar market for new products and technologies here in this country. The sooner we create that market, the sooner companies will emerge to profit from it. Any delay simply forfeits an economic advantage to countries that are more far-sighted in setting their rules.

A message, of course, that also applies to Canada, Ontario, and Toronto. And what’s interesting is that once the rules are in place industry and consumers have direction. Some may bitch and complain in the beginning, but eventually everyone falls in line and it’s business as usual. We adapt, and the smarter ones prosper. I think industry wants guidelines and direction. I think consumers want to be told what to do, because they’re looking around and feel powerless and don’t feel their individual voluntary actions will have an impact if they know — or simply believe — their neighbour isn’t doing the same thing. The key is to put everyone on the same competitive playing field, and that means the same rules.

London Mayor Ken Livingstone said it best last week when he explained, based on his own experience, why New York Mayor Michael Bloomberg should push forward on plans to introduce a downtown congestion charge: “There may be one or two people who will predict doom and gloom — ignore them. There was this drip, drip, drip of negativity and it took a toll on my poll ratings. But within a week of the congestion charge starting, my rating had gone up 12 per cent.”

More of us, especially those in political office, need to realize that the drip, drip, drip of negativity — i.e. the folks predicting doom and gloom — come from the folks that benefit over the short term from the status quo. The oil companies. The auto makers. Big polluting industries. And unions.

But the long term — our sustainability as a country, an economy, and as a society — is what matters. And the short term, while there will be some pain, will also see growth and opportunity in other areas. That means we have to take our cod liver oil, not voluntarily, but as part of a mandatory global health program.

3 thoughts on “A plea to change the rules of the energy game”

  1. I agree wholeheartedly with one caveat — the excuses the Bush admin make about not acting are not based from fears about the economy. They’re about fears for the oil industry and their friends in the oil industry. Simple as that. Status quo may kill the planet, but at least they’ll all be rich.

  2. “The oil companies. The auto makers. Big polluting industries. And unions.”

    I’d phrase it a little more generally: “The oil companies. The auto makers. Big polluting industries. And their employees…”

  3. I have argued in the past for a general tax on the production and importation of energy — meaning all kinds of energy, not only petroleum. My idea was that this new tax would entirely replace the federal income tax, which could be abolished.
    There could be a lower tax rate for non-polluting energy sources, and probably an exemption for energy that people produce for their own consumption (i.e. from their own solar panels or wind turbines).
    Such a tax could address, at a single stroke, a large majority of the concerns Vinod Khosla raised. I think the aspect of never having to fill out Form 1040 again would be a strong selling point too.

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