03/18/2010 05:12 am ET | Updated May 25, 2011

Why Carbon Caps are Good for U.S. Competitiveness and the Economy

In Copenhagen last week, President Obama pledged that the United States will curb carbon emissions by 17 percent in 2020 as compared to 2005 levels. At home, many will undoubtedly see this as a move certain to raise costs for businesses and consumers alike at a time when the White House should be doing everything possible to create new jobs.

This conviction would certainly be true if the world were never to embrace carbon limitation as a matter of multinational environmental policy. If, however, you believe that timing, the form of policy regime and international alignment are quite uncertain, but the ultimate end-state is not - that public opinion supported by a shift in youth culture toward environmental protectionism, and the beliefs of most scientists will continue to drive the politics of sustainability toward a carbon constrained future - then carbon management leadership, U.S. competitiveness and job growth become mutually reinforcing objectives.

If the U.S. wants to create sustainable job growth that is not dependent on perpetual taxpayer stimulus, subsidy or protectionism (all of which would mortgage America's future for the sake of its present) it must invest in a new basis for comparative advantage and growth. As it lacks a wealth of cheap raw materials and labor, has seen much of its manufacturing base rendered uncompetitive, and has had to borrow heavily to support its current standard of living, the solution will require a fundamental return to innovation. A clear opportunity for the U.S. to claim the future is through leadership in carbon (and environmental) productivity just as it did in the industrial revolution through innovation in labor and lifestyle productivity.

Putting in place policies such as stringent carbon caps and efficiency standards that create the demand for carbon management solutions sets the table for a feast of innovation. The U.S. should be pressing the rest of the world to be as aggressive as possible in setting carbon limits (to create a vast, level playing field of demand), and then investing heavily (through private capital encouraged by public incentives) in the race to provide the best technologies to achieve these desired outcomes.

Think of this effort as a new kind of Marshall Plan for rebuilding the U.S. economy, sustained by a first generation of carbon management solutions, with the same goal-oriented urgency the nation pursued in its race to the Moon.
However, policies alone are not enough.

It is the high cost of carbon abatement that stands firmly in the way of new policies - as policymakers fear the implications for prices and their impact on both businesses and consumers. Because there is not yet a commercial imperative, businesses are not working to constantly improve carbon management methods through experience and innovation (like we see with automobile fuel efficiency and sulfur dioxide abatement). That is, it is not an element of competition - yet. The result is the vicious circle of inaction we face and that Copenhagen will likely only reinforce.

The U.S. has the opportunity to create the conditions for a new industrialization which would substantially contribute to economic growth and prosperity for decades to come. However, this requires brave policy-making that establishes the economic conditions for capital investment. Further, it must be accompanied by commitment of public support - a fraction of the initial $787 billion stimulus package would be more than sufficient - such as public financing mechanisms (loans, guarantees, price floors and technology grants) and physical investments in infrastructure (rights of way, pipelines, transmission facilities and site characterizations). These investments will accelerate the development of commercial innovations that not only improve the U.S.' competitive position in an inevitably carbon constrained world, but also establish it as a global leader in exportable carbon management technologies and systems.

The U.S. doesn't just need jobs. It needs a new basis for competitiveness and growth in global markets. Carbon management isn't the opposite of growth; it is a perfect platform on which to achieve it. Forget about Copenhagen. Investing in U.S. carbon policy, infrastructure and innovation is a path back to prosperity.

Scott Daniels leads the global chemicals-energy and sustainability practices at Monitor Group.