News

Jan. 31, 2013

Price on carbon necessary but not sufficient to fight global warming, speakers at U.S.-Australian energy conference agree

By Mark Golden

STANFORD, Calif.—To fight climate change, corporations and consumers should have to pay for emitting greenhouse gases, speakers at a recent Stanford University energy conference agreed, but other government actions are still needed.

Several countries, as well as California, have instituted a price on carbon, either by taxing greenhouse gas emission directly or by issuing a limited number of emission permits that utilities and other heavy polluters must purchase. Many supporters of putting a price on carbon insist that government should otherwise drop all other climate change rules and let the free market do its work.

Speakers at the U.S.-Australian Dialogue on Energy conference on Jan. 16 did not see the issue that way.

Australian Ambassador to the United States Kim Beazley
Australian Ambassador to the U.S., Kim Beazley
“As much as we economists like to embrace market pricing, a lot of public good is not included in the market price,” said Lawrence Goulder, economics professor and director of the Stanford Environmental & Energy Policy Analysis Center. “It pays to have a multiple component approach.”

To complement a carbon price, speakers like Goulder support such things as requiring utilities to purchase or produce more renewable electricity, making energy efficiency rules for buildings, cars and appliances stricter, improving energy use information for consumers, and public funding of research and development.

Australia recently imposed a tax of about AUD $23 per ton of carbon dioxide. The head of the agency administering that tax and other programs to fight global warming, Chloe Munro, insisted that the tax is encouraging continued efficiency gains in Australia’s energy-intensive economy.

“The carbon price makes the other mechanisms work better and, most importantly, rewards investment,” said Munro. “BHP Billiton (the world’s largest mining company) achieved 6 percent energy reduction per unit of gross domestic product in 2011. Australia in total is back to its 2006-07 level of demand, despite a reasonably strong economy. The carbon price is reinforcing this trend.”

James Sweeney, director of Stanford’s Precourt Energy Efficiency Center, which cohosted the event with Australia’s Department of Foreign Affairs & Trade, applauded the recognition that price is only one part of the mechanism. Several barriers prevent higher prices from reducing consumption at the level one would expect, said Sweeney.

“As prices rise, people figure out ways to use energy more efficiently, but you still have that gap even when reducing consumption is both economically and environmentally attractive,” Sweeney said. “The signal from prices to action is very muted. You have to compensate for that muting.”

For many wealthy and even many middle-class Americans, reducing utility bills is either not important enough to motivate change or consumers do not know what actions to take, Sweeney explained. Lower income people, on the other hand, often cannot afford to improve their home’s efficiency with better insulation, for example, or by purchasing new, efficient appliances, even though the savings from such upgrades often pay for the investments fairly quickly.

Room for Profit

In addition to government action, though, Sweeney sees business opportunities. The U.S. government‘s “Energy Star” program has been very effective in reducing waste and has expanded sales for makers of efficient appliances. Privately-held company Opower contracts with utilities to promote energy efficiency by telling homeowners how they are doing compared with their neighbors. In six years, it has grown to more than 250 employees.

Business opportunities will continue to arise, said Sweeney. Government, for example, should figure out the right rules that would allow private financing of building upgrades.

“And for the billions of dollars California utilities have spent on new meters, we are getting almost nothing on how to reduce consumption. The best information I can get is hour by hour total kilowatts used and it’s only available the next day. That makes figuring out where you are wasting energy very difficult,” he said. “Information can be essential, but it has to be redesigned. That’s a great opportunity for companies.”

Clean energy technologies often need a long time and a lot of funding to get from laboratories to full commercialization, said John Scull, a managing director of Southern Cross Venture Partners. “In almost all cases, you need some government support in the early stages,” he said.

Huge Undertaking

Dian Grueneich, a consultant and former California utilities commissioner, warned that people have not generally grappled with the seriousness of the actions needed to avoid the worst effects of global warming. By 2050, she said citing a recent study, everything that can run on electricity rather than a combustion engine must do so. In turn, 75 percent of power supplies must be generated without burning fossil fuels, while the other 25 percent must come from low-carbon technologies. And energy must be used near 100 percent efficiency.

“Price alone doesn’t deliver energy efficiency, at least not at the magnitude that we need,” Grueneich said. “If we are going to do anything on climate, we have to think very holistically.”

Free markets have, in fact, undermined the impact a carbon price in the United States could, said Joe Nation, who teaches public policy the Stanford Institute for Economic Policy Research. New technologies for extracting fossil fuels have drastically reduced domestic natural gas prices and kept oil prices in check, said Nation, who as a state assemblyman co-authored California’s global warming act, often called “AB32.”

“I fought very hard for the cap and trade approach in AB32 against some people who just wanted a regulatory, command and control approach,” Nation said at the conference, “but with all these discoveries I would say energy prices are going to be flat to slightly down for the next 10 to 20 years. That suggests that you can’t accomplish climate goals just based on price.”

(Mark Golden works in communications at the Precourt Energy Efficiency Center at Stanford University.)

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Media Contact: Mark Golden, (650) 724-1629, mark.golden@stanford.edu