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Energy Policy Needs to be Durable

Successful energy transition policies require many characteristics. Among them are durability, flexibility, sustained technological development, and cost certainty, which are described in Designing a Durable Energy Policy. While these four characteristics are not independent of each other, they each protect against main ways that large policies can fail to accomplish their mission.

One of the most challenging of these characteristics to achieve is durability. There are two recent examples that demonstrate the need for durability in energy policymaking. First is the Wind Energy Tax Credit in the United States. [1]

The frustration and industry damage from turning the energy tax credit on and off was glaringly obvious at the Clean Energy Workforce Education Conference I attended in 2012. It was with exasperation that almost every speaker and plenary session I attended brought this topic up. The damage of the lack of durability is not limited to the industry shedding jobs and growth in demand. Also impacted is uncertainty within the industry that, in turn, drives a higher cost of capital for doing business. Since the Wind Energy industry is an extremely capital intensive business anything that raises the WACC (Weighted Average Cost of Capital) limits growth and borrowing capacity, and prevents industry achieving cost reductions though markets of scale.

Another specific factor of durability is simply the presence or lack of a politically empowered base that supports the policy. Lacking such a base damages the resiliency of the policy. If significant resistance exists against the legislation, and an inadequate base of support exists for its retention - political forces will be driven to question if the policy should be continued or repealed. This exact scenario has played out for years in Australia culminating very recently in the repeal of its carbon tax. The Globe and Mail, a prominent newspaper in Canada reported: “canny politicians know some things economists don’t. They know that a lot of people don’t like carbon taxes, and will punish governments that try to impose them.”[2] During conversations with my best friend, a resident of Sydney, Australia we have discussed and explored the nature of Australian politics. In these discussions, it was apparent that Canada and Australia had fragmented support in cities, but outside of cities the opposition against the progressive climate agenda was fierce. These two excerpts from the Globe and Mail best capture the Australian situation “Popular concern for the environment reached a peak back in 2006. During the 2007 election, both major parties promised tough action on the climate. Then came the recession, and people’s worries shifted elsewhere.” [2]; “The carbon tax was introduced two years ago, and people hated it from the start. They threw the Labor Party out of office and elected Mr. Abbott, who promised to “axe the tax.”[2]. As we can see here a lack of political support can be very damaging to the climate agenda. This opens up a weakness in the political structure where an opportunist can leverage the issue as a springboard into power, repeal the legislation, and set society collectively back a full decade on climate mitigation efforts.

While I perceive durability of policy to be the most important of these factors, the other 3 have impacts on durability, and importance in their own right. Best defining the flexibility characteristic in good energy policy is the Energy Policy act of 2005. One goal of this bill was to establish and support renewable fuels with the hope of curbing greenhouse gas emissions in the transportation sector. When it became clear this goal was not being achieved the legislation would have been better with flexibility built in. The type of flexibility needed was to place minimum standards for EROI, as well as establishing a protocol regarding how EROI calculations should be made. This would push the corn ethanol, sugar cane ethanol, or cellulosic ethanol industries to focus on efficiency rather than on rapid scaling of a product that was not worthy for mass distribution to the American Public.

In this same scope is sustained technological development. Legislation should seek to locate rapidly developing technologies and connect those entrepreneurs to create a spillover effect for worthy technologies that have wider applications. This has applications for the development of corn ethanol. This product and technology had been developed and slowly evolving over time before mandatory minimums of ethanol were required to be blended into gasoline. By pushing for rapid scale before the technology was developed further (like biofuel digesters that could convert stalks and other corn biomass into fuel) the industry embarked upon scaling up a technology that was not ready for mass production. In so doing an entire industry of parts manufacturers, educational training and more all had to be developed to support a 50 billion dollar industry. Since so many resources were applied to scale for the existing technology, continued research and development to make corn ethanol a more viable fuel came to a sputter if not a screeching halt. As a result technological development and feasibility of the fuel has floundered over time, and now the United States is stuck purchasing 13 billion gallons of ethanol – while better technological efforts could have been supported that could achieve far better results.

Lastly, and a close second to durability in the importance of legislative characteristics is cost certainty. No power source better exemplifies the need for cost certainty than nuclear. Nuclear power facilities are quite possibly the most cost intensive long-term asset in a society’s infrastructure portfolio. Nuclear power plants require long range time scales for power purchases, as well as locked in rates as much as possible in order to continually payback the massive up front investment. Not only is there a need for certainty on the revenue side but especially on the expenditure side of the equation. Costs pertaining to the retention and handling of nuclear waste materials, Uranium source materials, and risk management funding to control against nuclear meltdown and nuclear proliferation risks are all heavy hitting expenditures. The size of these expenditures are intimidatingly large but are offset by the dramatic benefits in reduced carbon pollution, and very high reliability power flows.

The most challenging of these factors – durability – is most challenging for many reasons. Durability means a policy must be resilient to change in political systems, change of technological landscape, as well as be able to weather the will and sometimes the fury of the people. In effect, durability means that legislation will weave itself into culture, or if it fails to do so will face immense pressure from that culture. This leads to a dramatic problem, for legislation that has activist goals – how will the law build in change management – and if change management is not built in is the law adequately durable against the ravages popular culture may bring upon it? In the study of change management if one tries to make change without changing the culture and then leaves the end result is almost certain. In most cases the result will be behaviors of people and organizations reverting back to previous operations, as well as engendering high resistance to change initiatives in the same field in the future. This is what happened with Dr. Hubbert’s research on Peak Oil. Hubbert’s original projection stated that peak oil would occur in the early 1970’s and was found to be incorrect given a suite of different factors. The results of this failed projection was the dismissal of all of his research and any accompanying problems as people assumed a delay in the peak meant that the peak would never occur. As his research was perceived invalidated by one wrong projection, it led to massive rejections to anyone who would say there are limits to the supply of energy. While in actuality, new technologies resulted in the increase of harvestable reserves – but in no way did this invalidate peak oil concerns but exacerbate them. We now have a society that is so entrenched and dependent on oil that it will cost massive amounts of oil to get us out of the mess we have ourselves in.

Overall I feel that these four characteristics are truly good considerations when evaluating any law or policy, with durability being chief amongst them. Doing analysis individually and then exploring interactions between them would serve as an excellent quality control measure for the establishment of best-in-class policies.

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