Next Steps

It is clear from this report that new energy technologies are emerging that will reduce the unwanted side effects of burning fossil fuels while enhancing environmental and national security. Their development and use offer major opportunities for the Americana business community. With the emergence of new energy technologies such as solar cells, wind turbines, solar thermal collectors, electric-drive vehicles, batteries, and flywheels, a long-term transition is beginning toward a sustainable U.S. energy sector. The trend toward electrification of the economy will continue as fossil-fuel burning gradually gives way to direct electricity production using these new technologies. As costs fall, a global transition to their use will take hold. The move to sustainable technologies will pose major challenges to humanity as we struggle with the economic and institutional barriers to change. Our success in making this first transition will provide a clue to how successful we will be in introducing sustainability into other sectors of the economy.

What can be done to encourage these trends? An approach is sketched out here that relies primarily on market mechanisms to drive the transition. In the short term, national policies should emphasize improving energy efficiency throughout the economy. This can best be encouraged by reforming energy prices to better reflect the climate, pollution, and security costs levied on us all by fossil fuel consumption. Only with such reforms can the environmental and climate benefits of efficiency and renewable energy be fully realized in the market place.

Nor need there be undue concern that the kinds of energy pricing reforms advocated here will have a negative impact on national economic growth. According to a recent World Resources Institute report, under favorable conditions (described below), U.S. fossil-energy consumption can be cut substantially over the coming decades without lowering projected growth in GDP.⁶⁰ Some of the favorable conditions necessary for this outcome are:

· There must be available non-fossil alternative energy sources at competitive prices in the near future;

· Firms and consumers must be flexible and adaptive in their responses to market signals;

· There should be options to trade CO₂ emission rights internationally (so-called Joint Implementation);

· Revenues collected from policies to reduce emissions (either through a tax or through the auction of emission permits) must be used ("recycled") to reduce taxes on income and investment; and

· Economic savings from reduced air pollution and climate damages should be taken into account.

The models that do embody these assumptions indicate that carbon emissions can be cut while the economy continues to grow. Ensuring that some of these conditions are met is, in turn, primarily a matter of public policy.

The market approach advocated here can be coupled with programs of consumer education and energy labeling. Over the longer term, federal and state buying powers can be harnessed to expand the markets for emissionless vehicles and renewable energy technologies. Federal funding is also warranted for basic technological research and development, and for the demonstration of advanced technologies that are nearing commercial competitiveness.