Climate champions, think how bad things were this time three years ago.
Copenhagen's failure in 2009 still stung. The U.S. Senate hadn't even mustered a vote on its version of Waxman Markey. Numerous leadership states were moving backward on climate after the November 2010 midterms. The Obama Administration seemed poised to permit the Keystone XL Pipeline. And worst of all, after the failures of 2009-10 and the phony East Anglia climate-gate brouhaha, mere mention of climate change had become toxic politically. With no one naming it, climate had all but vaporized as an issue in the U.S.
Fast forward to today and the picture has changed considerably.
First off, U.S., greenhouse gas emissions are declining. They are 12 percent below 2005 levels, and national emissions have fallen every year since 2008.
As a result, the U.S. is within striking distance of President Obama's 2009 pledge to reduce emissions by 17 percent below 2005 levels.
The downturn in emissions means there is a decent chance that the U.S. will arrive in Paris for the next major international climate conference at the end of 2015 on track to fulfilling its reductions commitment, a pole position that should give Obama considerable leadership chops with other heads of state.
Some of the reduction in emissions has been the result of the downturn in the economy, but it's the other reasons that are especially interesting.
Coal. The single biggest drop in U.S. emissions has come from the decline in coal fired electricity generation, which has gone from 50 to 39 percent in the last four years -- a nearly 25 percent decline.
This has resulted in part from a remarkable display of grassroots muscle-flexing by the Sierra Club and tens of other regional and local groups, who have successfully argued that 180 planned coal plants should not be built, and that 158 existing plants (a third of the coal fleet in 2010) should be shut down. By 2020, experts predict, coal based electricity will decline further to about a quarter of the U.S. electricity fuel mix.
Low cost natural gas has been a critical ally in all of this. With additional costs on coal-based power generation coming in the form of new EPA regulations, utilities have made business decisions all across the country that gas plants will be less risky and cheaper to run for base load power.
Gas plants emit about half what coal plants do. Assuming that methane from fracking and leaks can be kept under control (still unclear), this can be a major benefit to the atmosphere.
Buildings. Less well known, but potentially even more important, buildings in the U.S. are becoming much more energy efficient, and future trends look promising.
The Energy Information Agency, which tracks U.S. emissions, has revised downward its curve of anticipated energy use by U.S. buildings every year since 2005. The EIA calculates that anticipated energy use in 2030 could be 40 percent lower in the U.S. than was anticipated in 2005.
This is a big deal. What's going on?
There is a joke that when economists walking down the street see $100 bills lying around, they won't pick them up because if they were real, someone would have already picked them up.
It turns out that the private sector has been figuring out that there really are a lot of $100 bills lying around and many of the more enlightened are busy collecting them. Manufacturers, for instance, have learned they can save money by building cleaner assembly lines and by retrofitting old plants. This makes their products more economically competitive. More commercial building owners are also learning to save money by being energy efficient. And developers, and architects around the country are adopting advanced designs for cleaner buildings that their clients are seeking out more frequently.
The change rippling through the building sector is nothing short of remarkable and it is a largely untold story. A lot of this is the result of decades of federal, state, and local policies on energy efficiency that have begun to kick in. As a result, the gigantic U.S. fleet of millions of buildings is collectively beginning to alter course and become cleaner.
It is illuminating to realize that these declines in energy use are being driven by leadership fractions of owners and developers who are out ahead of policy because of the economic benefits of moving faster. As policy catches up and helps everyone else learn how to take advantage of these savings opportunities, the building sector will become cleaner and cleaner in coming years.
On the horizon of this movement is a new class of net zero energy buildings that generate at least as much energy as they consume. Developers like KB Homes have been building them in multiple states during the past several years. Experts estimate that more than two hundred of these net zero energy buildings have been built in the U.S. during the past five years.
Within a few more years, many thousands of these buildings will be coming on line. California is requiring that all new residential buildings be net zero emissions by 2020 and that all commercial buildings be net zero by 2030. Net zero buildings will surely catalyze another wave of revolution in building efficiency. A group called Architecture 2030 has just released an online catalogue of materials that builders will need to construct these buildings. Inevitably more and more buildings in other parts of the country will begin incorporating these materials as well.
States other than California are enacting tax credits to create incentives for net zero buildings. Just think what this could mean in 10 years if more states adopt these rules and standards. It is easy to think automatically that a net zero home is some kind of distant futuristic and expensive fantasy, but these building are being built now and developers like KB Homes say there is only about a small cost increment. Tax and other incentives could easily close that gap.
States and cities are also learning how to finance energy retrofits of existing buildings, a key need if demand for retrofits is to increase. State and local officials are doing this by encouraging policies that allow energy retrofit financing through property and utility bills. By the end of 2013 $56 million in funded projects will have run through Property Assessed Clean Energy (PACE) finance systems to upgrade windows, appliances, lights and insulation in commercial and residential buildings, and another $215 million in PACE project applications have been filed. Up front capital comes from lenders and other sources. Debt service payments do not exceed monthly energy savings so there is no noticeable cost to the bill payer. As this market grows, banks see a business opportunity to make hundreds of thousands of small loans with almost no risk.
Thirty-one states have enacted PACE policies to finance commercial building retrofits, and a growing number of states and localities are working to take the same approach with residential properties. When these systems are up and running across the country, private and public actors will be working together to wring energy savings out of all kinds of buildings all across the country, saving billions of dollars and reducing emissions.
The U.S. Department of Agriculture offers a program backed by federal dollars that helps rural households and businesses finance energy efficiency upgrades through their local Rural Electric Cooperative (REC) electricity bills. Rural homes and buildings are some of the least efficient buildings in the country. These are typically also lower income communities where these savings can make an enormous difference. As these programs proliferate across the country through the REC community, there is no good reason why larger investor owned utilities can't develop on-bill finance programs as well.
What's also striking about the building retrofit marketplace is that it is truly bipartisan. Republicans and Democrats both see the value of using energy more efficiently, saving money, and generating jobs to get the work done. Enlightened bankers are eager to see this industry scale so they can more easily finance it. The only real opponents are the Koch Brothers and their ilk who want to sell more not less energy to customers no matter the consequences to the planet or peoples' pocket books.
Vehicles. A remarkable, long awaited technological evolution is also powering energy saving opportunities in the vehicle sector. Obama Administration rules enacted during the President's first term mean that average fleet fuel efficiency in passenger cars is increasing from 29.7 miles per gallon to 54.5 mpg. This is a near doubling that will almost halve average energy use in passenger vehicles, saving consumers billions in fuel costs. To meet these requirements, eight automobile companies have 14 electric vehicles available in the U.S. market. Sales of these vehicles doubled in 2013. Market share is still tiny relative to overall purchases, but there is growing excitement about these vehicles, and all levels of government are working to ease their way onto the roads.
Eastern states and western states, for instance, are crafting interconnected highway systems where drivers are assured of finding charging stations that can power their vehicles along trips hundreds of miles long.
Eight states recently joined together to develop policy approaches to creating incentives for zero emission vehicles. This will create a large market place with harmonized standards, allowing carmakers to maximize sales over a larger territory. We've seen this movie before. States take the lead, and then federal policy follows. There is now broad bipartisan recognition that these cars are GM's and Ford's future and that building them will bring jobs and investment to American workers and communities as well as savings at the gas pump, reduced air pollution and lower carbon emissions.
Renewable energy use is also on the upswing in the U.S.
Wind power development reached a new record in 2012 with 13,000 megawatts added in the U.S. and $25 billion invested. In 2013, a massive bipartisan coalition of business and political leaders successfully drove renewal of the Production Tax Credit (PTC) in Washington, D.C., but project development took a hit because of the uncertainty over the renewal process. The PTC will be up for renewal again in 2014. Hopefully federal lawmakers see the downside of stop and start policy, and will create a stable long term policy framework for the future.
Solar also has had two breakout years in a row in the U.S. Installed solar more than doubled in the U.S. in 2012 to 7,000 megawatts, and will grow by its largest margin ever in 2013 to nearly 11,000 megawatts despite the low cost of natural gas for electricity. This is the kind of growth curve solar companies have been predicting for years. Driving the upsurge is a combination of cost reductions and new financing tools.
The cost of panels has declined by 60 percent since the beginning of 2011. The cost of installing solar (getting it from a manufacturer to a roof) is also coming down as the market grows, though we still trail countries like Germany and Japan, who install solar much faster and more cheaply than we do here. The good news is that as installation costs decline, as they surely will, overall costs to the consumer will decline further as well, making solar even more competitive.
We've also finally learned how to finance solar in the U.S., which is adding to affordability. Solar leases that take away up front installation costs in states with net metering rules like California have allowed residential solar installations to skyrocket. Some U.S. localities and states are also Americanizing a European finance approach by offering long term purchase contracts for the energy generated by solar systems. These long term contracts function like a power purchase agreement and allow homeowners and businesses to get a bank loan to buy their equipment. More than 2,000 megawatts of new demand for solar has been driven by these power purchase agreements in 23 jurisdictions in the U.S. over the last three years, with another 3,000 megawatts of commitments in the pipeline.
Earlier this year, Minnesota passed a solar bill that incorporates a long term contract arrangement like this for 400 megawatts of new solar in the state. In that legislation, there is also a mandatory calculation that state electricity regulators will need to do that tabulates the other values of solar including health, job, and cost benefits. These benefits can then be used by the state's utilities to justify paying a little more for the solar power they purchase from homeowners and businesses that install solar, which will allow these small time generators to do more and larger installations cost effectively. The combination of a long-term contract and a new way of calculating how to value solar may be a model other states will be interested in adopting as well. If so, this model will contribute additional momentum to solar installation growth in the U.S.
Utility 2.0. Seeing the onrush of new wind and solar onto the energy grid, forward looking utility companies are exploring new revenue models for the American electricity system that will keep them solvent, fund maintenance of the grid, and continue to encourage rapid growth in renewable generation. This conversation is conflicted, with a great many voices in the utility sector arguing that renewables will destabilize the U.S. electricity system. Change is always scary, but with more utility leaders now constructively engaging in how best to modify the system rather than just fighting the oncoming changes, there is a glimmer of hope that a rapid transition can be effected more easily. This so-called Utility 2.0 conversation bears watching closely.
States and Cities. Governors and Mayors are also taking action. At the end of June, the Governors of California, Oregon, and Washington and the Premier of British Columbia announced that they intend to get the ball rolling on a Pacific Coast Collaborative clean energy market development program that will bring a million new jobs to the region and also reduce greenhouse emissions by 80 percent or more.
At their October announcement, these leaders detailed a suite of market creation initiatives in the building, vehicle, and electricity sectors that will make the pacific coastal region increasingly competitive economically over coming decades. They are actively recruiting other states to join them in these efforts.
In the wake of Super Storm Sandy, a growing chorus of mayors is also actively urging that cities prepare for oncoming climate change by making their cities more resilient to things like storms and sea level rise. Scores have developed "resiliency" plans. Seeing the extraordinary costs of preparing for climate, more mayors are also taking action to reduce emissions. New York City has helped lead this effort with a remarkable plan for protecting its infrastructure and communities, and it has also commissioned a study to examine how best to reduce emissions by 80 percent by 2050, the level of commitment scientists say we must reach for. New York City is especially vulnerable to sea level rise and storm surge as it learned when Sandy walloped the city in October 2012. It knows it needs to set an achievable example for others to follow if the city is to survive. Other American and international cities are now working with the C40 Climate Leadership Group, which Mayor Bloomberg has helped support, to actively explore how they can achieve 80 percent, or better, levels of emissions reductions.
Science. Super Storm Sandy has super charged the credibility of climate science. The science debate is in much better shape. The trumped up attacks of 2009 on the credibility of the science will not be possible during the next two years. Media is smarter and an array of groups is ready to counterpunch this time. The fifth IPCC report, due out in final this year, is expected to be more definitive on the human contribution to climate change, and the analysis of coming impacts will be even starker. We may finally have gotten past the point where a handful of deniers can muck up the global climate discussion.
Public Opinion in the U.S., influenced by Super Storm Sandy and other extreme weather events, has also crystalized. A Gallup poll in March 2013 found that solar and wind power were the two top choices for domestic energy production, with 76 percent of respondents wanting more emphasis on solar and 71 percent wanting more wind energy. Surveys by the Yale Project on Climate Communications and George Mason University in April 2013 found that: 87 percent of Americans say the President and Congress should make the development of clean energy a high or very high priority; 70 percent say global warming should be a priority for the President and Congress; and 77 percent of people who identified themselves as Republicans or Republican-leaning Independents say the United States should use more renewable energy resources. 70 percent of those respondents want renewable energy use increased "immediately".
Obama Climate Plan. The really big news in the U.S. on climate change, though, is President Obama's climate plan, announced last June at Georgetown University. In it the President promised a menu of actions he and his agencies can implement using executive authority.
Most commented on in the sprawling Obama climate plan is the President's decision to ask the Environmental Protection Agency to finish rules for allowable carbon pollution from new power plants, and for allowable carbon emissions from existing power plants. These rules, long anticipated, will force utilities to either capture and store carbon emissions from their dirtiest power plants or shutter these facilities altogether. Of all the measures in the plan, these are the ones with the greatest impact on reducing greenhouse gas emissions in the U.S. Not surprisingly, they are also the most contentious, particularly the rule for existing plants. A massive fight will unfold over the next three years over these rules.
The Obama climate plan also lays out several other big ticket actions in the U.S., including plans to increase energy efficiency in large trucks and trailers, complete a string of appliance efficiency standards that have been languishing at OMB, and reduce emissions of methane, which is an especially powerful greenhouse gas.
Less commented on is the array of smaller actions the Obama plan is encouraging. Colorado State University estimates there are nearly 300 executive actions the Administration can take to accelerate investment in clean energy markets, encourage state and municipal action, and deepen federal agency action. If the Administration can implement a majority of these over the remainder of its term, it will set in motion a sense of inevitability about the clean energy future. Advocates can help encourage this sense of inevitability by not neglecting the smaller items in the Obama plan.
In a nod to the growing anti-tar sands movement in the U.S., the President also signaled in his Georgetown speech that he was concerned that the Keystone XL pipeline might lead to an increase in greenhouse gas emissions and that he would reject a permit for construction if it did. He seemed to have finally come around to the notion that his own legacy and the climate change problem broadly requires an aggressive approach that advances clean power sources and rejects dirty power. Advocates have their fingers crossed he will maintain this urgency. "All of the above" is not an acceptable strategy.
The Obama climate plan also outlines a set of very ambitious international moves designed to reduce emissions globally.
Most significant is the President's call for a virtual end to U.S. financial support for World Bank financed coal fired power plants. In the months since release of the plan, the Administration has backed up its intention by gathering a coalition of other nations, including the Nordic countries and the United Kingdom, who are each critical funders and board members of the World Bank. The European Investment Bank, the European Bank for Reconstruction and Development and the U.S. Export-Import Bank have each subsequently signaled that they too intend to join the effort to end coal finance. The U.S. and its European allies are now collectively reaching out to other nations including Germany and Japan and other multilateral and bilateral finance institutions to join this effort. A global coalition of environmental and development groups, who have been calling for just this kind of leadership, are rapidly mobilizing to support Obama's proposal with national level organizing in target countries.
It is interesting to see that a parallel coal divestment effort in the non-governmental realm is also taking off. A recent Oxford University study found that a campaign to get investors to take their money out of the fossil fuel sector--which has had 41 institutions join since 2010--is the fastest-growing divestment drive ever.
The Obama White House and State Department are also actively working with China and India to negotiate an agreement to prevent use of hydro fluorocarbons, known as HFCs. An HFC molecule is 1,000 times more powerful a greenhouse gas than carbon dioxide. President Obama and the new Chinese President Xi Jinping have had two constructive conversations on this topic, and the Obama Administration has also reached out to India, which is the other major manufacturer of these gases.
At Copenhagen in 2009, one of the major impediments to success was the very public and highly contentious discussion between the U.S. and China on how best to reduce emissions. Signs are growing that the U.S. and China, who together emit 40 percent of all greenhouse gases, have developed a much improved working relationship. Intervention by the President and Secretary of State John Kerry, have made a big difference here. This relationship has to be robust if the globe is to achieve a serious result in Paris in 2015.
Obama's and Kerry's activist approach on coal finance, HFC's, and relationship building with China has been heartening to international observers and diplomats working on climate change. It signals the beginning of a positive stance on climate negotiations by the U.S. at the beginning of the next two-year negotiation. If this positive trend continues, and it appears it will, this upcoming two year period will be the longest period with publicly constructive U.S. engagement on a climate negotiation in the 20-plus years these negotiations have been occurring.
With this lengthy period of constructive engagement, it should be possible to think more constructively and creatively about a Paris agreement than has been true in past conference negotiations.
Other developments from around the globe are also offering additional bits of confidence and hope as we enter this critical two-year period leading up to Paris.
China. In China, air pollution from coal fired power plants has become a political vulnerability for the leadership and is driving a broad scale call for change. Coal plant emissions kill 1.2 million people a year in China, and are making millions more ill. As a result, Chinese leaders are actively seeking ways to clean the air. As recently as five years ago, Chinese officials regularly said Chinese carbon emissions would not peak until 2030. Recent health and political developments have led analysts at Citibank to conclude that Chinese coal emissions are likely to peak this decade. This is not fast enough to rescue the climate, but growing political urgency about public health impacts (along with faster than anticipated penetration of solar, wind, and energy efficiency) is clearly having an impact on the Chinese leadership. Given this new openness to a more rapid shift away from coal, many are hoping there are ways to cut coal use even faster in China.
The pace of renewables development in China is one example of a faster than anticipated Chinese response. China built 10 thousand megawatts of new solar in 2013, and 12,000 megawatts are expected in 2014, much larger amounts than industry insiders anticipated even a year ago. Not only is China now the largest manufacturer and exporter of solar and wind equipment, it is now installing these technologies at home much faster than anyone else.
China is also likely to be the fastest adopter of electric vehicles and it has clearly signaled that it is accelerating new and existing building efficiency measures as well.
Global Renewables. The global renewables picture is also much more bullish than commonly recognized. The International Energy Agency in Paris reports that power generation from renewables will exceed natural gas and be twice what nuclear will be by 2016. It also says renewable energy is the fastest growing sector of the global power market and that it will be 25 percent of all energy generation worldwide by 2018. Wind and solar are powering this jump, the IEA says, doubling between 2011 and 2018.
Saudi Arabia. One surprising example of the global renewables upsurge is happening in Saudi Arabia. The nation most synonymous with oil has decided to build 54,000 megawatts of new renewables for domestic energy consumption. The Saudis are losing massive amounts of potential revenue by using subsidized oil for domestic electricity. They'd much prefer selling that oil internationally at prevailing market prices of $100 a barrel or more. As a result, it's a no brainer for them to install solar and wind at a large scale to power their electricity grid.
Germany aims to be at least 80 percent renewable by 2050. Already 25 percent of its electricity grid is renewable and despite warnings from many in the utility industry, its electricity system remains among the globes most reliable. Despite warnings that renewables would cause price spikes, wholesale energy prices in Germany are 50 percent lower than they were in 2008. This is because Germany's solar and wind power are eliminating peak prices during the day when the sun shines and at night when the wind blows. The savings for the country are enormous. As a result, Germany's competitiveness as a nation, as measured by the World Economic Forum, has climbed sixth to fourth globally in 2013. Retail prices for electricity in Germany are high, largely because of taxes added to the electricity bill, but they have remained stable (at about 2 percent) relative to household income for more than twenty years. The most recent coalition agreement between Chancellor Merkel and the Social Democrats calls for rebalancing electricity costs between industry and householders, but it is in no way a step back from the aggressive pro-renewables policy of the past ten years.
In an interesting twist, rural areas of Germany have been a primary beneficiary of the country's aggressive renewable energy policy, and as a result, farmers and rural communities are the most passionate supporters of Germany's rapid march towards a renewable future. Half of all German renewables are in rural areas and these communities have realized significant economic rewards in the form of investment, income, and jobs.
Germany's renewable energy law has also become a model for governments around the world. Nearly a hundred governments, including 20 European nations, China, India, Turkey, and Saudi Arabia, and a large number of regional and local governments worldwide, have enacted some version of what the German's call a Feed-in Tariff, which guarantees a long term price for renewable energy production as well as an automatic interconnect with the grid. With these two things in hand, project developers are able to secure a bank loan to finance equipment purchases. The law and these provisions have proven that a rapid shift to renewables is feasible and can be economically beneficial. There are lessons here for the U.S.
Investment Climate. In part thanks to a vibrant policy environment globally on renewables, vehicles and buildings, the clean energy investment picture is positive. Despite a small dip in clean energy investment last year, Pew notes that clean energy investment in 2012 was five times what it was in 2004. Bloomberg New Energy Finance says investment needs to double from these levels if we want to start reducing global emissions by 2020. With governments strapped, private investment is going to need to cover the costs of the massive clean energy transition necessary to mitigate climate change. With multilateral finance institutions like the Word Bank looking as if they are about to become more serious about renewables, and with the declining price of solar, and a growing sense of urgency about climate change, the clean energy investment picture will improve, but will it be fast enough, and what else can we do to grow investment faster? If policymakers need to do one thing to assure potent climate change policy moving forward, it is assuring that the investment climate for clean energy stays strong globally. Perhaps nothing else is as important.
What Now? We can't kid ourselves that smooth sailing lies ahead. Deep pocketed status quo-ers like the Kochs are eager to derail the clean energy future. They have a selfish interest in maintaining their fossil fuel businesses and they seem to be myopic in the extreme, but despite their best efforts, there is evidence of a shift occurring.
Thinking back three years ago, it would have been hard to imagine there being as much opportunity as currently exists to make a meaningful difference on climate change.
Building, vehicle, and electricity sectors are getting cleaner. Financial mechanisms and policy incentives are beginning to work in new and hopeful ways. Coal is showing signs of vulnerability at least in several important market places. Renewables are emergent globally and in multiple jurisdictions. Gas is much less of a drag on renewables than we expected. A citizen movement is coming to life in the U.S. on tar sands and divestment. For the first time, there is an American administration with a stated and proactive climate change policy. And China shows signs of being on a path to reducing its air pollution and related carbon emissions.
It is an important moment. We are a long way from solving the climate problem, but threads of success seem to be coming together into something that resembles an opportunity that we need to find a way to seize and run with during the next two years.
The views expressed here are solely those of the author and not of his employer.
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