David Spence, associate professor in the Department of Business, Government and Society and co-director of McCombs’ Energy Management and Innovation Center, recently examined the history of and challenges in reforming U.S. energy policy in a Brigham Young University Law Review article. Texas Enterprise caught up with Spence to better understand his views on today’s complex energy landscape.
How does the current political climate in Congress affect energy policy?
In the last few decades our parties have become ideologically polarized. In the ’60s and ’70s both parties were much more centrist than they are now. On the left you had Southern Democrats that were fairly conservative. On the right, you had northeastern moderates, like Nelson Rockefeller, and you might recall that it was Richard Nixon who created the Environmental Protection Agency. Even into the late 1980s George H. W. Bush wanted to be the environmental president and signed major Clean Air Act amendments. We just don’t see people reaching across the aisle very often [today]. It’s even worse right now because it’s an election year.
But isn’t the environment just as salient an issue now as it was in the ’60s?
Yes and no. What was different in the ’60s was we weren’t doing anything, and the Cuyahoga River in Ohio was literally on fire. What followed was a groundswell that led to the passage of the Clean Air Act, the Endangered Species Act, hazardous waste legislation, etc. So, while people still care about these issues, we’re arguing over smaller things — except for climate change.
But even with that issue we are seeing signs that the “belief gap” on beliefs between climatologists and the American general public may be slowly narrowing. In the last 10 years this gap had been pretty wide, with Gallup polls showing that only 40 or 50 percent of Americans surveyed believed human activity was driving climate change. Our most recent energy poll [The University of Texas at Austin Energy Poll is a semiannual national opinion poll exploring consumer sentiment about energy issues] found that 65 percent [of respondents] believe climate change is occurring, and 65-70 percent cite human activity, such as deforestation and fossil fuels, as the prime culprit.
Is there a difference between peoples’ attitudes toward the “issue” of the environment and their direct experience with it?
Yes. Opinion polls since the ’70s have been asking, “What’s more important to you, economic growth or protecting the environment?” If one asks that as a general, philosophical question, people will usually say protecting the environment is more important. But if you ask about specific situations — “Would you support this environmental rule even if it means x number of people lose their jobs?” — then the balance begins to swing more in the other direction. When people are confronted with a choice about higher energy prices, then they’ll tilt more toward economics. Even if you support the reduction of fossil fuels in principle, you may hesitate when it comes to your pocketbook. There’s a huge gap between what people say they are willing to pay and what they actually will pay.
Does this mean people are just hypocritical when it comes to energy and the environment?
No, not at all. There are just so many difficult trade-offs involved. When we read an article about fracking, for example, it usually talks only about the environmental risks associated with fracking operations. It almost never addresses the value of natural gas as a cleaner alternative to coal. Energy is a complicated issue and it’s hard to get people to think about all these trade-offs at once.
How much of the energy policy conundrum is due to the fact that most proposed solutions are split, in a way, between factions?
There is fragmentation among proponents of various solutions. In terms of reducing emissions, for example, economists prefer a tax for efficiency reasons. And business usually prefers a tax as well, because tax provides certainty of costs. With a tax rate they can plan, deciding how much they want to pollute and how much they want to pay.
Environmentalists prefer certainty in the emissions levels. A tax doesn’t give you that; it just tells you how much you pay per ton of emission. A cap-and-trade system gives you control over emissions levels, and that’s what environmental groups tend to prefer.
Yet another group of people argues that the cheapest way to address these issues is with efficiency measures. And there’s a lot of data showing that there are myriad win-win efficiency investments that we ought to be undertaking (weatherizing, more efficient appliances, etc.).
Can you explain how the perception of immediate vs. long-term consequences affects public and policy-maker perceptions?
Sure, a really good example of this is climate change. The problem here is that the benefits are going to be widely distributed (since the effects of greenhouse gases are global effects) and in the distant future. The carbon dioxide and greenhouse gas emissions we are releasing now persist and affect the earth’s climate for 50 to 100 years.
The cost to reduce these emissions, on the other hand, falls on U.S. taxpayers now, people who are current voters and who understand that their jobs or companies may be hurt by emission limits. It’s harder to make that economic sacrifice when many of the beneficiaries will be people born decades from now, or people who live outside the United States.
What does this mean for business? Does all this policy uncertainty make it easier or harder to figure out appropriate business models and strategy?
Harder. Imagine if you were a prospective builder of a new plant, especially one using fossil fuels. Think about the uncertainty involved in your decision: you’re not sure what the air pollution rules are going to be 40 years from now; you don’t know how much natural gas is going to cost; and you don’t know if Congress is going to do anything. When there’s lots of uncertainty like this, it’s very hard for businesses to plan.
Where can we look for energy and environmental reform if not from Congress?
At the state level we are seeing such things as greenhouse gas emissions control (especially in California and the northeastern states) and clean energy standards, such as the establishment of renewable portfolio standards (RPS).
At the individual level, you see the effects that consumers have on the markets. For example, here in Texas you can buy green power. There’s a percentage of Texans, and people everywhere, who’ll pay a premium for this power. This puts pressure on industry (and other people) not to use “dirty” energy.
Just recently we see Greenpeace calling attention to Google and Apple because these companies are building their servers in places where there’s a lot of coal-fired electricity. I think we’re going to see more and more of that kind of private action and market pressure.