June 01, 2016

Turning Point: On the Cusp of an Energy Revolution

Jim Murphy

Turning points usually happen unannounced and are only obvious in hindsight. Despite the fact that climate change is still seen as a polarizing issue (among politicians, not scientists) and fossil fuels are still pervasive, we are experiencing a major paradigm shift in our energy sector. As coal collapses, oil begins to crack, natural gas stalls, and renewables soar, we are seeing the beginning of the end of the fossil fuel era. The question that will define the ultimate success of this moment is whether we will seize upon it and accelerate into place policies that will nurture this seismic transformation. If we move quickly on the policy front, we can leverage these market changes—spurred in part by policy decisions already made—to avert the calamitous climate change related impacts that will flood cities, cause severe water shortages, and result in crippling heat waves, mass extinctions, and unpredictable shifts in resources like forest types and productive agricultural areas. We also can creatively transform a major sector of economy in a manner that will benefit us all.

Let’s start by taking a look at that market. A decade ago, highly carbon polluting coal was king, with companies betting on long-term growth. Renewables like wind and solar were expensive, existed only at minute scales, and were largely scorned as a pipe dream of the virtuous. No more.

In April of this year, coal giant Peabody Coal—the nation’s largest private coal company—followed fellow coal titans Arch Coal and Patriot in filing for bankruptcy. These filings have been the result of bad business decisions, but also are due to the steady decline of coal use as the energy sector has moved toward natural gas—and now renewables—as prices for those fuels have fallen, while policies and legal strategies have begun to internalize the high costs of coal mining and combustion. As a result, coal is predicted to see a 16 percent decline in production this year, the largest drop since 1958, and coal use has declined 29 percent since its peak just nine years ago, according to the Energy Information Agency. See http://cleantechnica.com/2016/04/21/2016-coal-production-levels-to-drop-to-1958-levels/.

While natural gas, without question, has had a major impact in displacing coal, it is the rise of renewable energy that is truly transformational from a long-term perspective. In the last 15 years, solar energy has doubled an astonishing seven times and wind energy an impressive four times. Nationwide, wind and solar now provide about 300,000 jobs to coal’s 75,000. Worldwide, new investment in renewables now doubles that of new investment in fossil fuels.

With this growth has come cost competitiveness as renewables begin to hit scale. Every time global wind power doubles, there’s a 19 percent drop in cost. Each time solar power doubles, costs fall 24 percent. The result is that wind and solar—which are investments in technology and not fuel, so they offer more fixed energy costs—are approaching (and in some cases achieving) cost parity, with prices continuing to fall.

Not only is this boom undermining the coal industry, but fracture lines in the once-invincible oil and gas industries are starting to show. Natural gas production is no longer soaring, and oil production—which had been booming—is falling. Now, many operations, particularly in places like the Bakken oil shale region and Canadian tar sands, teeter on insolvency. While some of this no doubt has to do with Saudi manipulation of oil prices, the renewable revolution—coupled with other rapidly progressing innovations like electric vehicles—means that when oil prices come back up, demand and technology are likely to be significantly different.

What makes these changes further remarkable is that they have occurred, particularly in the United States, without earth-shattering policy pushes. Yes, some states, like California and the nine northeastern states that have entered in the Regional Greenhouse Gas Initiative, have implemented cap-and-trade policies to limit carbon and shift the market. However, most states have not made significant changes, and federal actions have, until recently, been quite modest.

But that is starting to change, and therein lies both hope and opportunity. With the market trending in the right direction, the right policy levers will almost certainly make the difference in determining whether needed reductions are achieved in time to avert climate crisis or not. Technology is no longer an obstacle.

While technology outpaces politics, the accomplishments of 2015 and 2016 thus far are nothing short of remarkable—and looked almost impossible just a few years ago. The first ever federally based carbon pollution limits—the Clean Power Plan—were placed on our power sector. Assuming they survive a temporary stay and legal challenge, these standards will require states to implement plans to reduce carbon pollution by a collective 32 percent from the U.S. power sector by 2030. The plan places an emphasis on both renewable energy and interstate trading, meaning that compliance plans are likely to spur further innovation. The plan will further solidify the role of renewables and send signals to investors that renewable energy is the future.

Meanwhile, as we heed the call of scientists telling us that the vast majority of fossil fuel reserves must stay in the ground, we recognize that the days of easily green-lighted fossil fuel projects are over. For the first time, a major fossil fuel infrastructure project—the Keystone XL pipeline that would have enabled the transport and extraction of carbon intensive Canadian tar sands oil—was rejected by the president on the basis of concerns over its impacts on the climate. After this announcement, halts were placed on proposed offshore oil drilling in the Arctic and the Atlantic. Just as remarkably, a three-year halt was placed on new coal leasing on federal land while a review is taken to better account for the costs of such mining. Included in this process is a plan to better account for the carbon costs of all fossil fuel development on public land. A signal has again been sent to investors that the window on fossil fuels is closing, and that long-term investments in fossil fuels face risk and uncertainty.

These signals are echoing worldwide. Internationally, leaders of more than 190 nations came together in Paris and, on Earth Day 2016, ratified an accord to take action to keep carbon pollution levels below 2 degrees Celsius above the pre-industrial era, the level scientists agree will cause catastrophic impacts, with an aspirational goal of 1.5 degrees Celsius. This commits the United States to further action beyond the president’s current commitment of a 26 to 28 percent reduction by 2025. That would likely yield about a 90 percent reduction in emissions by 2050.

Which brings us to the path ahead. Further regulatory action certainly is needed and likely to come at all levels of government as pressure will increase, both to spur the growing renewable energy industry and to drive down carbon emissions. On the federal level, immediate measures include strong regulation of new and existing sources of methane pollution from oil and gas development and the likelihood of further increased scrutiny of fossil fuel development. On the state and local levels, changes include restructuring utilities, enacting or furthering policies like net metering to encourage distributed renewable generation, transmission upgrades, and infrastructure changes like electric car charging stations.

But the key will be a federal price on carbon. In order to achieve the level of pollution reduction needed to avert unsustainable impacts, congressional action is almost certainly needed. This means enactment of a carbon price that will shift the cost of carbon pollution onto the polluters and create a fair market where clean energy sources will thrive. Carbon pricing is already in place in many places, like the Northeast and British Columbia, with favorable results in reducing pollution and creating jobs. In general, a carbon price can take two policy forms: a tax, which sets a price on carbon that will lead to market driven reductions; or a cap-and-trade system, which sets a limit on reductions and then lets the market determine the price through the trading of emissions allowances.

While it is unlikely that Congress will act to price carbon in the near future, bipartisan acknowledgment of the problem of climate change is growing, and politicians will respond to the demands of growing industries and communities that are increasing worried about the costs of climate change. Most observers agree that a congressional fix is thus likely at some point.

But most promising is the fact that enacting a carbon price no longer equates with calling for an energy revolution. That is already happening. So a carbon tax represents an evolution, not a revolution. As lawyers, we are uniquely positioned to guide both this revolution and its evolution as a major sector of the economy transforms before our eyes. There are few situations in which so much opportunity and change is occurring so quickly with so much at stake. These are exciting times.

Jim Murphy

Mr. Murphy is senior counsel for the northeastern regional center of the National Wildlife Federation in Montpelier, Vermont, and is a member of the Natural Resources & Environment editorial board. He may be reached at jmurphy@nwf.org.