Policy Levers for Sustainability: The Federal Level
3 The transition to a sustainable economy will take activity and leadership from all sectors—public, private, and nonprofit. The United States federal government has many instruments to put in place to encourage sustainability and make sustainable options more viable in the marketplace by reducing risk and increasing competiveness. National sustainability policies aim to encourage sustainable energy use and other sustainable practices while discouraging dirtier, environmentally destructive, or unsustainable practices. None of these policies is a silver bullet; the environmental challenges that we face are too complex and too extensive for simple solutions. However, multiple policies enacted together can facilitate substantial progress. In fact, it is precisely that complexity that requires the federal government to play a leadership role. While today the U.S. national government is often ridiculed as inept, historically it has been capable of tremendous feats such as the transcontinental railroad, the mobilization of industry and society in World War II, and sending astronauts to the moon. In a similar fashion, we need the federal government, through multiple coordinated efforts, to speed our transition to sustainability. Many of these policies focus on energy, a critical component of the sustainable economy. As discussed in Chapter 2, addressing the energy issue centers around reducing the price of renewable energy or, alternatively, making all energy prices reflect their true costs so consumers (both individual and organizational) must internalize the externalities associated with fossil fuel extraction and burning, which include climate change, poor air quality, and negative health impacts. Appropriate policies can also be developed to address other issues of sustainability such as environmental protection, water use, waste disposal, and recycling. In Chapters 1 and 2, we made the case for sustainability and presented arguments in support of necessary public–private partnerships to bring about the transition to a sustainable economy. In this chapter, we will present an overview of the range of federal level policies that could be developed to encourage sustainability. First, we will present the type of policy tools that currently influence America’s environmental approach, including the effective and innovative mechanisms that the U.S. has employed historically and continues to utilize today. This overview will examine a variety of approaches including public spending, market-based tools, and regulations. Then, we’ll outline the policies that are not working, those that serve to discourage or undermine sustainability management, and discuss alternatives. Finally, we will turn to what is possible and introduce policy options that could be adopted at the national level in the near term, and use global examples to demonstrate the viability and effectiveness of these programs. The United States has a long history in environmental sustainability. In the 20th century it established one of the greatest national park systems in the world. It developed some of the first environmental laws to protect our land, water, air, and health. It demonstrated that economic development does not need to be accompanied by declining environmental quality. The United States has achieved these notable successes via a series of policy instruments. We’ll discuss a number of these initiatives here, though it is by no means an exhaustive list or history of environmental policy in the United States. The federal government has the capacity to directly fund key elements of the transition to a sustainable economy through a variety of programs and tools, specifically investment in scientific research and development (R&D) and direct spending through sustainable public procurement policies and programs. As we noted in Chapter 2, one of the most important roles of government is mobilizing resources into scientific research and discovery. We believe that advanced technologies (such as nanoscale solar and next-generation batteries) are the key to a sustainable future. However, substantial gaps exist between actual investments in these technologies and what is needed in order to achieve the transition to a sustainable economy. The U.S. federal government has traditionally filled this gap and must continue to do so. In fact, the U.S. government is one of the very few funders of basic science in this country, although we have seen an increase in private philanthropy in this area. For example private funding for science has grown dramatically over the past twenty years. At our own university, Mortimer Zuckerman donated $200 million for a new institute focused on mind, brain, and behavior that Columbia named in his honor. In Washington DC, where budget cuts have closed laboratories and forced the layoff of scientists, wealthy philanthropists have been able to rekindle and revitalize scientific exploration. According to Steven A. Edwards of the American Association for the Advancement of Science, science in the 21st century has been shaped more by the particular preferences of wealthy individuals rather than national priorities (Broad, 2014). Support for basic science and engineering is a fundamental role of government, similar to national security, emergency response, infrastructure, and criminal justice. Investment in basic research and development has historically been a high priority for federal governments. Government-funded research, coupled with private-sector application to commercial products and processes, has led to some of the most significant technological breakthroughs in the last century: computers, cell phones, the Internet, global-positioning systems (GPS)—all breakthroughs that have created enormous economic growth in the United States and globally. Public investment has been there, behind the scenes, for these important innovations, generating the basic scientific research and helping to bridge the gap between those scientific discoveries and applied research and development. This role is perhaps paramount in the sustainability transition. We know the outcomes of the investments made in science during the post–World War II era; we don’t know what the innovations of the 21st century will be, but we are continuing to invest to ensure that those discoveries occur. We believe that they will change the way we think about the future of sustainability. Over the last three decades, until recently, science funding has increased fairly steadily. The American Association for the Advancement of Science (AAAS) has tracked federal funding for R&D and found an increase from roughly $80 billion in 1978 to a peak of nearly $180 billion in 2009 before declining to roughly $130 billion in 2013 (AAAS, 2013). Over the last few years, funding for the government agencies that fund science has been roughly flat, with slight increases or decreases year to year, depending on the agency. For example, the president’s proposed Department of Energy fiscal year 2015 budget represents a 2.6 percent increase above the fiscal year 2014 enacted level (U.S. DOE, 2014). Although funding for the Environmental Protection Agency (EPA) is declining—a trend that is expected to continue in the near future—other agencies responsible for investment in environmental science, such as the National Science Foundation (NSF), the U.S. Geological Survey, the National Oceanic and Atmospheric Administration, and the Forest Service, are expected to see slight increases in funding in the short term. Despite these small gains, funding for these agencies is far below other agencies, like the National Institutes of Health (NIH), which supports medical research, or the Defense Department; for example, the proposed budget for the NIH in the president’s fiscal 2015 budget request was nearly $30.4 billion, compared to the $7.3 billion for NSF and $7.9 billion for the EPA, respectively (OMB, 2014). In 2009, in efforts to bolster the global economy, countries across the globe increased federal spending through stimulus programs, which provided a quick boon to the sustainability field. In the U.S., the American Recovery and Reinvestment Act (ARRA or the stimulus plan) resulted in an increase in research funding across most federal agencies. That same year, President Obama announced a long-term goal for the United States to invest 3 percent of its GDP in research and development as part of “A Strategy for American Innovation” (OSTP, 2010, 1–2). The proposed Plan for Science and Innovation, which was never approved by Congress, focused on three main federal agencies: the National Science Foundation (NSF), the Department of Energy (DOE), and the National Institute of Standards and Technology (NIST). President Obama aimed to put these agencies on a doubling trajectory by 2017. The 2011 budget sustained the administration’s commitment with increased funding for these key science agencies, keeping the doubling path on track (OSTP, 2011, 1–2). However, in a 2013 report, the American Association for the Advancement of Science found that the agencies fell short of the doubling pace, despite receiving increases (AAAS, 2013, 4). The impact of ARRA was particularly notable for clean technology. From the period 2002–2008, federal support for clean technology (across agencies) totaled an estimated $44 billion and grew to $150 billion from the period 2009–2014 (Banks, 2011, 40). Despite these gains from ARRA, funding has decreased since the peak in 2009. In 2009, the budgets for clean tech totaled $44.3 billion and then dropped to roughly $11 billion in 2014—a 75 percent decrease in funding for solar, wind, and other clean technologies (Jenkins, 2012, 6). This continued to decline as subsidies expired. By the end of 2014, 70 percent of 2009 programs had expired and non-ARRA funding declined by 50 percent (Jenkins, 2012, 4, 6). So, what does this all mean? What did the Obama stimulus funding actually do? To understand the impact, it’s important to understand what federal funding is allocated toward. The National Science Foundation supports the physical sciences, environmental sciences, engineering, mathematics and computer sciences, and life sciences. In fiscal year 2012, approximately 88 percent of its budget went to universities and colleges, the highest proportion of any federal agency (NSF, 2013, 9). The National Aeronautics and Space Administration (NASA) focuses one-third of its research on engineering, about a quarter on environmental sciences, and the remaining on physical sciences. Of the environmental science that NASA funds, a significant percentage flows to oceanography and atmospheric and geological sciences. For example, $1.8 billion of NASA funding in 2013 supported research for a fleet of Earth observation spacecraft to better understand climate change, improve future disaster predictions, and provide vital environmental data to federal, state, and local policymakers (OMB, 2013, 183). The National Oceanic and Atmospheric Administration’s (NOAA) core responsibility is environmental science and stewardship and it supports critical weather and climate satellite programs. This includes better forecasting of ocean conditions and events; more and better data about severe storms and sea-level rise, which helps coastal communities prepare for threats; and restoration and protection of important habitats that protect communities and support healthy ocean ecosystems (National Ocean Council, 2013). The Department of Energy (DOE), which proposed a budget of $27.9 billion in 2015, supports priority areas such as clean energy, advanced transportation, and grid modernization and resiliency (OMB, 2014). Most of the DOE’s budget is devoted to nuclear weapons and nuclear waste and the part allocated to energy resources is less than 10 percent of the total. The fiscal year 2015 budget included increased funding for applied research, development, and demonstration in the office of Energy Efficiency and Renewable Energy (EERE), and expanded funding for the Advanced Research and Projects Agency-Energy (ARPA-E), with the hope of positioning the United States as a world leader in the clean energy economy, creating new industries and domestic jobs. “Within EERE, the Budget increases funding by 15 percent above 2014 enacted levels for sustainable vehicle and fuel technologies, by 39 percent for energy efficiency and advanced manufacturing activities, and by 16 percent for innovative renewable power projects such as those in the SunShot Initiative to make solar power directly price-competitive with other forms of electricity by 2020. The Budget provides funding within EERE to help state and local decision-makers develop policies and regulations that encourage greater deployment of renewable energy, energy efficiency technologies, and alternative fuel vehicles” (OMB, 2014, 74). These investments symbolized the federal government’s growing but, in our view, still small-scale effort to improve our understanding of earth, environmental, and climate science. Even so, the stimulus funding continued the U.S. commitment to international science experiments and support of the frontiers of energy research (OSTP, 2009, 2). One program of specific note is the Advanced Research and Projects Agency-Energy (ARPA-E), which has funded a number of cutting-edge innovations in clean technologies. Created within the DOE and modeled after the Defense Advanced Research Projects Agency (DARPA), the military’s primary division for new technology innovation, ARPA-E works toward developing new technologies to reduce dependence on imported energy, reduce emissions, and increase energy efficiency (Greenstone, 2011, 6). In 2009, Congress and President Obama allocated $400 million to the ARPA-E program as part of the stimulus, providing funding for their first initiatives (ARPA-E, 2014a). Over the next five years it funded 362 projects. Initiatives include projects in biofuels, thermal storage, grid controls, and solar power. “To date, 22 ARPA-E projects have attracted more than $625 million in private-sector follow-on funding after ARPA-E’s investment of approximately $95 million. In addition, at least 24 ARPA-E project teams have formed new companies to advance their technologies, and more than 16 ARPA-E projects have partnered with other government agencies for further development” (ARPA-E, 2014b). It is not hard to see how investments in early stage research and basic science can lead to private sector investment during the commercialization and deployment stage. Still, considering the size of federal funding levels, allocations below $1 billion are so insignificant they are not typically mentioned. While funding levels for basic science are not quite at post-2009 levels, they continue to be supported. Unfortunately, dysfunction in Washington, like the government shutdown in the fall of 2013, seriously impairs government’s ability to do this important work. Scientists that depend on federal funding for their research cannot count on a government that could shut down at any moment over partisan squabbles. Federal funding cuts remain a significant challenge to research universities (like Columbia University, where we work), and can discourage scientists from pursuing key opportunities. How does the United States compare to its international counterparts in federal investment in research? When examining the United States’ public and private investment in R&D in terms of GDP, it represented 2.9 percent in 2009, placing it below several other developed countries including Japan (3.3 percent), South Korea (3.4 percent in 2008), and Sweden (3.6 percent) (AAAS, 2013, 21). China’s continued increase in R&D investment is now on par with the European Union at 1.98 percent of their total GDP (OECD, 2014, 2). If the United States aims to be a global leader in the green economy, we must ensure that funding for science does not become politicized, and that it remains a top priority for the federal government, demonstrated through continued and increasing support. While investment in R&D will be the engine to invent the technologies of the future that will lead us towards a green economy, we must also focus on widespread adoption and implementation of both new and existing technologies and practices. Here too, the federal government has a substantial role. Fossil fuels can only be replaced by renewables when clean technologies become cheaper than dirty ones. To drive clean technology prices down, we need demand on a grand scale. Economies of scale for sustainable products and processes push those prices down, closing the gap between these new technologies and older traditional ones. The U.S. federal government is one of the few single purchasers that can use its immense spending power to be a market mover. Governments can use sustainable procurement practices to “create high-volume and long-term demand for green goods and services. This sends signals that allow firms to make longer-term investments in innovation and producers to realize economies of scale, leading in turn to the wider commercialization of green goods and services, as well as more sustainable consumption” (UNEP, 2011, 546). As is the case in many countries around the world, the U.S. government is the largest consumer of goods and services nationwide, and therefore has significant influence over the market. Christian Parenti, Professor in Sustainable Development at The School for International Training Graduate Institute, puts it clearly: The fastest, simplest way to do it is to reorient government procurement away from fossil fuel energy, toward clean energy and technology—to use the government’s vast spending power to create a market for green energy. After all, the government didn’t just fund the invention of the microprocessor; it was also the first major consumer of the device…A redirection of government purchasing would create massive markets for clean power, electric vehicles and efficient buildings, as well as for more sustainably produced furniture, paper, cleaning supplies, uniforms, food and services. If government bought green, it would drive down marketplace prices sufficiently that the momentum toward green tech would become self-reinforcing and spread to the private sector (2010). Why is government procurement so important? First, they spend a lot. The average share of public procurement in GDP in OECD countries is about 11 percent, reaching 16 percent in the countries of the European Union (OECD, 2008, 41). According to the Council on Environmental Quality in the United States, “the federal government occupies nearly 500,000 buildings, operates more than 600,000 vehicles, employs more than 1.8 million civilians, and purchases more than $500 billion per year in goods and services” (The White House Council on Environmental Quality, 2009). Second, it can be directed and executed by the president and the executive branch. The ability to act without Congress is unfortunately the key to making serious shifts toward a green economy. We will probably never see a carbon tax, but we can use the federal government to purchase clean energy now. The United States has begun to make changes in this area, announcing a sustainable procurement strategy in 2009 through Executive Order 13514. It set sustainability goals for federal agencies, focusing on increasing energy efficiency, reducing fleet oil consumption, water conservation, waste reduction, and using their purchasing power to promote environmentally responsible products and technologies (The White House Council on Environmental Quality, 2009). The executive order also called for measuring, reporting, and reducing federal greenhouse gas emissions, and in 2010 President Obama announced goals for 2020: a 28 percent reduction of 2008’s direct emissions (e.g., fuels and building energy use), and a 13 percent reduction of indirect emissions (e.g., employee commuting and business travel) (The White House Council on Environmental Quality, 2009). These efforts can have a significant impact. It’s estimated that the federal government can save an estimated $1 billion a year through energy efficiency measures in federal buildings (Walsh and Gordon, 2012, 35). Governments across the globe are using procurement to advance their environmental sustainability and climate change goals. In 2012, over 30 governments and institutions supported an initiative to harness sustainable procurement processes. The initiative promotes the benefits and impacts of sustainable procurement and encourages greater collaboration between key stakeholders (UNEP, 2012, 1–2). The United Nations Environment Programme has found that “sustainable public procurement has the potential to transform markets, boost the competitiveness of eco industries, save money, conserve natural resources and foster job creation” (UNEP, 2012, 1). In the United States, the military is one of the biggest clean technology proponents. Recognizing the security implications of our fossil fuel dependence and the energy savings potential of renewables and energy efficiency, the military has consistently served as a test bed for innovation in energy. In the Department of Defense’s 2014 Quadrennial Defense Review, the military outlined its vision for environmental sustainability and the critical importance that it places on these issues, as well as their increasing relevance to our national security. “The impacts of climate change may increase the frequency, scale, and complexity of future missions, including defense support to civil authorities, while at the same time undermining the capacity of our domestic installations to support training activities. Our actions to increase energy and water security, including investments in energy efficiency, new technologies, and renewable energy sources, will increase the resiliency of our installations and help mitigate these effects” (DOD, 2014, vi). These efforts have a global impact. The U.S. Department of Defense is the single, largest energy consumer in the world, passing the consumption total of more than one hundred nations (Adamson, 2012, 1). As part of President Obama’s strategy to develop the United States’ domestic energy resources, the Department of the Interior (DOI) and the Department of Defense (DOD) teamed up to strengthen the nation’s energy security and reduce military utility costs. The two agencies formed a Renewable Energy Partnership Plan, agreeing to work together to facilitate renewable energy development on public lands, and other onshore and offshore areas near or adjacent to military installations (DOD and DOI, 2, 2012). The U.S. government is also able to use military installations as test beds for new technologies, with the DOD serving as a sophisticated first-user evaluating the technical validity, cost, and environmental impact of advanced technologies before they enter the commercial market (DOD, 2012, 3). The DOD is working to improve energy efficiency of buildings, improve renewable energy technologies, and develop smart microgrids. The DOD is helping create a market for emerging technologies that prove effective and reliable, accelerating the availability of next-generation energy technologies for other federal agencies and the private sector (DOD, 2012, 3–4). According to a 2014 study by the Pew Charitable Trusts, the deployment of clean energy technology continues to expand throughout the military. They found that the number of energy efficiency projects at military installations “more than doubled from 2010 to 2012, from 630 to 1,339…the number of renewable energy projects increased from 454 to 700 during the same period” (Pew, 2014). These projects are reducing energy demand, increasing on-site energy production, and enhancing energy management (through smart grids), all of which save taxpayer dollars and advance the clean tech market. Pew, and its research partner, Navigant Research, predict that by the end of 2018, renewable energy capacity on military bases could increase by more than fivefold, putting it in position to meet its goal of 3 gigawatts of renewable energy by 2025 (Pew, 2014). Direct public spending and investment is one set of tools that federal governments have at their disposal. Another option is to use market-based instruments, which employ markets, pricing, and other economic incentives or disincentives to induce change. These include taxes, subsidies, and cap-and-trade or tradable pollution permit systems. Robert Stavins and Bradley Whitehead describe how market tools are used to meet sustainability goals: Properly designed and implemented, market-based instruments—regulations that encourage appropriate environmental behavior through price signals rather than through explicit instructions—provide incentives for businesses and individuals to act in ways that further not only their own financial goals but also environmental aims such as reduce waste, cleaning up the air, or reducing water pollution. In most cases, market mechanisms take overall goals of some sort—say, the total reduction of emissions of a specific pollutant—and leave the choice of how to accomplish this up to the individuals or companies concerned (105–106). Taxes are nearly universally seen as government’s primary policy tool. They are also among the most transparent and effective policy mechanisms available. Taxes, designed to correct negative externalities, such as pollution, enable the government to incorporate some of those external social costs into the price of activities and products, allowing the market to play a critical role in changing purchasing patterns (OECD, 2008, 13). Compared to regulations, which require monitoring and enforcement, taxes, in theory, can work more efficiently because they allow for more flexibility from a household or firm. Carbon taxes are most frequently cited as a possible mechanism to achieve sustainability goals like reduced greenhouse gas emissions. However, unlike many other countries, notably in Europe, the United States imposes practically no green taxes. Some of the few U.S. green taxes imposed at the federal level include the “gas guzzler” tax on new automobiles that exceed fuel efficiency standards, a tax on ozone-depleting substances, and various minor taxes on fertilizers and pesticides used in agriculture. In a global economy, companies can avoid some forms of taxation by locating their firms abroad. Moreover, today, new taxes are political non-starters in the United States, so while they may be recommended by economists, students of public policy look to other mechanisms to achieve desired goals. Instead, the United States uses other market tools, including subsidies like rebates, tax credits, and loan guarantees, to incentivize investment in the industries it wants to promote. To meet the scale needed to build a sustainable economy, governments must develop policy frameworks that encourage substantial private sector investment in lower-carbon energy options. According to the International Energy Agency (IEA), “financing remains a challenge for low-carbon energy technologies despite availability of capital” (IEA, 2012, 8). Government can facilitate this financing challenge using mechanisms like guaranteed loan programs, which helps lower financial risks associated with clean technology development. These types of programs leverage public dollars into larger investments in the private sector. However, they can face significant criticism when an investment publicly fails, as in the case of the Solyndra bankruptcy, which failed after receiving loan guarantees from the Department of Energy. Tax credits can provide stable, multi-year incentives to encourage the private sector to invest in certain technologies. They lower the cost difference between renewables and fossil fuels. Providing medium- to long-term price certainty encourages investment in renewable energy and related technologies (like energy storage and smart grids), which in turn drives innovation, wider adoption, and further reduction in prices. These types of policies are critical to lowering costs for consumers, making it easier for individuals to choose renewables over fossil fuels. The investment tax credit (ITC), for example, is a key driver for solar energy. It provides a 30 percent tax credit for solar energy systems for residential and commercial buildings. Since the investment tax credit was implemented in 2006, annual solar installation grew by over 1,600 percent—a compound annual growth rate of 76 percent (SEIA, 2014b). As of 2014, the tax credit has been extended through 2016, providing a short- to medium-term time horizon for investors.
Policy Levers for Sustainability
The Federal Level
Introduction
What Is Working?
Public Investment and Spending
Investment in Scientific Research and Development
Public Procurement
Case Study: Defense Investments in Clean-Energy Technology
Market-Based Tools
Case Study: The Production Tax Credit