Energy Policy Trends, 30 Years in the Making

Written by Rick Adcock, a Senior Vice President of Environmental Markets for World Energy, which sells technology and consulting services for brokering electricity, natural gas, wholesale power, fuels and green credits.

No matter where you go or who you talk to nowadays, the conversation always seems to circle back to the environment, carbon footprints and greenhouse gases. The emergence of this topic feels sudden, and perhaps fleeting, as though it was spurred by a former Vice President’s Oscar run and will fade with the walk offstage. The journey, however, has been a long one, and the conversation is unlikely to change anytime soon. In order to see where we’re going next, it’s important to first look back over the past thirty years and figure out how we got here.

Energy Crisis Spurs Action—The 70s

The Arab oil embargoes of the 1970s introduced energy security as a major policy issue of the modern era. The U.S. response was, among other things, to impose Corporate Average Fuel Economy Standards, create a Strategic Petroleum Reserve, and launch the Solar Energy Research Institute (SERI, later renamed the National Renewable Energy Laboratory).

The oil supply disruptions — and subsequent price swings — pushed various industries to seek protection by investing in energy efficiency. Policy makers, meanwhile, looked to solar power.

The Environment Enters the Equation—The 80s and 90s

The newfound efficiency and increased production, combined with fresh supply from non-OPEC countries, caused oil prices to fall and the interest in energy security to wane during the 1980s. Natural gas markets were also de-regulated by the Reagan Administration, spawning a host of new players in the private sector.

It was during the 1980s that the environment really became part of a national conversation. What began with concerns over urban and regional air quality – smog and acid rain – quickly morphed into a broader discussion about global warming. Scientists and think tanks began producing reports and analyses about this new, emerging problem that was being caused by the buildup of greenhouse gases (GHG) in the earth’s lower atmosphere.

At a 1988 Senate hearing, as the country was in the grips of not only a heat wave and subsequent drought but a Presidential election campaign, NASA’s Dr. James Hansen declared that we were beginning to see the impact of global warming. Then-candidate George Bush stated that those who were concerned about the greenhouse effect should be confident that a solution would be found in the “White House effect” – and that, as President, he intended to do something about it.

The result was U.S. participation in the Earth Summit, the United Nations’ conference on environment and development that was first held in 1992 and where numerous global environmental treaties were negotiated and finalized. It was also the birthplace of the framework under which the Kyoto Protocol would, during the Clinton Administration, later be negotiated.

At the 1992 summit, and during later Kyoto negotiations, the U.S. insisted that “flexible mechanisms” — emissions trading and joint implementation — be allowed under the treaty for compliance purposes. (The U.S. had introduced emissions trading as a compliance tool in the Clean Air Act Amendments of 1990 as an efficient means of controlling SOx- and NOx-related air pollution; a decade later, Europe has embraced these mechanisms in creating the world’s largest emissions trading market, the EU’s Emissions Trading Scheme (ETS).)

Trends Converge/The Future is Bright?—Today

The attacks of 9/11 returned energy security concerns back to the public consciousness, highlighting the dangerous nature of linking oil reserves and national security. Today, energy security and environmental drivers have converged as never before, and will significantly impact the future of the global energy economy.

Governments are starting to pay attention, encouraging alternatives such as biofuels. Today biofuels are mostly derived from traditional feedstocks such as corn, but one day soon could be derived from cellulosic materials, an advancement that would fundamentally alter the geopolitics of energy. At the same time capital investment, has emerged simultaneously, creating a powerful combination of forces currently driving the clean energy market.

According to The Economist, venture capital and private equity investments in clean energy technology has quadrupled over the last two years, to $2 billion in 2006 from $500 million in 2004. In total, 21 states have portfolio standards in place requiring electric power generators to increasingly rely on renewable energy, and analysts predict the clean energy business will grow by 20 to 30 percent a year over the next decade.

All told, 49 countries have policies in place to promote clean energy, including China, Brazil, and India. Former Prime Minister Blair told a group at the most recent Davos gathering that the global community is “on the verge of a breakthrough” on climate change cooperation, adding that “the mood in the U.S. is in the process of a quantum shift.” Blair’s assessment was supported by Senator John McCain, who expects Congress to soon undertake take some tangible measures to deal with climate change.

Today, 30 years after the initial oil embargoes, the convergence of security and environmental drivers, along with the strong participation of capital markets, has created more economic activity in the clean energy sector than ever before. Our ability to understand how we got to this point is critical as we make decisions that will impact us all for several lifetimes.

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