Revenues from the sale of carbon credits under the cap-and-trade system should be used to create market-based financial incentives to speed the development and adoption of promising new technologies. Europe has created a gold rush in solar energy by promising to buy energy at premium pricing from homeowners who generate power from rooftop panels. All across Europe, citizens are scrambling to cover their roofs and homes with solar collectors and transform their residences into mini power plants. "Everyone is becoming an entrepreneur," says Bill McDonough, an architect who has received three presidential awards for his sustainable designs. Connecticut already offers a rebate of up to $46,500 for homeowners who go solar, and Congress could boost the rapid expansion of existing technologies by providing similar incentives for solar water heaters, residential wind turbines, geothermal systems, modern electronic lighting and improved insulation. Incentives could also help Detroit convert to electric cars and encourage consumers to replace aging automobiles, washing machines, air conditioners and refrigerators.
Utilities currently make money only by producing and selling us more electricity – giving power companies little incentive to promote energy efficiency. California, however, has decoupled profits from energy sales, creating a new kind of market that rewards efficiency. Utilities make money not by selling power but by helping consumers use it more productively in their homes. The result: Californians use almost half as many kilowatts as other Americans. "We've been able to keep energy demand flat for thirty years with a rapidly growing population, while the average per-capita energy consumption for the rest of the nation has soared by fifty percent," says Tom King, CEO of Pacific Gas and Electric. "And we haven't even made a dent in the potential that's out there – we can go beyond anything anybody's ever projected."
California also took an early lead in this area, allowing homeowners who install solar panels or wind turbines to sell their excess electricity back to the utility. The electric meter actually spins backward when the home is generating more electricity than it consumes, and customers are billed only for the net amount of energy they consume from the utility's grid. "Our objective is to give every homeowner the incentive to turn their house into a clean-energy power station," says King. "We can not only replace gasoline and dramatically reduce carbon emissions, but we'll also have a grid that is more decentralized and hence more resilient."
The quickest way to improve the energy efficiency of appliances, cars, trucks and buildings is to establish minimum standards based on the current state of technology. Rather than prescribing specific solutions, performance standards harness the market by establishing targets and rewarding companies that create the best emissions-cutting technology. The government has successfully done this for energy-intensive appliances like refrigerators, which now consume seventy-five percent less energy than they did twenty-five years ago.
We also need strong standards to keep some very bad technologies from rushing into the market under the banner of energy efficiency. A particularly ugly aspect of the current coal rush, for example, is the desire of the industry and its servants in Congress, Democrats and Republicans, to build a new breed of refinery that would liquefy coal to replace gasoline. Advocates claim that liquid coal is clean, but the process results in nearly twice as much carbon pollution per gallon as gasoline. And whatever the process, why would we want to create an entire new industry dependent on an energy source that is procured by blowing up mountains in Appalachia and strip-mining the West?
What would happen if we created a truly free market, one in which alternative energy could compete on an equal footing with oil and coal? In 2004, physicist Amory Lovins answered that question. In a study co-funded by the Defense Department, Lovins and his colleagues at the Rocky Mountain Institute detailed how the United States can completely wean itself off all oil –and create a much stronger economy – by 2050.
The transition from oil outlined by Lovins would occur in two stages. First, half of our current demand for oil can be eliminated simply by using oil twice as efficiently. We've already done this once – doubling our efficiency since 1975 – and we can do it again simply by encouraging the adoption of existing technologies. Then, the remaining half of our oil demand can be replaced with a combination of natural gas and advanced biofuels. The result would not only end our oil addiction completely, it would also lower our energy costs to the equivalent of $15 a barrel – a quarter of what we currently pay.
The study by Lovins shows how – with a one-time investment of $180 billion – we can completely retool the automobile and aviation industries, create greener and more energy-efficient buildings and foster a modern biofuels industry. Even assuming that the price of oil drops by more than half by 2025, Lovins shows that going oil-free would net Americans $70 billion a year – an impressive return on our initial $180 billion investment! At the same time, we would not only reduce the threat posed by global warming, we would also generate a million new jobs – three-quarters of them in rural and small-town America.
There is no shortage of technology and innovation waiting to be unlocked and put to use by the market. We already possess the high-performance plastics, ultralight steel and carbon-fiber composites needed to reduce the weight of cars and trucks – a move that would cut fuel consumption in half while improving auto safety. This is not the Jetsons' stuff: Opel has already produced a prototype carbon-fiber roadster that does 155 miles an hour and gets as much as 94 miles per gallon. And within the next five years, Toyota and General Motors are expected to market "plug-in" hybrids that will enable drivers to travel at least 150 miles on a single charge. "It's a no-brainer for most drivers," says former CIA director James Woolsey, who views global warming and energy dependence as the number-one threat to America's national security. "And the only infrastructure you need is an extension cord in your garage."
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