[Economic Report of the President (2011)]
[Administration of Barack H. Obama]
[Online through the Government Printing Office, www.gpo.gov]

 
CHAPTER 6

Transitioning to a Clean Energy Future

American prosperity depends on a continuous supply of safe and
reliable energy. energy heats, cools, and lights homes and
businesses; transports workers to jobs, customers to stores, and
families to relatives; and runs the factories that manufacture the
goods Americans consume and export. It is increasingly clear,
however, that existing energy supplies pose risks to national
security, the environment, the climate, and the economy. to
counter those risks, while recognizing the continued importance of
safe, responsible oil and gas production to the economy, the
Administration is committed to moving the Nation toward use of
cleaner sources of energy with the potential to support new
industries, exports, and high-quality jobs; to improve air quality
and protect the climate; and to enhance America's energy security
and international competitiveness.
A future with cleaner energy sources promises numerous benefits.
Innovation in cleaner energy will reduce U.S. dependence on oil--over
half of which is imported--decreasing the vulnerability of the U.S.
economy to supply disruptions and price spikes (Box 6-1). Cleaner
energy will improve the quality of the air American families breathe,
because energy use accounts for the vast majority of air pollution
such as nitrogen oxides, sulfur dioxide, and carbon monoxide. Cleaner
energy is essential for the United States to make progress toward its
pledge, as part of the United Nations Climate Change Conferences in
Copenhagen and Cancun, to cut carbon dioxide (CO2) and other human-
induced greenhouse gases by roughly 17 percent below 2005 levels by
2020, and to meet its long-term goal of reducing emissions by more
than 83 percent by 2050. Finally, supported by well-designed policies,
clean energy can make an important contribution to America's ability
to compete internationally using innovative new technologies, while
also having ancillary economic benefits like lower risks from
accidents at coal mines and oil wells.

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Box 6-1: Energy Security benefits of Reduced Oil Consumption

Combustion of all fossil fuels generates pollution to varying
degrees. But because more than half of the petroleum consumed in the
United States is imported, it creates an additional set of costs for
the American economy.
First, although 20 percent of U.S. imports come from Canada,
America's biggest supplier, many of the most accessible reserves are
concentrated in unstable regions, leading to fears of supply-related
world price fluctuations. The risk may have declined over time,
because the U.S. economy has become less energy intensive and the
Strategic Petroleum Reserve is now filled to capacity with 727 million
barrels of crude oil--more than two months of net imports.
Nevertheless, petroleum still plays a key role in the United States,
accounting for 37 percent of energy use and over 7 percent of
personal consumption expenditures.
The second cost relates to the missed opportunity for the United
States to lower world oil prices by decreasing its own demand for oil.
Because the United States is the world's largest consumer of crude
oil, decreased U.S. demand results in lower world prices. Lower
prices benefit petroleum purchasers and harm petroleum producers,
with no overall global benefit. Because the United States is a net
importer, the offsetting effects would on balance favor U.S.
interests.
The third component of the energy security cost of oil involves
policy expenses borne by U.S. taxpayers. Among such expenses are
military costs associated with protecting oil supply routes and
maintenance costs of the Strategic Petroleum Reserve.
The Environmental Protection Agency and the National Highway
Traffic Safety Administration estimated that the fuel economy and
greenhouse gas emissions standards for cars and light trucks, issued
in May 2010, have energy security benefits of $7 a barrel of oil in
saved macroeconomic disruption costs in 2015 (in 2009 dollars), or
about $0.16 a gallon of gasoline. This estimate depends on
predictions about future oil prices, supply disruptions, OPEC
behavior, and the elasticities of global oil supply and demand. The
estimate does not include the demand-side market power benefit,
which represents a transfer from exporters to importers. Nor does it
include the U.S. policy expenses, because it is difficult to know how
much of them to allocate to an incremental change in oil consumption.
By comparison, one U.S. government estimate of the global social cost
of the CO2 emissions associated with one barrel of oil is $9.52 in
2010, going up to $20 in 2050 (Box 6-4).
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These same security, environmental, and economic risks confront
all the countries of the world to varying degrees. And many, like the
United States, have embarked on efforts to transition to cleaner
sources of energy. As a consequence, the clean energy sector is
likely to be a vibrant source of innovation, growth, and international
trade worldwide. Innovation is an engine of the American economy and
a key to long-term job creation and economic growth. those nations
that invest first, and whose transition efforts are most successful,
are likely to lead the world in exporting equipment and expertise as
the rest of the world's countries seek the same secure, clean,
affordable energy. the number of clean energy patents worldwide grew
about 20 percent per year from 1997 through 2007, and the United
States was home to 18 percent of the clean energy patents issued
between 1988 and 2007, behind Japan with 30 percent (UNEP, EPO, and
ICTSD 2010). the Obama Administration's commitment to clean energy
represents an effort to ensure that the United States does not slip
behind but instead leads the world in this critical sector.
The benefits of transitioning to clean energy--energy security,
cleaner air, fewer risks from climate change, and enhanced economic
competitiveness--are enjoyed by everybody, not just the producers
or consumers of the clean energy. As a consequence, the benefits are
not fully represented in market prices. examples of these benefit
spillovers abound. Clean energy innovators reap only part of the
overall rewards for their efforts--the rest spill over to others who
build on their work. the payments that solar and wind power
generators receive for the electricity they supply do not reflect the
benefits that spill over to the rest of the economy. energy users
reap only part of the benefits from weatherizing their homes and
driving electric vehicles. these spillover benefits are substantial.
A peer-reviewed report prepared by the ePA estimates that for the
year 2010 alone, the Clean Air Act Amendments of 1990 yielded net
benefits of $1.2 trillion--everything from lives saved to healthier
kids to a more productive workforce (EPA 2010). these spillovers
mean that market rewards for switching to clean energy production
are lower than the societywide benefits, market costs of switching
to clean energy consumption are higher than the societywide costs,
and markets alone provide less clean energy than is optimal.
Because there are many types of clean energy benefit spillovers,
the path to a   clean energy future includes many possible policies.
Existing fossil fuel consumption can be made cleaner by increasing
the efficiency of combustion, by capturing and sequestering CO2
emissions, or by switching within the fossil fuel sector to lower-
emitting natural gas. Cleaner fossil fuel technologies and nonfossil
sources of energy, such as wind, solar, geothermal, natural gas, and
nuclear power, can supply a larger share of the Nation's energy
consumption with the help of a Federal Clean energy Standard. energy
use by homes and vehicles can become more efficient. And more
energy-efficient technologies, some of which may have yet to be
discovered, can be supported as they are developed and brought to
market. transitioning to a clean energy future and progressing
toward America's carbon pollution reduction goals will be best
accomplished by pursuing cost-effective, well-coordinated public
policies.
This chapter highlights some of the important steps the
Administration has already taken or is proposing to take to ensure
that the economy makes the important transition to clean energy. The
list of policies discussed here is not exhaustive but rather serves
to demonstrate the economic rationale that motivates ongoing work on
these programs. the policies include assisting with residential and
commercial energy efficiency; increasing vehicle efficiency;
increasing the share of electricity generated by clean sources;
recording, reporting, and accounting for the cost of greenhouse
gas emissions; funding transportation infrastructure including
expanded transit and high-speed rail; assisting with manufacturing
and adoption of electric vehicles; and providing incentives for
clean energy research and development (R&D).

INITIAL STEPS TOWARD a CLEAN ENERGY ECONOMY

The Administration's first task in January 2009 was to end the
deepest recession since the 1930s, and while doing so, it made major
initial investments to help turn the economy in a new, cleaner
direction. Many of those initiatives were integral to the recovery
effort; others were distinct but concurrent.

Energy Investments in the Recovery Act

The American Recovery and Reinvestment Act (Recovery Act)
directed about $800 billion in Federal expenditures and tax relief
to investments and job creation, with a primary objective of reversing
the collapsing economic conditions of early 2009. As part of that
effort, the law contained over $90 billion in public investment and
tax incentives targeted at increasing sources of clean energy and
reducing America's dependence on fossil fuels (Box 6-2).
These clean energy investments directly targeted the beneficial
spillovers that provide an economic rationale for promoting clean
energy. One example is the Recovery Act funds directed to the
Weatherization Assistance Program. The funds helped retrofit more
than 300,000 low-income homes by the end of November. A recent study
by the Oak Ridge National Laboratory estimated that the annual average
savings for homes weatherized by the program include $437 in heating
and cooling costs and 2.65 tons of reduced CO2 emissions (eisenberg
2010). Another example of Recovery Act spending targeted at home
energy efficiency is the Smart Grid funds that electric companies are
using to test various types of electricity metering, enabling
customers to monitor and adjust their electricity use to save power
and money. Still other Recovery Act investments in transit, electric
vehicles, and high-speed rail create construction jobs and will
provide energy savings and other benefits to Americans for
generations.

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Box 6-2: Clean Energy Investments in the Recovery Act

The more than $90 billion in Recovery Act expenditures aimed at
reducing American fossil fuel use fell into eight categories:

 $30 billion for energy efficiency, including retrofits
for low-income homes
 $23 billion for renewable generation, such as wind
turbines and solar panels
 $18 billion for transportation and high-speed rail
 $10 billion for Smart Grid technologies to improve
the efficiency of electricity use and distribution
 $6 billion for domestic production of advanced
batteries, vehicles, and fuels
 $4 billion for green innovation and job training
 $3 billion for carbon capture and sequestration
 $2 billion in clean energy equipment manufacturing tax
credits

As an example of the programs that make up these categories, the
top category, energy efficiency, includes the following:
 $5 billion for the Weatherization Assistance Program
 $3.1 billion for the State Energy Program
 $2.7 billion for Energy Efficiency and Conservation
Block Grants
 $454 million for retrofit ramp-ups in energy efficiency
 $346 million for energy-efficient building technologies
 $300 million for energy-efficient appliance rebates /
Energy Starï¿½
 $256 million for the Industrial Technologies Program
 $104 million for national laboratory facilities
 $18 million for small business clean energy innovation
projects
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Another part of the Recovery Act addressed the positive
spillovers that R&D generates for others by subsidizing a wide variety
of investments in clean energy R&D. these investments included several
billion dollars for R&D directly related to clean energy. Roughly $3.4
billion has been awarded for research, development, and deployment of
carbon capture and storage technologies. Another portion has funded
R&D on potentially transformative, next-generation clean energy and
efficiency-enhancing technologies, including advanced materials and
building systems, vehicle efficiency, solar power, biofuels, and wind
turbines. Recovery Act funds have also been awarded to finance clean
energy research at universities as part of a larger $2 billion effort,
managed by the Department of energy, to support basic scientific
research.
Funding for the Advanced Research Projects Agency-energy
(ARPA-E) within the Department of energy represents an especially
innovative R&D component of the Recovery Act. ARPA-E is modeled after
the 50-year-old Defense Advanced Research Projects Agency (DARPA),
which is credited with the initial innovations underlying the
Internet, navigation satellites, and stealth technology for aircraft.
ARPA-E aims to attract America's best scientists to focus on creative,
transformational energy research that the private sector by itself
cannot support but that could provide dramatic benefits for the
nation (Box 6-3).
Full details of the Recovery Act and its economic effects,
including the law's clean energy components, can be found in the
CEA's quarterly reports to Congress.

Further Steps Toward a Cleaner Economy

In addition to the clean energy investments in the Recovery Act,
the Administration has taken several other steps to lay the groundwork
for cleaner energy. Among the most significant of these are new
vehicle standards; increased electricity generation from renewable
sources; and programs to record, report, and account for the cost of
greenhouse gas emissions.
Vehicle Standards. In May 2010, the environmental Protection
Agency and the National Highway traffic Safety Administration issued
standards that will raise the combined car and light truck fuel
economy from 30.1 miles per gallon in 2012 to 35.5 miles per gallon
in 2016 and that are projected to reduce combined car and light truck
tailpipe CO2 emissions from 295 grams a mile in 2012 to 250 grams a
mile in 2016. As a result of these rules, vehicles to be sold during
model years 2012 to 2016 are projected to use 1.8 billion fewer barrels
of oil over their lifetimes, and by 2030 the entire light-duty vehicle
fleet will emit 21 percent less carbon pollution. the reduced fuel
costs will save consumers $66 billion per year by 2030, in 2009
dollars, after taking into account the increase in the purchase price
of vehicles.
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Box 6-3: The Recovery Act and ARPA-E: Spurring Innovation to
Transform the Energy Economy

The Advanced Research Projects Agency-Energy (ARPA-E) was
developed to support innovations with the potential to create new
clean energy jobs, businesses, and industries. It attracted thousands
of proposals and has funded over 100 projects that have the potential
to radically transform the energy sector.
One small startup company is developing a new way to manufacture
the key part in solar panels--silicon wafers--for less than 20 percent
of current costs. If successful, the technology could be used to
increase domestic clean energy production and add many new jobs in
the solar photovoltaic industry. A second startup is developing an
inexpensive and versatile means of storing energy, using a new type
of catalyst to separate pure hydrogen and oxygen from ordinary water.
That technology could allow renewable energy to be used even at times
or places where wind or sun is not available. Another company has
partnered with Argonne National Laboratory to create lithium-ion
batteries with the highest energy density in the world. The technology
has the prospect of increasing U.S. leadership in advanced batteries
and boosting the performance of hybrid/electric vehicles. Yet another
small company is developing a new type of wind turbine that generates
more energy than existing models and is cheaper to produce and
operate. The turbine is compact enough to use in urban locations and
could hasten the growth of wind power in the United States.
ARPA-E funds have enabled companies to pursue their innovative
research, to attract additional financing from private investors,
and to increase the odds of a dramatic breakthrough that would
accelerate the development of American clean energy.
_______________________________________________________________________

Doubling Renewable Electricity Generation. early in his
Administration, the President announced a goal of doubling the amount
of electricity generated in the United States by wind, solar, and
geothermal energy. toward this goal, tax credits have assisted both
the production of electricity from renewable sources and the
manufacture of equipment (such as solar panels and wind turbines) used
in that generation. As Figure 6-1 shows, the United States is on track
to achieve that goal, adding more wind, solar, and geothermal capacity
in 4 years than in the previous 30. Yet as the figure also shows,
those particular sources of energy still account for only a small
fraction of the Nation's overall electricity generating capacity. To
build on the progress made to date, the President has proposed a
Federal Clean energy Standard to obtain 80 percent of electricity
from these and other clean sources of electricity by 2035, expanding
the range of sources from which clean energy is generated. the
standard will double the share of electricity generated by this
broader group of clean sources in 25 years, and will provide utilities
with incentives to generate clean energy, along with the associated
spillover benefits, at the lowest possible cost (see "Next Steps,"
below).



Information Provision and Disclosure. In addition to these
concrete, tangible steps that increase the efficiency of vehicles and
the share of renewable sources used for electricity generation, the
Administration has taken two significant steps that involve
collecting and analyzing information. these two disclosure and
information-gathering endeavors will inform and guide future Federal
climate and energy policy.
The first of these was an interagency study to estimate the
"social cost of carbon" (SCC), a set of values for the climate-
related damages from incremental changes in carbon pollution. These
estimates enable Federal agencies to consistently quantify the
benefits of reduced CO2 emissions when analyzing the costs and
benefits of their regulatory actions, similar to the way all Federal
agencies use consistent discount rates for trading off current and
future costs and benefits. Based on the SCC described in Box
6-4, the CO2 reductions in 2030 resulting from the new car and light
truck standards described above are expected to save an estimated
$3.1 billion to $31.8 billion, in 2009 dollars, in the form of
reduced damages from climate change. The ability to quantify
benefits consistently across agencies in this manner is critical
for assessing the cost-effectiveness of rules and regulations.
______________________________________________________________________

Box 6-4: The Social Cost of Carbon: A Tool for Cost-Effective Policy

In 2010, an interagency task force that included the Council of
Economic Advisers produced an important white paper called "Social
Cost of Carbon for Regulatory Impact Analysis" (Interagency Working
Group 2010). The goal was to measure the present value of benefits
from reducing CO2 emissions by an extra ton. The report suggests four
values for this social cost of carbon (SCC): $5, $22, $36, and $67 a
ton, in 2009 dollars. The first three average SCC estimates across
various models and scenarios and differ based on the rate at which
future costs and benefits are discounted (5, 3, and 2.5 percent,
respectively). The fourth value, $67, comes from evaluating the
worst 5 percent of modeled outcomes, discounted at 3 percent. All
four values rise over time as more carbon in the atmosphere
exacerbates the damages from each additional ton. For example, the
central value of $22 rises to $46 in 2050. These estimates provide
guidance for assessing the costs and benefits of agencies' rule-
makings that reduce incremental carbon pollution.
Why is it important for agencies to agree on a common range
for the SCC? A key advantage of market-based regulations such as
pollution fees or tradable permit schemes is that they are cost-
effective. By putting a common price on emissions, these types of
polices give each source of pollution equal private incentives to
avoid paying that price by abating. The incremental cost of abating
pollution will thus be equal across sources, meaning that it will
not be possible to reduce collective compliance costs by abating
less from some sources and more from others.
While most regulations do not involve a price on carbon, and
the SCC is not itself a price, setting a common SCC range allows
policymakers to explicitly compare the benefits and costs of
emissions reductions across a wide range of regulations, and to
mimic the cost-effectiveness of a true market-based policy. The
Administration will periodically reassess whether the four SCC
values are appropriate for evaluating U.S. policies; meanwhile,
the SCC helps guide Federal agencies in the direction of consistent
and cost-effective policymaking.
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The second information-gathering step the Administration has
taken has been to require major sources of carbon pollution to
publicly report their annual emissions. the Mandatory Reporting of
Greenhouse Gases Rule, published in October 2009, covers 85-90
percent of U.S. emissions from roughly 10,000 facilities. Data
collection began in January 2010 for stationary sources, including
electricity generators, large industrial facilities, and suppliers
of fossil fuels. For cars and light trucks, engine manufacturers
are required to report emissions beginning with model year 2011.
This important step will be instrumental in helping identify cost-
effective opportunities to reduce carbon pollution as well as ways
to target regulations efficiently.

NEXT STEPS TOWARD a CLEAN ENERGY ECONOMY

In his 2011 State of the Union address and in his 2012 Budget,
the President outlined a series of proposals that build on current
efforts to transition to an economy based on cleaner sources of
energy. Among these are a Federal Clean energy Standard for
electricity; further investments in energy efficiency; a
substantial commitment to transportation infrastructure, including
a major investment in high-speed rail and steps to achieve the
Administration's goal of 1 million electric and hybrid vehicles
on the streets by 2015; and increased investments in clean energy
R&D.

A Federal Clean Energy Standard

The President has proposed a goal of generating 80 percent of
the Nation's electricity from clean energy sources, defined broadly
to include renewables and nuclear power as well as partial credit
for fossil fuels with carbon capture and sequestration and efficient
natural gas. To meet this goal, the Administration is proposing a
Clean energy Standard (CeS) that would require electric utilities to
obtain an increasing share of delivered electricity from clean
sources--starting at the current level of 40 percent and doubling
over the next 25 years. electricity generators would receive credits
for each megawatt-hour of clean energy generated; utilities with more
credits than needed to meet the standard could sell the credits to
other utilities or bank them for future use. By ensuring flexibility
through a broad definition of clean energy and by allowing trading
among utilities, the program is designed to meet the overall target
cost-effectively. the Administration's proposal emphasizes the
importance of protecting consumers and accounting for regional
differences.

The proposed Federal CES will provide a critical complement to
the Administration's investment in clean energy R&D, by creating a
stable market for new technologies. Funding for R&D provides a "push"
to technological innovation by helping to promote basic and applied
research and addressing the market spillovers associated with private
research efforts. A CES would create economic incentives for
deployment of clean energy that can help "pull" new technologies
coming out of R&D into the market. Importantly, a CES would not
pick particular clean technologies, but instead let markets and
businesses determine the most cost-effective technologies to
achieve the target share of clean energy.
The Administration's proposed CES will build on the national
progress depicted in Figure 6-1, as well as on a range of existing
efforts at the state level. By the end of 2010, 31 states plus the
District of Columbia had enacted renewable energy standards (RES),
which specify the minimum amount of electricity that utilities are
required to generate or purchase from renewable sources--typically
solar, wind, geothermal, and biomass (Figure 6-2). Five additional
states have also recognized specific renewable energy goals. the
laws range from modest departures from the overall business-as-usual
forecast to requirements that 33 percent of power come from renewable
sources in California by 2020 and 40 percent in Hawaii by 2030.
Together, the states that have binding RES policies currently
account for nearly two-thirds of all national retail electricity
sales.
Most RES laws incorporate market-based regulatory flexibility
by allowing some utilities to meet the minimum renewable shares by
purchasing renewable energy credits (RECs) from other utilities
that exceed the standard. Because utilities can sometimes purchase
energy and RECs across state borders, the patchwork of state
standards depicted in Figure 6-2 can achieve some, but not all, of
the cost-effectiveness benefits of a national standard. Although
states have led the way, making significant advances in the use of
renewable energy sources, a coordinated Federal action could achieve
even greater benefits with lower costs. A Federal standard with
nationally tradable credits would ensure that renewable power and
other clean energy sources are deployed in those locations where
they can be most cost-effective. By covering the whole country and
including a wider array of sources, a Federal CES has the potential
to accelerate the transition to clean energy at significantly lower
cost.



Energy Efficiency
One certain approach to reducing energy-related pollution and
America's reliance on fossil fuels would be to consume less energy.
Americans have many opportunities to make energy efficiency-enhancing
investments--in their homes, their vehicles, and their businesses.
Eexamples include weatherizing buildings, replacing old appliances
with new energy-efficient models, and switching to compact
fluorescent light bulbs. For a variety of reasons, however, people
tend to under-invest in these types of simple energy-saving measures
where up-front costs would be paid back in the form of reduced energy
bills.
There are numerous explanations for this energy paradox. People
may simply not have the information necessary to evaluate the
tradeoffs between current costs and future savings. Some energy
efficiency decisions are made by landlords who have diminished
incentives to invest in energy efficiency because their tenants pay
the electricity bills. In other cases, people may plan to sell their
homes before they would have enough time to reap the energy savings
and might not expect those energy-saving investments to be reflected
in resale prices. And some individuals simply do not have access to
the funds to invest in energy efficiency, even if they know they
would earn that investment back many times over. existing Federal
programs designed to address this energy paradox include the energy
Star program, which labels appliances, consumer electronics, and
building products, providing the information consumers need to
make cost-effective choices, and the Weatherization Assistance
Program, which helps cash-strapped low-income families conserve
energy and reduce their energy bills.
To build on existing efforts to address the energy paradox and
the beneficial spillovers from energy efficiency, and to help boost
job creation in the construction and manufacturing industries, the
Obama Administration has proposed two new programs to help retrofit
buildings: Homestar for residences, and the Better Buildings
Initiative for commercial properties.
Homestar. the Homestar energy efficiency Retrofit Program would
provide point-of-sale rebates to homeowners who make efficiency
-enhancing improvements to their homes. Rebates of $1,000 to $1,500
would be paid for 50 percent of the costs of straightforward
retrofits, including insulation, water heaters, windows and doors,
and air conditioners. Other rebates of $3,000 would help pay for home
energy audits and follow-up retrofits that reduce energy costs by 20
percent. Included in the proposal is an oversight program to ensure
that contractors are qualified and that efficiency-improving work is
done properly. the program aims to create tens of thousands of jobs
and save homeowners hundreds of dollars a year in energy costs.
Better Buildings. For the commercial real estate that is
currently responsible for roughly 20 percent of U.S. energy
consumption, the President has proposed a Better Buildings
Initiative. the initiative encourages retrofits of commercial
buildings so that they become 20 percent more energy efficient over
the next 10 years and save an estimated $40 billion a year in energy
costs. the program calls for replacing the current tax deduction for
commercial building upgrades with a more generous tax credit;
promotes energy efficiency loans to small business, hospitals, and
schools; and provides competitive "Race to Green" grants to state
and local governments for programs that encourage energy-efficient
commercial upgrades.
Together, Homestar and Better Buildings would complement the
energy efficiency progress already made under the Recovery Act,
help homeowners and businesses save energy costs, and help the
Nation capitalize on the beneficial spillovers from energy
efficiency investments.

Transportation

Transportation accounts for more than one-fourth of energy
consumption in the United States, so the transition to a clean energy
future must enable Americans to choose more energy-efficient
vehicles, such as electric and hybrid cars, and to use less
energy-intensive modes of transportation, including public transit
and high-speed trains.
Vehicles. the President has challenged the Nation to become the
first country in the world to have 1 million electric vehicles on
its roads, and to do so by 2015. to achieve that goal, several
obstacles must be overcome. One obstacle is what the industry calls
its "chicken and egg" problem: many drivers will not purchase fully
electric vehicles unless an infrastructure of charging stations is
ready to support them, and businesses will not invest in charging
stations without a sufficiently large base of electric vehicle
owners as customers. A second obstacle involves the standard R&D
innovation spillover--some of the gains from efforts to develop the
first generation of electric vehicles will be earned by producers
of subsequent generations of cars.
To help achieve the million-car goal, over $2.4 billion in
Advanced technology Vehicle Manufacturing loans are already
supporting three of the world's first electric car factories, located
in Delaware, tennessee, and California. to make further progress, the
2012 Budget proposes to provide a $7,500 point-of-sale rebate to
customers who buy electric vehicles; to invest $580 million toward
research, development, and deployment of electric vehicles; and to
fund a new $200 million competitive grant program to reward
communities that invest in infrastructure to support electric
vehicles.
Americans who continue to choose gasoline-powered vehicles can
still make progress toward a clean energy future when those vehicles
become more fuel-efficient. the new fuel economy and greenhouse gas
emissions standards for cars and light trucks for model years 2012
to 2016 is a step in that direction. to make further progress, the
National Highway traffic Safety Administration and the environmental
Protection Agency have announced plans to develop standards for new
cars and light trucks for model years 2017 and beyond, along with
the first proposed requirements to increase fuel economy and reduce
greenhouse gas emissions from medium-and heavy-duty trucks and buses.
Alternatives to Automobiles. Another way to reduce
transportation-related energy use is to provide more Americans with
the opportunity to choose alternative, cleaner forms of mobility such
as railways for intercity travel and commuting, and bicycles and
walking for short local trips. However, all transportation systems
require infrastructure investment: automobiles require roads, trains
need tracks, and airplanes need airports and air traffic control
systems. throughout U.S. history, public investment in transportation
infrastructure has led to long-term benefits, from the erie Canal to
the transcontinental railroad to the interstate highway system. As
Chapter 3 notes, these types of infrastructure investments have been
shown to have broad economic spillovers, including increased economic
growth, productivity, and land values. Some transportation
infrastructure investments, such as public transit, high-speed rail,
and improved air traffic control, can also have significant energy
efficiency benefits.
For intercity travel, the 2012 Budget proposes enhancements to
train and air travel that will reduce energy demands. the United
States already has the world's most extensive freight rail network.
To extend that expertise to passenger trains, the Administration is
proposing to invest $53 billion over six years to fund the
development of a national passenger rail network, including
high-speed trains, accessible to 80 percent of Americans by 2035.
And for air travel, the budget includes continued investment in the
NextGen satellite-based air traffic control system that will reduce
delays, improve air safety, and yield significant energy savings.
For short local trips, the Administration is undertaking a
number of measures to promote alternative modes of mobility, such
as public transit, bicycles, and walking. the 2012 Budget allocates
$119 billion for transit programs over six years, more than doubling
the commitment to transit in previous budgets. As part of that,
the Administration is proposing $28 billion in new grants over six
years for projects supporting interconnections between various
transportation modes and improving streets to make room for
pedestrians, bicycles, and mass-transit alternatives.

Research and Development

Finally, a crucial, forward-looking part of clean energy
policy involves R&D. As already described, market incentives produce
less R&D than would be optimal because innovators create social
benefits in excess of their private market returns. these positive
spillovers affect every level of R&D, from basic science all the way
through demonstration and deployment of existing technologies.
In the past, industries that have invested heavily in R&D have
led the United States in creating high-quality jobs and exports. As
Chapter 3 notes, R&D-intensive industries are characterized by
higher sales per employee and more exports than comparable
industries selling internationally tradable goods and services. For
the future, the energy sector is a large potential source of R&D-
intensive industries--along with the associated high-quality jobs and
exports they produce. Other countries around the world face the same
energy-related threats to their prosperity as those confronting the
United States, and global demand for new clean energy technologies
is increasing. But given the spillovers associated with all R&D,
those countries that make public investments in clean energy R&D are
likely be the first to develop those new industries. to address those
spillovers, and help ensure that the United States leads the world
in this important growth industry, the President has called for more
than $8 billion for clean energy research, development, and
deployment incentives.
Research and development funding is often most productive when
scientists collaborate across disciplines and institutions. to
facilitate that cooperative work, the Department of energy has
launched three energy Innovation Hubs. each brings together top
researchers from academia, industry, and government to work on a
particular energy-related technology. the first three hubs focus on
deriving fuel from sunlight, increasing energy efficiency in
buildings, and improving nuclear reactors. the 2012 Budget proposes
three additional hubs targeted at rare earths and other critical
materials, vehicle batteries, and Smart Grid technology for energy
transmission. Such funding for research and development will help
make future innovations possible, yielding novel ways to produce
clean energy and to store and use energy more efficiently.

CONCLUSION

To guide the United States toward a clean energy future, the
Administration has enacted and proposed a wide variety of programs,
including manufacturing loan guarantees, tax credits and rebates,
R&D subsidies, weatherization assistance, new vehicle standards,
information reporting requirements, significant investment in
transit infrastructure, and a new Clean energy Standard for
electric utilities. the programs are connected in important ways.
They are all motivated by the same fundamental economic rationale:
the problem that the full social benefits of clean energy R&D,
production, and consumption--including energy security, cleaner air
and reduced carbon pollution, and enhanced international
competitiveness and economic growth--are not reflected in private
markets.
Moreover, the programs focusing on different parts of the clean
energy supply chain--innovation, manufacturing, generation, and use--
are complementary. the benefits from putting 1 million electric
vehicles on the road will be fully realized only if the electricity
used to charge those vehicles can be generated by clean sources. R&D
creates technologies that will be valuable only if they are
manufactured and deployed, which is why the Administration has
proposed a Clean energy Standard to create incentives for utilities
to use new clean sources of energy. the Clean energy Standard in
turn is complemented by the Administration's programs to enhance
energy efficiency.
In the end, all of the Administration's clean energy programs are
united by the overriding goal that in the decades to come American
families will prosper in a cleaner, safer world. today's investments
in clean energy R&D will lead to innovations and new industries with
high-quality jobs. Clean sources of energy will mean that Americans
breathe cleaner air, enjoy better health, face reduced risks from
climate change, and work and do business in an economy facing lower
risks from energy-related disruptions--a clean energy future.