A simpler path to cutting carbon emissions

By Vinod Khosla
Friday, July 2, 2010

If our goal is carbon reduction, a cap-and-trade or carbon-pricing bill, with its likely compromises, would be worse right now than no regulation. Pricing carbon below $40 per ton will not change how industry does business or drive adoption of new technologies. With legislation unlikely to support such prices, uncertainty is better than a low price that disincentivizes the development of technologies that have radically less carbon.

Much as Craig Venter used tools for genome sequencing to outrace the larger, longer and costlier government-sponsored human genome project, it makes more sense to focus over the next five years on the development of carbon-reduction technologies rather than on maximizing short-term emissions reduction. Cherry-picking reductions of 5 to 10 percent through low-hanging efficiency upgrades could distract from developing technologies that reduce emissions 80 percent. By focusing instead on the large wedges that account for 75 percent of carbon emissions -- electricity and transportation -- we could achieve the lion's share of our goals with a small fraction of the complexity.

If we develop low-cost, high-efficiency technologies upfront, we can spark a wave of adoption and create companies and jobs -- the Googles of the energy sector. Innovation is America's natural advantage, one whose fruits we can export worldwide as other countries seek to adopt cost-effective technologies.

Well-designed legislation to reduce carbon emissions in electricity and petroleum could enable the development of substantially better alternative technologies for 70 percent of our carbon emissions, reducing our largest energy security risks. Consider: Sen. Jeff Bingaman (D-N.M.) has proposed requiring electricity providers to use a minimum percentage of energy from renewable sources. If this standard were modified to allow low-carbon electricity from any source, not just renewable, with carbon emissions that are 80 percent lower than coal, it could get support from nuclear, natural gas and even coal advocates. Opening the playing field like this would increase competition and drive down prices. This would encourage coal with sequestration and nuclear technologies to accelerate development to compete.

Bipartisan support for such standards is possible because this proposal is not dramatically different from ones by Bingaman, as well as by Sens. Lamar Alexander (R-Tenn.), Jim Webb (D-Va.) and Richard Lugar (R-Ind.). If the proposal passed, we would achieve a technology-neutral, market-based win for climate legislation by reducing emissions from our largest source of carbon. The United States could aim to get 20 to 25 percent of our electricity from sources that use 80 percent less carbon than benchmark coal by 2020, which would meet or exceed the standard set by the House bill passed last June. For utilities, it would reduce uncertainty and encourage investment.

Importantly, a low-carbon electricity standard would be superior to a utilities cap. A cap can easily be met in the next 10 years by incremental adjustments to existing assets (such as repowering coal power plants with natural gas and shutting the most inefficient plants). In contrast, a low-carbon electricity standard can be met only by the rapid development of radically low-carbon technology; these technologies can then be exported to India and China, which deploy much of the coal-fired electricity. Such a standard would build low carbon capacity the fastest and give the United States a competitive advantage in the emerging low-carbon economy.

The renewable-fuels standard could likewise be modified to a more technology-neutral low-carbon fuels standard, which would reduce concerns about the impact on the food supply, such as corn vs. ethanol, through diversification. Adopting this standard, as California has, would increase energy security and reduce oil risk -- no small feat in light of the threats posed by oil spills and petro-dictators such as Venezuela's Hugo Chávez or Iran's Mahmoud Ahmadinejad.

Meanwhile, regulating cars in technology-neutral effective grams of carbon emitted per mile, instead of miles per gallon, would allow more efficient engines to compete with electric cars. And compete they should, as some engine technologies may deliver more carbon savings at a fraction of the cost of electric vehicles and hybrids. Furthermore, producing non-food biofuels could be the largest source of new jobs and gross domestic product growth in rural America.

Efficiency is another big lever. Why not set up a "fee-bate system" in which rebates go to those who purchase items that are among the most energy-efficient, be they refrigerators, cars or lighting, while the most inefficient pay fees to fund the rebates? Efficiency standards could update automatically every few years based on the top-tier performers, whose economics and consumer acceptance have been demonstrated.

Most important, Washington must stop "picking winners." Tax credits and loan guarantees should be equally available to all low-carbon technologies, be they carbon capture and storage, solar, wind or nuclear. Focus on electric cars and hybrids has already decreased investor interest in more-efficient engines. "Natural gas" trucks are an example of Washington favoring technologies when better paths exist. Why force "repowering" of coal plants with natural gas when one can be technology-neutral, specifying a certain amount of carbon per megawatt hour, or prefer electric hybrids over more cost-effective and efficient hydraulic hybrids?

Between cleaner electricity and transportation, we can start addressing 75 percent of our sources of carbon emissions, while efficiency improvements will reduce emissions in the remaining 25 percent. In the meantime, we can increase energy security and create competitive American companies and sustainable jobs. Climate change may be uncertain to some, but if we take steps to ensure against nuclear attacks, the disruption of oil supplies and acts of terrorism, why not ensure against climate risk? Such actions would increase competition and decrease long-term energy costs.

The writer is founder of the venture capital firm Khosla Ventures, which has interests in several aspects of clean technology, including solar, wind, batteries, carbon sequestration, nuclear, geothermal and biofuels, as well as in energy-efficiency technologies such as engines, electric motors, lighting, air conditioning and the smart grid.

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