Three Trends That Make Obama’s Clean Power Plan a Good Bet on the Future

Earlier today, the Obama administration issued its Clean Power Plan setting out a clear direction for greenhouse gas emissions reductions from the U.S. power sector.  The plan, long under way and the subject of the most extensive consultations the EPA has ever undertaken, is a bold step to overcome congressional inaction to address climate change. In my view, although a federal cap and trade or carbon tax combined with strong efficiency regulations and measures to support renewables would have been preferable, the Clean Power Plan is a huge and important step in the right direction.

However, not everyone shares the arguments supporting the urgent need for this plan. Republicans, the fossil fuel industry, and coal-producing states argue that the plan will lead to a massive increase in electricity prices, that it will put the reliability of our electricity grid at risk, and that it will costs jobs and hurt the competitiveness of the U.S. economy. Nothing is further from the truth. This plan will help the U.S. embark on an energy transformation putting it on the path towards a clean, prosperous, and secure low-carbon future.

The pace of change in our energy system is rapidly accelerating. Three major trends are driving that change: 1) rapidly falling costs for renewables, 2) vehicle electrification, and 3) the explosion in big data and information technology (IT).

Rapidly Falling Costs for Renewables

Over the past five years, we have seen a boom in solar resulting from the rapidly falling costs of PV modules. Solar photovoltaics have a learning curve of 24 percent, meaning that their costs come down by 24 percent every time installed capacity doubles. But solar is not the only clean energy technology that shows a pattern of such dramatic cost improvements. For onshore wind the rate is 14 percent, and for battery storage more recently the cost reduction trend appears to be above 20 percent. We often struggle to imagine the long-term impact of consistent compounding. With compounding reductions in costs, renewable technologies become cheaper year after year after year, and as a result their competitiveness vis-a-vis fossil fuels in the very near future is no longer in doubt.

Vehicle Electrification Taking Hold

A second major trend is only just emerging but doing so rapidly. Electric cars are quickly becoming sexy and soon they will be cheap as well. Tesla’s next model—the forthcoming Model 3—promises to be as fast as a Porsche 911, with a range of 300 miles, and a cost of $35,000 but with very little in fuel and maintenance costs. And the trend is not just towards electrification. In fact, the breakthroughs under way in autonomous (self-driving) cars, integrated mobility-as-a-service concepts, and new business models in the shared economy are likely to have an even bigger impact on the automotive sector, moving us quickly away from gasoline-powered internal combustion engines.

An IT-Enabled Energy System

The last trend may well be even more key. For a very long time, RMI has argued that our most-cost-effective energy resource is in fact energy efficiency. Efficiency is now being combined with big data and IT to make our energy demand not just leaner but also smarter. As we deploy IT to manage our energy demand, we will see massive opportunities to integrate renewables, smart appliances, and electricity-based HVAC technologies into intelligent and responsive electrical grids. This newly efficient and responsive demand system will be able to match to supply when it is available and if need be store energy when required.

A Clean Energy Revolution

Together these three trends are setting off a profound energy revolution. When solar-generated electrons become ubiquitous, abundant, and cheap; are stored more easily; are driving a new mobility world; and are matched by smarter on-demand energy use, then economic competitiveness is no longer based on simply burning cheap fossil fuels, but rather on innovation, on the integration of the IT and energy arenas, and on the faster deployment of new integrated solutions at scale. This is in fact the energy future that the Clean Power Plan helps to bring about.

Loud protests that accelerating the transition to the energy technologies of the future will increase electricity bills will soon be recognized as a fallacy of the past.  In fact, not only has the EPA estimated that the average household will spend $80 less under its plan, there are now two independent studies (from Georgia Tech and Synapse Energy Economics) that point in the same direction. Their findings are in line with RMI’s analysis in Reinventing Fire, which found that a clean energy future could yield a $5 trillion net present value savings.

Now of course, if your bottom line, your current job, or your PAC contributions depend on carrying on with the fossil-fuel-based technologies of the past, then this is not an appealing outlook. In fact, you can see why some would want to oppose the shift to a better, cleaner, and more-cost-effective energy future. But what that perspective ignores is the long-term impact on competitiveness of sticking too long with outdated industries. In fact, Europe has made a massive bet that over the long run an energy-efficient, renewables-based future will be the winner. And China is investing massively in positioning itself to be the leader of the solar, wind, and efficiency technologies of the future.

So we have a choice. We could extend the life expectancy of a fossil-based energy system that is rapidly loosing momentum, or we can bet on the future of a smart, efficient, and renewable future. The Clean Power Plan will undoubtedly turn out to be a crucial legacy when it comes to climate change. But equally important, one day we will also recognize the wisdom and courage of the Clean Power Plan for America’s economic competitiveness.

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