I’m really not in the R&D world and was speaking more generally about those technologies that are 10+ years away from commercialization that the private sector doesn’t have the financial appetite for nowadays. I also don’t have much expertise in universities, nat’l labs or partnerships.

Your comment about hydro surprises me, and I wonder if perhaps your uncle works with pumped hydro (e.g., water pumped up hill and night with cheap electricity and then run down during the day.) In those cases, you can certainly play the prices in the market. But for normal, run-of-river hydro (and even the massive hydro dams out west), you are to a significant degree dependent on the weather and how much water is upstream, since if it doesn’t go through the turbines, you are either flooding upstream areas or bypassing the turbines to throw value away. Yes, you can use reservoirs as “surge tanks” within reason to opportunistically play markets, and I’m sure some do, but for the most part, conventional hydro is a “price taker” in the parlance of the trade, producing it’s cheap power whenever it can and taking whatever the spot price is on the market at that time.

Do you think money is better spent at universities and national labs, or can government get good value in research partnerships?

On another non related matter, I’ve read in your blogs that hydroelectric electricity is used for base load, because the marginal cost of generation is low. I’ve got an uncle who works in electricity sales for a mainly hydro utility. He says that since hydro can be turned on in 5 minutes, they usually use hydro as a peaker whenever the spot price of electricity gets high. So is hydro used as both?

That said, there is clearly a role for government to play in long-term technological development. The private sector is good at commercializing technology, but in the modern financial environment not that great at blue-sky, long-term R&D. So government R&D has an important role to play, so long as it leaves commercialization and technology selection to the private sector, subject to the appropriate regulation to address externalities.

Thank you for speculating on an energy future 20-40 years down the road. While getting the answer right is nearly impossible, I trust your prediction a whole lot more than the coal utilities and the economists. Carbon policy is based on a somewhat educated guesses of what a future energy grid would look like. If your guess is wrong, your models are wrong (one you complain about a lot is the ~100 $/tonne CO2 that is necessary to justify sequestration).

If you start with the assumption that a technology with similar cost per delivered unit energy as today will emerge, that also affects your policy. Concepts like this push us toward policy that rewards different metrics (ie. CO2/unit energy as opposed to $/tonne CO2). Do you think output based standards are enough to drive development in this unknown technology? Or does some R&D money need to be spread around? (this might be the myths whispering again).

I don’t mean to dodge the question, but it’s damn hard to answer without knowing something about population growth in the interim. Traditional renewable prices are certainly coming down, although (given their intermittency, which imposes capacity factor contraints on them as well), they have to fall lower than conventional generation to break even. (In other words, a solar panel can only achieve ~ 20% annual capacity factor, which means that it needs to cost 1/5th of the alternative before it is economically advantageous.) Clearly, they have a long way to go, although it’s not as far as you might think once you take into account the subsidies and externalities associated with fossil fuels. Do I think they can get there eventually? Yes. Can I guess on when the point is that they can serve all our load? I have no idea.

One note though is that I’m not sure a full transition away from fossil energy is ever possible. We can certainly use much less, but there’s no getting around the fact that we need carbon, and fossil fuels may have a role in it’s provision. Even if we got all our power and fuel from renewables, we still need carbon for products and fertilizers. Consider: you can’t make a solar panel without silicon and steel. And you can’t make either of those without carbon. Similarly, the only baseload renewable is biomass, and so if we really go to an all-renewable grid, it’s hard to see that happening without a significant increase in the amount of acreage dedicated to energy crops. That inevitably is going to take fertilzer, which requires carbon. Can some of that carbon come from biomass? Of course – but that’s not without it’s consequences either, and we may well conclude that even in a fully-responsible, carbon constrained future, we are still dependent on coal, gas and oil (albeit to a much lower degree than we are today). This is the point I was making about practical efficiency limits. We may well be able to get to a world where we get >1 unit of useful energy out for every unit of fossil input (because of renewables, etc.) But I’m not convinced we can get to a world with 0 fossil input absent massive sacrifices in our standard of living.

As to your second question, I generally don’t like the idea of the government providing credits, at least at the start because it presumes failure. It’s like going to play golf and agreeing beforehand that you’re going to give yourself 10 mulligans, even before you know whether you need them. Give them out, and you’ll use them. Better to start strict, and only later adjust if necessary, for reasons that have much more to do with human nature than carbon policy per se.

I definitely think that having spots and strips will bring some stability to the market. Would you support some sort of cap where the government would supply credits at say 50$ each for the first few years, just to make sure an unintended catastrophe doesn’t happen? This shouldn’t be necessary because whenever investment happens a surplus of credits are created, but just in case.

Re: comment number 11, one can imagine a lot of ways that you could build in stability. If I have a project in a world with output based standards that is a net seller of credits, I’d do a bilateral deal with some one who is a net buyer (think of the local coal plant). Over time, we both bear risks that the average will move, which means that I might not have as many to sell as I have today and they might have more to buy than they have today. Conceptually, that ought to lead to a situation where we both come up with some reasonable view of the future and then sign a long-term contract for X% of the credits I have to sell, with X% < 100%. In the first year, I have a bit more than X% available, so I sell those on the spot. And the coal plant has a few more to buy, so they buy on spot. But the net result is that as an investor in a low-GHG technology, I can still negotiate a long-term strip that has a bit of “upside” in the early years.

Re: the “what if” game, that’s what economists are for. Most of their forecasts are bunkum, but that doesn’t stop them from making them!

At some point, one clearly reaches thermodynamic limits. If we were converting 100% of our fossil fuel into useful energy, we couldn’t go any further. In the near term though, we’re not even close, hovering at <20%, and less than half of what other industrialized countries like Denmark have been able to achieve. So while one cannot infinitely increase energy efficiency, we can still go a long way towards profitably lowering greenhouse gas emissions before we hit any practical limits.