How Can America Improve Its Energy Future?

Michael Liebreich: The cost of clean energy has dropped dramatically over the past three years. Wind projects can produce power for around 6¢ per kilowatt hour—lower than natural gas or new coal plants. Solar photovoltaic prices have fallen by 70 percent since 2008 and are now competitive without subsidies in many markets. Over the next decade, wind, mini-hydro, and geothermal power will drop an additional 25 percent. Yet progress toward a clean energy future in the U.S. is fitful because the sector is shackled by outdated regulations and perverse incentives. The U.S. needs energy policies that foster innovation rather than stifle it.

First, utility regulations need to be rewritten. New technologies enable competition in every area of electricity distribution, even the last-mile connection to the grid. Yet the sector today is like telecommunications in the 1980s: dominated by powerful incumbents arguing that change is too risky.

Second, the U.S. needs to level the playing field between different kinds of energy. For all the furor over Solyndra, subsidies for clean energy are dwarfed by those for fossil fuels. And fossil-based providers don’t pay the full health and pollution costs of their products.

Third, new energy technologies need support for a transitional period. Telecom, aerospace, the Internet, nuclear power—none would have been commercialized had it been up to market forces alone. The support has to be focused on long-term science or on driving down costs. It must never have as its target the creation of “green jobs” or long-term protected markets.

Around the world we are seeing an historic shift toward cleaner, more distributed, and secure energy supplies, with investment to match. It’s time for the U.S. to assume a leadership position.
— Michael Liebreich is the founder and chief executive officer of Bloomberg New Energy Finance.
David Rocks: There’s a simple way to deal with many of the most vexing energy issues this country faces: Raise the gasoline tax. The current federal tax of 18.4¢ per gallon hasn’t been raised in nearly a generation. (With state levies, the total is on average a bit less than 50¢.) Compare that with Europe, where high taxes make filling up more than twice as expensive as in the U.S. That hurts, but when gas costs more, people drive less or consider ditching the Escalade for a Volt. And companies have an incentive to innovate and develop new sources of oil, synthetic fuels, or more efficient vehicles. Again, look at Europe. It’s no mystery why cars there get better gas mileage and the public transportation is great.

With a higher gas tax, drivers would begin to pay the full cost of their driving, including pollution, carbon emissions, and highway congestion. And if people get out of their cars and hoof it, there can be powerful health benefits. It shouldn’t come as a surprise that Atlanta has a higher rate of obesity than New York. In Atlanta, you can drive to the front door of just about anyplace (and when you can’t, there’s a valet parking attendant on hand to help). In New York, it’s often faster to walk.

You could say that with gas at $4 a gallon, we can’t afford to pay more. It’s true that many of us can’t. And in these anti-tax times passing an increase would be difficult. But the levy doesn’t have to increase the overall tax burden or hurt the poor; the proceeds could be used to give rebates to people in the lowest income brackets. And by phasing in such a tax over, say, 5 or 10 years, we could give families a chance to adjust their lifestyles, and industry time to become more efficient. As people change their driving habits, we’d see oil imports fall. That, in turn, would keep more wealth in the U.S. instead of handing it over to unfriendly suppliers in the Middle East and elsewhere.
— David Rocks is a Bloomberg Businessweek senior editor.

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