Energy and the Next Big Economic Thing

Geoff Styles makes a common point that usually comes up when talking about the clean energy "race":

While we shouldn't be shocked if another country leads in some aspects of energy technology, we also shouldn't lose sight of the larger context, because energy isn't an end in itself. Even if clean technology turned out to be the computer industry of this decade--in reality and not just hype--and we didn't come in first in the cleantech race--a result I'm not prepared to concede, yet--energy remains the servant of the rest of the economy. That's where the race that matters most will be won or lost.

Megan McArdle says something similar when talking about green jobs. I've always been puzzled by this argument, though, which can be restated thus: Staking an economic boom on energy is misguided because our focus should be on lowering the proportion of our economy devoted to energy production, not raising it; we could, after all, solve our employment problems by putting people to work on farms, but that wouldn't be a net gain for our economy.

What's puzzling to me about this is, couldn't you say this about any sector or industry? The health care sector, for example, grew from being a trivial part of the economy to a massive part in the last century; and while getting health care costs under control is necessary, no one, I think, would deny that at least some of that past growth has been a good thing. You don't, of course, want growth in one sector to choke off others: Rather, you want all of your sectors to become more efficient. Thus, for example, farming used to take up the majority of the US economy, and now its share is very tiny. That's not because it was "choked off" by manufacturing or whatever, but because the US economy grew, developed new markets, and saw enormous productivity gains, along with the rest of what is now the developed world. Even farming has benefited from these changes: Modern farms yield far more crops than those in the 19th century, even though there were far fewer people and much more available land.

The question, then, with respect to building out green energy, is: Does making large-scale investments in renewables, efficiency, etc. entail putting people and capital to less productive uses? In other words, is the analogy between green energy and the computer industry that Styles mentions not valid? I have my doubts about that assertion: If there were another potential source of major economic growth in the offing, at least in the developed world, that would be reason to have some pause about the green economy as the next big thing. On the other hand, the last two economic booms in the US have turned out to be based on speculative bubbles; and unlike the tech boom, the last one didn't have much in the way of side benefits -- just a lot of exurban houses that no one can afford. So making energy the focus of our economic labors doesn't strike me as a bad idea. And that's not even considering the moral case for greening our energy supplies, which is the topic for another blog post.

Getting Biophysical

I studied ecological economics with Herman Daly in grad school; indeed, in addition to my master's degree, I have a little certificate from the University of Maryland in ecological economics, based on some courses I took. Generally, I find ecological economics to be pretty influential on my thinking. Despite that, I typically hold at arm's length arguments from ecological economics explaining current events. Why is that? A commenter at Matt Yglesias' blog summarizes it pretty well:

The [il]logic of the argument is that all criticisms of economic orthodoxy are equally valid.

That is, attempts to, say, explain the financial crisis as a consequence of humanity running up against natural limits to growth don't ring true to me. Yes, in general terms we should be concerned about the expansion of money and debt beyond the ability of the real economy (including the natural resources on which the real economy depends) to service it, but that line of argument doesn't offer much explanatory power, compared to more conventional accounts (e.g., Carmen Reinhart and Kenneth Rogoff's placement of the current mess in the long history of financial crises, dating back even to pre-industrial times).

So the NYT's profile of the "biophysical economics" school, which is essentially ecological economics by another name, was interesting to read, no doubt; but I find myself agreeing with Ryan Avent (or whomever is the Washington blogger for Free Exchange) that the biophysicals' focus on energy return on investment (EROI), or the amount of energy gained minus the energy used to extract it, can be misleading. At the risk of overgeneralizing, we're a long way from wringing out all the inefficiencies in our energy regime. Moreover, even in a world in which oil and coal are harder and harder to produce, a prosperous economy is still possible, even if certain avenues for achieving that are closed off (e.g., auto-centric transportation).

This isn't to say, however, that there isn't some truth to the argument from EROI. Entropy is an unavoidable fact of this world, and while Avent is right that there is an abundance of energy available to humanity, harnessing that energy in ways that are useful to us isn't so easy. (David McKay's excellent book on clean energy is a great place to start on this subject.) One advantage of oil, coal, and (to an extent) natural gas is that they're fairly convenient: They can be easily transported and stored for when we need it. At present, renewable sources like wind and solar don't offer quite the same convenience -- though if we get a more intelligent grid up and running and some advances in battery technology, that may no longer be an issue.

The ecological economic outlook, I think, has more value when looking at the whole range of ecological problems, in particular degradation of ecosystems, for which finding substitutes is harder than with energy. If we lose all of the earth's fish populations in the next 50 years, as has been predicted, it's not as if we can pay to get them back or develop some technological workaround. And in general, I find understanding the value of the natural capital that the earth provides us gives us a much better sense of why we need to preserve it.

Green Power and Deregulation

Speaking of responsible conservatives, E.D. Kain of David Frum's New Majority website makes several good points about electricity deregulation and clean energy:

Obviously the government will have its role to pay in the green revolution, but we should limit that role to laying pipes and power lines, and ensuring that when laws are broken, the perpetrators are punished. The government needs to establish fair-play rules and create a grid, but beyond that they need to let markets work, and allow competition to flourish. A lasting green revolution needs to benefit not only the earth, but the people who live on it as well. Too often the economic costs of environmentalism are overlooked, and too often it is the poorest among us who bear the brunt of those costs. Real cost-saving competition can help change that.

Stated that way, the case for deregulated energy markets seems quite strong. The problem with deregulation, however, has less to do with the desirability of moving away from closed markets (Brad Plumer's article on the roadblocks to distributed generation provides a wealth of examples in that vein), but with how we get to open ones -- and the record in the US has been pretty poor on that mark. California's troubles with deregulation have become legendary, with massive price spikes and Enron-driven market manipulation. In my own state of Maryland, deregulation wasn't quite so dramatic a process, but the problems were similar in many respects: Price caps largely prevented competition from emerging, and ultimately didn't prevent massive price spikes for Baltimore Gas & Electric customers from happening once the caps were removed -- though Gov. Martin O'Malley and the General Assembly did manage to delay, then dampen, the effect of the rate hike. There were also some shady dealings between Constellation Energy, which owns BGE, and the then-Republican-controlled Public Service Commission; but even so, deregulation in Maryland, like in many other states, was not well designed.¹

What's baffling about all this is that even the more successful examples of a deregulated electricity market have been running into problems. For example, the UK, which deregulated in the early 1990s, is now finding that generators may not be able to keep up with demand -- possibly even leading to blackouts. Moreover, pace Kain's hope of open markets and green power going hand in hand, these generators have been skimping on renewable energy development. Back in 2000, Severin Borenstein co-authored a paper (ungated version here) on deregulation which essentially argued that, until we get up and running a smarter grid, including real-time pricing for consumers, the electricity market will remain vulnerable to volatility and manipulation. In other words, to get free markets in electricity, there'll need to be a great deal more government-directed investment. Carbon pricing will likely also be essential to giving renewable energy a leg up among generators.

¹ Ironically, competition for generators is finally starting to emerge -- particularly in renewable energy -- yet Gov. O'Malley is now said to be considering re-regulating the industry.

The Political Tipping Point for Cap-and-Trade

So a recent poll found that about 60% of Americans support a cap-and-trade program to reduce global warming, even if it meant that their monthly electric bills went up by $10; but if they went up by $25, then about 60% of Americans would oppose cap-and-trade. This naturally raises the question: What would the price of carbon emissions have to be in order to raise the average American's electric bill by those amounts -- that is, what is the effective ceiling for the price of carbon emissions, after which support collapses?

First, let's lay out some facts. According to the Energy Information Administration, in 2007 the average American household consumed 936 kWh (3.19 million BTU) of electricity per month, which, at an average retail price of ¢10.65/kWh, translates to an average monthly bill of $99.70. Now, of the sources of electricity that come from fossil fuels, about 49.9% comes from coal, 20.3% from natural gas, 1.2% from petroleum liquids (e.g., fuel oil and kerosene), 0.4% from petroleum coke, and 0.1% from other sources (e.g., propane).¹ Let's assume, for the sake of this exercise, that our average American household receives electricity from all possible sources, and in exactly the proportions listed here. (I'm not listing other sources like nuclear and hydro, as they obviously have no carbon emissions.)

We also have to consider the specific carbon content of each of these fuels; some are dirtier than others. EIA provides a handy table for this, from which I present the emission coefficients for the five types of fossil fuels just mentioned:

Coal:² 215.2 lbs_CO2/MBTU
Natural Gas: 117.08
Petroleum Liquids:³ 162.77
Petroleum Coke: 225.13
Other Gases:⁴ 132.98

Now, with all that laid out, let's do some number crunching. Factoring the consumption proportions above into our hypothetical average American's monthly electricity consumption, we get this:

Coal: 0.499 * 3.19 = 1.59 MBTU
Natural Gas: 0.203 * 3.19 = 0.65
Petroleum Liquids: 0.012 * 3.19 = 0.04
Petroleum Coke: 0.004 * 3.19 = 0.013
Other Gases: 0.001 * 3.19 = 0.003

That divvies up the fossil fuel portion of our hypothetical average American's electricity consumption. Now we find out how many carbon emissions that produces:

Coal: 215.2 * 1.55 = 342.17 lbs
Natural Gas: 117.08 * 0.65 = 76.1
Petroleum Liquids: 162.77 * 0.04 = 6.51
Petroleum Coke: 225.13 * 0.013 = 2.93
Other Gases: 132.98 * 0.001 = 0.13

All told, that's about 428 lbs of CO₂. Next, we do the same thing we did before with consumption, only now with the money spent on electricity:

Coal: 0.499 * $99.70 = $49.75
Natural Gas: 0.203 * $99.70 = $20.24
Petroleum Liquids: 0.012 * $99.70 = $1.20
Petroleum Coke: 0.004 * $99.70 = $0.40
Other Gases: 0.001 * $99.70 = $0.10

That totals $71.69. If we divide this set of numbers by the last set, we get ratios which, when multiplied by 2,000 lbs, gives us the price per ton of CO₂ for each of these fuels. Now we can attempt to answer our original question, so let us ask what would happen if we set a surcharge on carbon emissions in the following amounts (note that these figures are the portions of our hypothetical average American household's bill spent on the various fuels):

	$25/tCO2	$50	$75	$100	$125
Coal	$54.03	$58.30	$62.58	$66.86	$71.14
Natural Gas	$21.19	$22.14	$23.09	$24.05	$25.00
Petroleum Liquids	$1.28	$1.36	$1.44	$1.53	$1.61
Petroleum Coke	$0.44	$0.51	$0.47	$0.55	$0.58
Other Gases	$0.10	$0.10	$0.10	$0.11	$0.11
Total	$77.04	$82.39	$87.73	$93.08	$98.43
Addition to Bill	$5.35	$10.70	$16.04	$21.39	$26.74

I'll have to go back to get the exact prices that correspond with the increases cited in the poll, but the results seem pretty clear: It seems the price of carbon emissions could go up to $50/tCO₂, and a strong majority of Americans, according to the poll, would still support a cap-and-trade plan; it would have to go over $75/tCO₂ to raise bills by $17.50, where we might expect opinion to flip from support to opposition; and it would have to go well over $100/tCO₂ in order for Americans to turn firmly against cap-and-trade. To put things in perspective, the initial price of carbon emissions under the Waxman-Markey bill is expected to be around $15/tCO₂.

Keep in mind, however, that there are a lot of heroic assumptions being made here: For one, the proportions for fossil fuel consumption are going to vary significantly for actual households, rather than hypothetical ones, based on where one lives; some places are going to be more carbon-intensive than others. I'm also assuming that the introduction of a price on carbon emissions will result in no transition from fossil fuels to alternatives: Were the price to go permanently from $0 to $25/tCO₂, say, or $25 to $50, it would be ridiculous to believe that that wouldn't spur more investment in nuclear, hydro, efficiency measures, or renewables, or fuel-switching from coal to natural gas. And of course, one should never invest too much in a single poll.

I welcome any comments or corrections to my analysis here; I'm pretty sure someone has done this already for an older version of this poll, but I couldn't find it on the web.

¹ Sources: here and here, data from 2007 -- I'm basically subtracting out the commercial and industrial sectors in calculating these proportions.
² Average of carbon content for Anthracite, Bituminous, Sub-Bituminous, and Lignite.
³ Average of carbon content for kerosene, distillate fuel oil, residual fuel oil, and jet fuel. Not sure how the latter is used to make electricity, though. It may just be the way EIA classifies it: Jet fuel may be a petroleum liquid, and petroleum liquids are used to make electricity, but that doesn't mean jet fuel is used to make electricity -- not to my knowledge, anyway. I considered leaving it out, but I doubt doing that would change the final analysis much.
⁴ Average of propane, flare gas, and LPG. Again, I may have screwed up here in calculating an average carbon content -- this is the Other category, after all. But again, any adjustments would likely have no effect on the final analysis.

The Hundred Dollar Bill on the Sidewalk

David Roberts writes about energy efficiency:

When smart energy advocates claim that shifts in policy can produce large dividends, they’re inevitably dismissed as promising "something for nothing." Dig into that phrase a little and at its root you find faith: the faith that if "something" were available, rational market actors would already have acted to obtain it. The claim that government can make (or induce) investments that offer substantial returns simply doesn’t compute.

But energy efficiency refutes that view. Studies show -- at this point beyond reasonable doubt -- that there is money lying on the ground that nobody’s picking up. Lots and lots of money. This isn’t some marginal phenomenon. We’re talking about "cost-negative" investments that can in the next few decades increase the aggregate efficiency of the economy by 20, 30, 50 percent. That’s enormous. That’s a central fact of our economic life, not a peculiar marginal phenomenon. People are behaving irrationally on a massive, massive scale.

This point is largely correct, but it needs to be said just how it is correct. To begin with, an energy efficiency investment is "cost-negative" so long as you take into account the lower operating costs over some specified payback period, or even over the entire operating life of the investment. Based purely on the sticker price, though, it's rarely the case that the more energy-efficient item costs less than the less energy-efficient one. To be sure, if you go to buy, say, an air conditioner, as I did recently, you'll see attached a yellow slip of paper from the Federal Trade Commission that says what the average yearly cost of operation is, and how it compares to other items in its class. That's helpful, but it doesn't go nearly far enough to overcome the average person's tendency to think primarily of the upfront expense and leave the cost-benefit analysis for later. If we want to encourage more intelligence in our energy consumption, we need to be much more aggressive in prodding consumers into making more energy conscious decisions. (And in case you were wondering, I got a small 5,200 BTU unit; it isn't Energy Star rated, but that was only because there were no such units available in that class when I went to shop -- which, in a way, proves my point.)

At the same time, while changing individual behavior is undoubtedly important (see, e.g., Felix Salmon on Google's new PowerMeter software or my own post on the subject), inducing large-scale increases in energy efficiency will require attacking the problem at, well, a larger scale. This is the rationale behind the push for revenue decoupling for electric utilities in the US, as well as other schemes like energy efficiency portfolio standards and "white certificate" trading programs. (See this Economist article for an overview of the issues involved.) I would also add that, pace Roberts' assertions about the failures of standard economics with respect to energy efficiency, a stronger price signal would go a long way toward making our energy regime more intelligent. The oil price boom certainly convinced many that gas guzzlers are a thing of the past, even after the dramatic dropoff last fall and winter. And while electricity prices have increased significantly over the past decade, that has to be set against the much longer decade-on-decade decline:



Granted, it's also true that energy intensity, both in the US and worldwide, has been declining over the past 30 years or so; but I see no reason why an increase in coal prices, via a carbon cap, couldn't help that process along more quickly.

NB: Post title refers to the old joke about economists:

Two economists are walking down the street. One sees a hundred dollar bill lying on the sidewalk, and says so.

"Obviously not," says the other. "If there were, someone would have picked it up!"

Dealing with Shrinking Cities

The Washington Independent had an interesting series of posts this week on how the city of Flint, Michigan has been grappling with a shrinking population and the blight that that has been leaving in its wake. To some controversy, the city has been cordoning off abandoned areas and even actively tearing down decaying properties, letting nature come back in. It's a good example, I suppose, of making a virtue of necessity: Amid the devastation brought about the decline of manufacturing in Michigan -- exacerbated by the current recession -- the city is reconciling itself to its fate, and trying to do so in a controlled manner.

What interested me about this was the way it's being done, through the use of a land bank, or "a community development corporation on steroids," as Dan Kildee, chair of the Gensee County Land Bank in Flint, put it. Basically, a land bank is able to quickly acquire foreclosed or abandoned properties so that they can either be refurbished or razed, while avoiding legal hassles. This is the kind of innovation that I think will be useful when the economy recovers and oil demand comes roaring back: the viability of suburban and exurban housing took a major, and possibly fatal, hit from the combined force of the oil price boom and the collapse of the housing bubble. If we want to avoid the specter of suburban slums, then, state and local authorities will need some way to efficiently pull back development to sustainable levels. It seems the main obstacle to expanding the use of land banks, besides the process of setting them up, is financing: The municipalities most likely to need a land bank are the least likely to have the money to establish one. A federal land bank will probably be the best way to reach the communities most in need.

Financial Innovation in Clean Energy

Yesterday I dinged a Slate article trying to find something good to say about Limp Bizkit* as "contrarianism run amok," a common criticism of the magazine. That said, Daniel Gross today makes a good -- and contrarian! -- argument that what is most needed to advance clean energy in this country is not new technology, as is often claimed, but new ways to finance it:

As Rive has discovered, the future of the alternative-energy industry now depends far more on financial engineering than mechanical engineering. Clean-tech trade publications are filled with breathless coverage of new innovations: thin-film solar technology, advanced batteries, cars powered by hydrogen fuel cells. But money has never been harder to come by, thanks to the struggling capital markets. "The alternative-energy sector is flat on its back," says David Crane, CEO of giant energy producer NRG. "There's no debt financing available from Wall Street." The Cleantech Group reported that in the first quarter of 2009, total green-energy-venture investments fell 50 percent from the first quarter of last year.

Government policy has traditionally played a part in kick-starting new technology, whether by providing land and financing for railroads or commissioning the first telegraph line. When the profit motive kicks in, the private sector begins to fund development. Both types of financial innovation will be needed for the fledgling alternative energy to thrive—and there are already signs of creative breakthroughs.

This is an important point to make; for all the (justified) outrage over Wall Street's use of "financial innovation" in the past decade, an effective climate policy needs to figure out new ways to getting money to alternative energy projects, which often have large upfront costs and, in the case of energy efficiency projects, long payback periods. The obvious tool for this, of course, is carbon pricing, but there are lots of things that we can pursue that get us to the same goal. One way to do this, besides the methods Gross mentions, is through feed-in tariffs, which have helped make a rather cloudy country like Germany a leader in solar power. We also need to reexamine traditional financial instruments and see if we can make them more energy-conscious, as it were. If I may plug my employer for a moment, rolling the costs of energy efficiency investments into people's mortgages would go a long way toward reducing the carbon intensity of the nation's housing stock.

At the same time, we would do well to be wary of too much, or the wrong kind of financial innovation in the alternative energy industry, just as we are of financial innovation more generally. To tie this in to my previous post on the subject, there's a case to be made that the various mandates and tax credits that have been used to subsidize alternative energy thus far have done more harm than good (see the textbook argument here, or the many biofuels debacles). Yet again, our financial system is hardly a free market -- especially these days -- and it's the responsibility of government to ensure that it is serving societal goals, a sustainable energy regime being among them.

* Speaking of Fred Durst, this blog (via Vulture) may be the best thing on the Internets today.

Oil Price Spikes and the Recession

In the last two years we had two major economic shocks: The bursting of the American housing bubble and the resulting breakdown of the global financial system, and a historic spike in commodity prices, particularly for oil. For some reason, though, I've seen no one make the argument that the two may have been in some way connected. That's why I was so interested in a recent paper by James Hamilton (summarized here and here) that attributes almost all of the economic downturn in the last year or so to the run-up in oil prices. That seems rather odd, as even Hamilton acknowledges, but it leads naturally to a discussion of the link between the oil price boom and the credit crunch, as Justin Lahart does in a commentary on the Hamilton paper:

But then again, maybe what happened to oil prices had something to do with credit markets seizing up. The housing bubble saw people of lesser means traveling further afield to buy homes. That gave them long commutes that they were able to afford when gas was $2 a gallon, but maybe they couldn’t at $3. Housing in the exurbs got hit hardest, and one reason why is that high gasoline prices made it hard for people to lived in them [sic] to keep up with their mortgage payments, and hard for them to sell their homes without taking a steep loss. In some meaningful way, that has to have contributed to mortgage problems.

That's a very interesting theory, one that cries out for regression analysis. My sense, though, is that it wouldn't hold up to examination. Certainly higher gasoline prices make exurban housing less viable, but it's hard to see how the two spikes in 2005 and 2006 would have been enough to drive a critical number of homeowners into foreclosure, thus turning countless numbers of mortgage-backed securities and related assets into garbage. The sustained high prices in 2007 and 2008 no doubt hit particularly hard those having trouble making their mortgage payments, as well as those in exurban areas; but as a causal factor in the financial crisis broadly understood, I suspect high gas prices played, at best, a minor role. Remember, for one thing, that the housing bubble wasn't confined to exurban areas; even dense environments like Chicago and Baltimore got caught up in it as well. Besides, the nature of a bubble is that it is unsustainable: Gas going from $2 to $3 may have been enough to push a significant number of homeowners into foreclosure, but what really got this crisis going were the banks and hedge funds who made 20-to-1 or 30-to-1 leveraged bets on those mortgages and lost their shirts. In such an environment, any shock to the system, no matter how small, could bring everything crashing down. So if it had not been the oil price boom, it would have been something else.

Having said that, it's entirely fair to say that both the housing bubble collapse and the oil price boom have, rightly, called into question the bias in US housing policy toward sprawling, automobile-centric development. The days of cheap gasoline are no longer as assured as they once were, and we have seen that homeownership can be as much a curse as a blessing. We need to carry both insights with us going forward; but I am not sure of their applicability to resolving the current crisis.

Full World Blogging

It was a little weird to see Tom Friedman, of all people, dabble into ecological economic thought as much as he did in his column last week; even so, it was refreshing to see a mainstream pundit grapple seriously with the idea that our consumption of natural resources can't go on forever at its current rate -- not without significant changes to our economy. At the same time, transitioning to a new state of affairs, as Geoffrey Styles points out, is going to take a long time, and (at least in the energy sector) it will take the form of gradual shifts, rather than something cataclysmic. This means developing a more sustainable energy regime will require overcoming the natural human urge to pay more attention to cataclysmic events, while still maintaining a sense of urgency when it comes to dealing with climate change and other ecological threats.

I want to also make two points related to this. First, Styles talks about moving from fossil fuels to renewable energy, but it's worth mentioning that the question of ecological limits encompasses a lot of things, including minerals (e.g., phosphorus), water, and arable land, and there are not necessarily close substitutes available (certainly not for the latter two things) if we cannot provide enough to feed, clothe, and house the world's population -- which is expected to reach 7 billion by 2012 and 9 billion by 2050. Second, any discussion of ecological limits has to take into account the question of lifestyles: A developed world lifestyle likely isn't possible for everyone on Earth; but it's also intolerable to say that Europeans and Americans should downgrade their lifestyles, or that Africans and Asians should be barred from enjoying the fruits of industrial civilization to the same degree that we have. It's an extremely delicate question, at least for those of us in the developed world, but if we're going to leave a livable planet to our children and grandchildren, we'll need to screw up our courage and address it in one way or another.

The Energy Tax Code

Aside from the question of pricing the externalities of carbon emissions, a key question about the future of US energy policy is whether the existing tax code is well-suited for promoting a sustainable system of energy. This Oil Drum post provides a good overview of what the situation is like now. Here's the nickel version:

• The tax code is not at all generous with respect to investments in the electric grid. The effective tax rate on these investments is very close to the unadjusted statutory tax rate of about 39%. If investment is to be encouraged in the electric grid, Dr. Metcalf believes that this tax rate must be lowered.
• The current tax code, especially since enactment of the Energy Policy Act of 2005, strongly encourages investment in nuclear, wind, and solar power, which enjoy tax subsidies ranging from nearly 100 percent, for nuclear, to more than 200 percent, for solar. In other words, tax subsidies for these forms of energy generation are sufficiently generous that investors may use them to offset tax liabilities for capital gains and income derived from non-energy investments. The telephone discussion indicated that these provisions are not currently working as intended for wind and solar, because of lack of "tax appetite".

Behavior and Energy Use

Interesting paper from ACEEE, giving a sociological perspective on how energy efficiency policies can be effectively implemented:

The United States can reap a wealth of cost-effective energy savings and reduce our contribution to global greenhouse gas emissions by providing the tools, technologies, education, information, and motivation needed to help all types of Americans change their energy consumption patterns and behaviors. Importantly, however, Americans are more likely to be successful in achieving these savings and in achieving them sooner if they are empowered by effective programs and policies that can help them to:

1. see more clearly the size of our current energy service demands, how those demands are currently met, and the implications for ourselves, our neighbors, and our children,
2. understand the range of energy options and choices from household to nation state,
3. imagine what a different energy future might look like,
4. prioritize social and governmental goals based on a long-term energy vision, and
5. make smart energy choices for their own household, business, or industry.

This, I think, is key to building popular support for not just better energy efficiency, but the whole panoply of carbon-cutting tools -- from those that directly impact people's daily routine, e.g. increased mass transit ridership, to those that have a more diffuse effect, e.g. switching from coal to wind energy. It's all too easy to craft what seems like a perfect policy but not consider whether it will be a good fit for the affected populations. Transit-oriented development is great for New York, but maybe not for New Mexico. And even then, a lot depends on what regions you're looking at: Albany and Albuquerque may have more in common with each other than with the rural areas that surround both cities.

In any case, I would argue that climate policy can work in two directions: 1) change institutions, and 2) change behaviors, which is what the ACEEE paper is mainly concerned with. Changing institutions means adopting new mandates, technologies, taxes, etc., whereas changing behaviors means leading people to adopt new practices like, say, installing solar water heaters and finding housing close to transit. Both paths are necessary, but the latter may be a little dodgy, due to fears of engaging in social engineering. Of course, all public policy is social engineering when you get down to it; best, then, to do it in a way that meets broader goals while preserving individual autonomy. Libertarian paternalism, anyone?