Belfer Center Brief Urges Higher, Stable Energy Prices to Achieve Long-Term Energy Policy Objectives
Higher and stable energy prices would help achieve all US energy policy objectives in the longer term—improved oil security, lower greenhouse-gas emissions, more efficient operation of the electricity system, more incentives for private-sector innovation in energy technologies, and more incentives for consumers to purchase cleaner and more energy-efficient products—according to a recent policy brief from Harvard’s Belfer Center for Science and International Affairs.
The brief is based on the book, Acting in Time on Energy Policy (Brookings 2009), edited by Kelly Sims Gallagher, director of the Energy Technology Innovation Policy research group at the Harvard Kennedy School’s Belfer Center.
The brief concentrates on six topics: climate change policy, carbon capture and storage policy, oil security policy, energy-technology innovation policy, electricity market structure, and infrastructure policy.
The United States cannot afford to wait any longer to enact long-term policies on these topics. In fact, acting early is clearly in the longer-term interest of the United States.—“Acting in Time on Energy Policy”
Climate change policy. The world, and specifically the US, must first establish a long-term goal for emissions concentrations in the atmosphere, then establish a long-term GHG emissions budget. Then, policies can be enacted that will enable the United States to stay within its budget, according to the brief.
The US government must place an initial price on US greenhouse-gas emissions, either through a cap-and-trade mechanism or a tax. A tax has the advantages of predictability and being simple to implement quickly. (Importantly, such a step could raise revenue, which could be used for investments in clean energy technologies, income tax relief to the middle class, or deficit reduction, etc.).
International engagement—especially with China—is also a need.
Carbon capture and storage. Carbon capture and storage will be important to both future climate change policy and future energy policy, the brief asserts, calling for Federal subsidies for 10 to 20 commercial-scale CCS projects. The long-term goal should be the adoption of CCS for all large stationary sources.
Oil security policy. With oil prices set in a global market, the degree of US economic vulnerability is proportional to its total oil dependence, not just import dependence.
The oil security problem encompasses four concerns: short-term economic dislocations from sudden increases in oil prices, long-term supply inadequacies, a foreign policy overly constrained by oil considerations, and environmental threats, specifically global climate change.
To address these concerns, the growth in world oil consumption and greenhouse gas emissions needs to be reduced. The United States needs to place a price on both imported oil and carbon either through taxes or a cap-and-trade program. By increasing prices, the government sends a strong signal to consumers to use less oil and emit fewer grams of carbon, and it also sends a powerful signal to entrepreneurs and investors who are striving to develop substitutes for imported oil.
Congress should consider a variable tax that would be triggered when oil prices reach a certain threshold, for example $90 per barrel, so if oil prices slipped below $90 to $80 per barrel, a $10 tax would be imposed. If the price later rose above $90, the tax would disappear. Politically, this proposal seems unlikely during an era of low oil prices, but we should be prepared to take advantage of this opportunity when oil prices rise again.
Policy for energy technology innovation. Current US public and private energy research, development, and demonstration (RD&D) expenditures are small in relation to the economic, environmental, and security stakes, as well as in relation to the opportunities for US businesses.
In order to move cleaner and more efficient energy technologies from the laboratory into the marketplace, market-pull policies are necessary complements to technology-push policies. There should be a much greater coordination between the push and pull policies—and subsequently between the different federal and state actors that play a role in making these policies&mash;than has existed until now. In addition to improved coordination guided by an overall energy-technology innovation strategy, the link between government-funded basic science and applied R&D efforts, and the demonstration and early deployment innovation phases need careful attention.
Electricity market and infrastructure policy. Without the necessary infrastructure investment, energy policy cannot take effect, and without sound policy, the right infrastructure will not appear.
Acting in time thus requires that policies are put into place now to support efficient investment in infrastructure so that all the other desirable energy policies can be implemented. Improved scarcity pricing and a hybrid framework for transmission investment are two workable solutions that seem necessary to meet the needs for a long-term approach to infrastructure investment.
Gallagher, Kelly Sims, ed. “Acting in Time on Energy Policy.” Policy Brief, Energy Technology Innovation Policy research group, Belfer Center for Science and International Affairs, Harvard Kennedy School and Consortium for Energy Policy Research at Harvard, 20 May 2009