In the United States, the response to the global challenge to slash greenhouse gas emissions in half by 2030 has been handicapped by the Republican party’s positions. They embrace a mixture of climate change denial, support for fossil fuel subsidies and continued exploration, mixed with criticism of China’s policies as a carbon emitter, solar developer, and rival.
What has almost entirely vanished is the Republican Party’s historic leadership role in conservation, environmental protection, and policy leadership including the embrace of market signals to make polluters pay. It was under Richard Nixon, in the midst of the Vietnam War that we saw the Endangered Species Conservation Act of 1969, the National Environmental Policy Act (NEPA), the creation of the EPA, the Clean Air and Clean Water Acts, and more.
John McCain co-sponsored the 1990 bill establishing the Global Change Research Program that passed the Senate unanimously. McCain, running against George Bush for the nomination in 2000, embraced a strong agenda for stopping climate change as a political and moral imperative. I spoke to McCain in Keene NH at a campaign event in 2000 and he made his climate change position based on renewables and nuclear development crystal clear. He went on to win the Republican primary by 17 points over Bush. In the Senate, McCain advanced the McCain-Lieberman bi-partisan market-based cap and trade legislation to a vote before Republican politics turned away from conservation and climate issues.
Market-based climate change program for the 2020s
It’s long past the time for the Republican Party to reclaim its leadership position in conservation as the climate change crisis deepens. Otherwise, it likely will vanish as a nationally viable political party and follow the path of the failed parties like the Whigs, unable to take coherent positions on slavery after the Kansas -Nebraska Act in 1854. Most Northern Whigs joined the Republican Party, most Southern Whigs the Nativist American Party, and later the Constitutional Union Party. The fate of the Whigs is not just ancient history. There are unfortunate expressions of white nationalism being emitted from the MAGA-influenced Republican Party in 2023 combined with climate denial.
The path to the electoral success of an American conservative party is to take leadership in advancing a market-based climate change agenda resting on investment, broadening renewable energy ownership, and sending clear market signals making the polluters pay. It’s estimated by CleanTechnica that a global transition from fossil fuels will mean some 62 trillion in productive investment.
The effects, consequences, and political opportunities of such huge investments include:
- Rapid decrease in greenhouse gas emissions, pollution, depletion, and ecological damage.
- Enormous increase in sustainable economic growth with zero fuel cost renewable energy and efficiency development creating millions of well-paid jobs.
- Increasing the middle class and decreasing the concentration of wealth in the hands of billionaires.
- Accelerating the building of an ownership society by using market tools and existing tax equity rules to make all energy users energy owners of renewable resources that will power global civilization.
- Using the tax system to send clear market signals for sustainability and social and ecological justice by making the polluter pay. Sustainable goods and services will become cheaper, gain market share, and become more profitable.
- Both valuing and monetizing ecological improvement and sustainability as fundamental to market economics in the 21st century and beyond.
Tools for a market-based climate program
There is an interactive symmetry in multi-pronged measures that encourages the pursuit of sustainable profit, combining a variety of new market rules, regulation, and law that sends clear signals to entrepreneurs, producers, investors, and consumers. How can market forces with government support and guidance help deal with the pressing climate change emergency?
We must slash greenhouse gas emissions in half by 2030 to keep climate change below the 1.5 degrees Celsius threshold. Solar is the readily available renewable technology able to come online on a mega-scale by 2030. We must grow from some 3,000 gigawatts (GW) a year globally today to over 10,000 GW in 2030, an average increase of 1,000 GW annually according to IRENA (International Renewable Energy Agency).
The goal can certainly be accomplished if we choose to do so. I am a solar developer. The actual build time for commercial-scale systems is months. Let’s assume we want to prevent climate catastrophe and build many millions of decentralized commercial-scale and residential systems in addition to utility-scale solar systems. Here are some simple steps.
Regulatory measures and new market rules
Globally, the most straightforward regulatory step is to simply increase on a state or national basis Renewable Portfolio Standards (RPS) expanded to a Renewable & Carbon Free Portfolio Standard (RCFPS) requiring an increased yearly percentage of non-carbon emitting generation by the utility and business energy producers to meet climate goals. Energy producers can make their own technology decisions to meet the standard.
We do not require a carbon tax. Carbon taxes are economically punishing. They raise prices and attempt to mitigate negative effects by redistributing tax revenue to consumers. Instead, the overwhelming lower price-based choice for carbon reduction will be using zero fuel cost solar energy, combined with energy efficiency measures.
The market price system is already making clear that high-polluting fossil fuels cannot compete with zero-fuel-cost renewables. This is despite the ability of fossil fuels to pollute for free. That is a shameful and colossal example of market failure and externalities. Although chemical engineering can provide clean coal and carbon capture, the costs of such activities have not been and are unlikely to become cost-effective. Similarly, existing nuclear technologies are not cost-competitive, and new nuclear alternatives are not available and remain unproven.
Renewable energy systems economics and market dynamics are becoming clear. Base load power dinosaurs, using coal, natural gas, or nuclear cannot compete with a mixture of renewables like sun and wind and with storage. Solar and storage are increasingly integrated into decentralized Virtual Power Plants (VPPs) using electronically networked small rooftop solar systems with storage that can be dispatched by the utility, with the solar system owners receiving cash benefits. It makes zero economic or energy sense, absent government, and ratepayer subsidies, to invest billions in base load projects that are already uncompetitive.
Efficiency is not just familiar with building insulation and reduction of infiltration but also replacing fossil fuel heating with heat pumps that provide space heating and cooling and hot water production. Heat pumps are at least 300% more efficient in terms of the second law of thermodynamics than fossil fuels. Efficiency also includes the replacement of internal combustion engines by EVs that similarly operate much more efficiently, and whose batteries will become a major means of energy storage for meeting and flattening peak electric demand.
Rapidly increasing Renewable Portfolio standards will mitigate the consequences of climate disaster, free long-term energy costs from periodic fossil fuel price shocks, improve public health, and consequences of asthma, cancer, and death from fossil fuel emissions, particulates, and ozone problems.
At the same time, there is absolutely no need to continue enormous fossil fuel subsidies. It may make political sense for the fossil fuel industry to receive some payment for their now-stranded assets and leave the coal, oil, and natural gas in the ground in exchange for accelerating renewable development.
Broad wealth building: making all energy users energy owners
A trillion dollars is already being invested yearly in renewable energy globally with much more to come. The ordinary course of renewable development in the U.S. is that developers build systems, and enter into long-term contracts with off-takers to buy the power. As the solar system reaches mechanical completion it is sold to a financial partner who profits from all tax benefits and the stream of income from energy sales. The rich get richer.
The dark financial arts applied for the common good present an unprecedented opportunity for groups of energy owners to become the owners of the energy they use and not just ratepayers. Ownership of the renewable energy infrastructure need not remain in the hands of billionaires.
Existing U.S. tax equity rules around the Solar Investment Tax Credit (ITC), now 30% to 70% of capital costs, and the Modified Accelerated Cost Recovery System (MACRS) depreciation can become the basis for energy users becoming energy owners after-tax equity is “exhausted” in year six. Beneficiaries of the tax credits must own and operate the system to keep the tax credit and accelerated depreciation benefits until year six after solar construction.
The Inflation Reduction Act (IRA), signed into law in 2022 by President Biden, helps open the door for local governments, cooperatives, associations, community solar groups, farmers, and small businesses to take advantage of these tax incentives when they enter into contracts with renewable developers.
In the energy user ownership scenario, energy users put up zero money to solar developers. Instead, they enter into a long-term contract to buy solar power. The negotiated price will cover the developer’s capital cost to build, pay loan interest, operation and maintenance, insurance, and profit. This both reduces interest rates for developers and contractually enables the future affordable purchase of solar systems by energy users.
In year six with tax equity gone, the market value of the system is substantially reduced. The purchase by energy users is substantially supported by the stream of income from the existing developer contract and, as needed, assisted by low-interest municipal or state revenue bonds and investment from credit unions, community banks and Community Development Finance Authorities, and Green Development Banks.
From small towns to the largest cities, energy users can become energy owners. New York uses an average of 11,000-megawatt hours of electric power daily. That’s about 3.3 gigawatts of power and $5 billion in capital costs at $1.50 a watt. This is an enormously attractive economic proposition that should not remain in the hands of private investors or Con Edison. Con Ed would still make money running and maintaining the grid. But ownership should rest in the hands of the energy user owners.
Owners gain not just equity, but a seat at the table on future energy decisions.
Valuing and monetizing sustainability as a fundamental market price signal
The road to ecological and civilizational self-destruction is paved by believing that the quarterly increase in GDP is a key measure of economic and social health. In reality, economic growth can be beneficial or horrendously damaging. Cleaning up from catastrophic oil spills and the human and ecological costs of hospital stays, decontamination, and waste disposal are booked as positive contributions. They are nothing of the kind. Yet, nations still proudly announce increases in quarterly levels of economic growth and profit exceed projections as stock prices soar. All this without any examination or awareness of the real ecological, social, political and human consequences. This is certainly not an accident. There are many alternative plans for realistic alternatives that should dethrone GDP from its status as the summum bonum.
Here, instead of disputing how we count, let’s focus instead on what we count by identifying and then monetizing measures of sustainable ecological value that become part of GDP. This is an achievable and welcome reform, a basic tool for all market systems, namely, to value and reward sustainable conduct that becomes monetized expressions of the ecologically sound pursuit of profit. This is key to global ecological renewal and making the price system a tool for ecological regeneration and ecological economic growth.
Creating ecological value as a profit center does not require a reduction in the value of conventional economic growth. Instead, mechanisms for valuing and then monetizing sustainable ecological improvement can become an increasing part of the value proposition to support and strengthen the pursuit of profit leading to sustainable ecological improvement and strong economic growth. Making more money through the pursuit of sustainable ends will reshape market conduct. For example:
Renewable energy and efficiency displacement of carbon dioxide emissions
A simple regulatory asset called a Sustainability Credit (SC) equal to the value of the displacement of a metric ton of carbon dioxide equivalent emissions by renewables or energy efficiency has a value, estimated at more than $150 dollars a metric ton, based on the work of the US National Academy of Sciences, and the EPA.
This value can be monetized on the books of banks as paid-in capital and as cash, The 37 gigatons of fossil fuel carbon dioxide emissions represent the yearly potential of $5.5 trillion of ecological wealth creation on the books of investment banks, green banks, credit unions, community development financial institutions. This is a productive, non-inflationary and job-creating asset.
The $5.5 trillion as banks own capital becomes at least $50 trillion dollars annually through the ordinary ability of banks to make loan investments 10 times greater than their own capital. The simple requirement would be the investment of this money in further productive renewable development and sustainability.
SCs will be created on the basis of metered and certified renewable energy and efficient carbon dioxide displacement. The capital created on bank balance sheets will become part of Federal Reserve or other central bank regulations subject to usual monetary supply and credit controls. SCs are not helicopter money. They are for productive investment in more renewables and other transformative ecological measures.
The monetization of ecological value represents a fundamental shift in market behavior and the pursuit of profit conditioned to meet ecological ends. It will help make ecological economic growth become a high-profit center that does not require social theory to understand and parse. Smart business and the pursuit of profit on Maine Street and taught by the Harvard Business School and the London School of Economics must become a sustainable business that transforms profit manifest on balance sheets as an expression of ecological restoration. It is the essential manifestation of doing well by also doing good.
Ecological value is real value, the new gold. It rewards the positive results of sustainable conduct and changes markets from acting as externality machines gaining from pollution, depletion and ecological value to the opposite.
We are at a key pivot point between the self-destruction of industrial civilization and the start of an epoch where the consequences of market activity become a positive force for ecological restoration and the pursuit of ecological and social justice.
The future social, political and economic structures for global guidance must mean an end not to markets, but the transformation of self-destruction toward a global convergence on sustainable and just norms for all. This is in both our individual and collective self-interest and must include the insights of a conservative American political party. Our future is in all our hands.
Nixon as Environmentalist Meir Rinde,2017. “Richard Nixon and the Rise of American Environmentalism.” Science History.
John McCain as Climate Leader Marianne Lavelle, 2018. “John McCain’s Climate Change Legacy.” Inside Climate News.
The Collapse of the WhigsCorey Brooks, 2016. “What Can the Collapse of the Whig Party Tell Us About Today’s Politics?". Smithsonian Magazine.