Massive Economic and Policy Reform: Easier Than You Think

It seems to me that we suffer from a failure of imagination.  We dream of a low-carbon world, but can’t quite fathom how to get around the massive lobbying clout (and inertia) of the coal lobby.  We dream of a world with no more utility obstacles to energy efficiency, but can’t imagine how to undo laws in fifty states (plus the feds) that would be required to undo utility disincentives.  And we dream of a renewable future, but find it implausible that the tiny amount of solar currently on the grid can be scaled up to a level that matters in any reasonable time frame.

And so we scale back our ambitions.  Rather than confront the coal lobby, we craft carbon bills with escape hatches and allowances to buy-off the biggest carbon sources.  We encourage decoupling, but don’t confront the regulatory paradigm of regulated utilities.  And we throw a few incentives out for renewables, but still send most of the DOE budget to the nuclear industry.

That’s not to suggest that big scale changes are easy, or that it wouldn’t be massively naive to assume that you can force the economy to change course on a dime (much less the federal government).  But that doesn’t mean big, rapid changes aren’t possible – it just means that we don’t anticipate them.

This limitation isn’t limited to policy endeavors; I’d argue that as a species, our ability to predict the future tends to be hugely biased in favor of a linear extrapolation from the last few datapoints – and as a result, we do a really lousy job of predicting non-linear trends.  It’s why we find compound interest so fascinating (and global warming so frightening).  As Nicholas Taleb put it in The Black Swan, we’re like a turkey on the day before thanksgiving who reviews the last 364 days and concludes that tomorrow will be a great day, full of sun and cracked corn.

And so when we see massive barriers to reform, we look at the size of the barrier, evaluate how much work it would be to take the barrier down and conclude that we’ll never be able to mobilize that degree of effort – so we leave the barrier intact, and fiddle around the edges.  But here’s the deal: that’s not how barriers come down.  If you want to knock down the Hoover Dam, you don’t need to remove every brick – you just have to knock out a couple in the middle and let the force of the water behind the dam do the rest of the work for you.

In a perverse way, that’s a cause for great optimism.  Our energy and environmental policy is rife with barriers to the deployment of low-carbon, low-cost technologies.  There’s a lot of water behind that barrier, waiting to get through if only we’d loosen a couple bricks – and that means that it’s probably nowhere near as hard as we think to make rapid, massive changes in our energy infrastructure.

Want proof?

• When the Federal Energy Regulatory Commission passed Order 888 in 1998, mandating non-discriminatory access to any power plant, there was a nearly instantaneous and massive deployment of natural gas turbine-generators.  In the 10 years prior to 1998, we’d added 40 GW of gas-fired power plants.  In the 10 years after 1998, we installed 200 GW, or 20% of the entire US generation fleet.
• ISO-New England is about to enter their third year of their forward capacity market program, which provides cash payments to energy consumers who invest in efficiency, demand curtailment and on-site generation.  Today, they have 2000 MW of participating demand response, or about 7% of the entire New England power grid.

Those are truly amazing numbers.  In 10 years, we built a fifth of the entire US generation fleet – and it took us 100 years to build the first four-fifths.  It is no exaggeration to say that in many parts of the country, your lights wouldn’t be on today but for FERC 888.  In less than three years, New England has figured out how to bring on the equivalent of two nuclear plants worth of generation (avoiding new generation investments in the meantime), cutting 7% of demand out of the system.  New England is now just about the only place in the country that isn’t facing capacity constraints, thanks only to a decision to pay people for the demand reduction services they provide.

And in both cases, success didn’t come because of years of patient barrier removal, and it didn’t come gradually.  It came in one massive deluge once the critical brick was removed – unencumbered grid access in the first case and monetization of a previously-subsidized externality in another.  But did anyone think that pace of change was possible before hand?  I rather doubt it.

So can you imagine going into Congress today and saying “I’ve got a very simple regulatory reform, that will cost the government nothing and within a decade will completely transform our electric grid to drastically reduce it’s carbon signature and give everyone a rate cut”?  Can you imagine anyone taking you seriously?  Probably not – because it doesn’t comport with what we dream is possible.  But that’s only because we’re not good dreamers.  As someone said recently: yes, we can.

Note: This first appeared on Grist.