Breaking Through

U.S. energy policy is a mess. The situation at the global level is even worse. Could it be that lawyers hold the key to getting things turned around?

By Daniel Gross

Fall 2011

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We live in an age of ferment and innovation in energy production, use, and technology. As tiny start-ups, like BigBelly Solar, a Newton, Mass.–based firm that makes solar-powered trash compactors, promise to change the world, thousands of electricity-powered Nissan Leafs hit the roads each month. New solutions for kicking the fossil fuel habit, shrinking humanity’s carbon footprint, and mitigating global warming abound—from the practical (motion-detecting sensors that automatically turn lights off) to the pie-in-the-sky (seeding the clouds with crystals to combat global warming). And through it all, the hectoring on the need to turn off the lights is producing results. “We’re now producing output for less energy consumption than we did before,” says Michael J. Graetz, the Isidor and Seville Sulzbacher Professor of Law and Columbia Alumni Professor of Tax Law. “That’s the happy part of
the story.”

But there is a sad part, too. As Graetz notes: “We also drive bigger cars, have bigger houses, and have our houses located further from work than those in most other countries.” Even as clean-up efforts continue in the Gulf of Mexico, U.S. crude oil production, fueled in part by a boom in North Dakota, rose to 5.5 million barrels per day last year. Because that is not nearly enough to keep our SUVs fueled, the U.S. continues to import huge quantities of oil, sustaining hostile, undemocratic governments in Venezuela and Iran, and complicating foreign policy. Petroleum alone accounts for more than 48 percent of America’s gaping trade deficit.

Calling U.S. policy toward energy and efficiency a jumbled mess would be an understatement. New York this summer passed on-bill financing legislation, which lets people borrow money for energy efficiency improvements and pay off the loan through utility bills. Next door, in New Jersey, Governor Chris Christie has pulled back funding for formerly aggressive renewable energy requirements. “There are a large number of disparate laws in operation, and many of them are at war with each other,” notes Michael B. Gerrard, the Law School’s Andrew Sabin Professor of Professional Practice and director of the Center for Climate Change Law. Subsidies for renewables coexist with subsidies for fossil fuels. Environmental laws like the Endangered Species Act make it difficult to build large-scale solar facilities in the sun-drenched Mojave Desert.

Gerrard recently published The Law of Clean Energy, a 688-page treatise cataloging federal and state laws and regulations dealing with renewable energy and energy efficiency. He has set up a separate website ( with a 50-state survey to chronicle the “incoherent hodgepodge.” Tax credits and subsidies for faddish solutions rise and fall like pop stars.

“Eight presidents, from Nixon to Obama, have all said we have to eliminate our addiction to oil,” says Graetz, whose latest book, The End of Energy: The Unmaking of America’s Environment, Security and Independence, smartly chronicles the depressing cascade of policy failures over the past four decades. “And the victories we’ve achieved are rather hollow.”

Meanwhile, painstaking gains in the U.S. are easily offset by increasing use elsewhere. General Motors already sells more cars in China than it does in the U.S., and India has not yet started to drive in earnest. Between 2006 and 2010, U.S. coal consumption fell 5.7 percent. But exports rose by nearly two-thirds. In 2010, the
U.S. shipped 81.7 million short tons of coal abroad (up from 59 million in 2009), much of it to China. The U.S. is also a prodigious exporter of fossil fuel–burning equipment, including gigantic gas-powered turbines headed for places like Brazil and
Saudi Arabia.

Beyond buying Priuses and installing solar panels on their roofs, what can law professors contribute to the energy conversation that is occupying the attention of their colleagues in the physics, political science, and engineering departments? A lot, it turns out.

First, though, it is worth noting some parameters based on what legal scholars actually do. The Law School’s experts have little to say about the relative virtues of solar power compared with wind and do not suggest that they know whether hydrogen-powered vehicles will appear in dealerships in 2020 or 2025. Such answers lie beyond their realm of expertise. Besides, history—and common sense—suggests policies cannot mandate the next scientific breakthrough or new business model that will power large-scale change.

“I’m a big fan of energy programs that try to influence consumers’ incentives and therefore create incentives for producers to innovate,” says David M. Schizer, Dean and the Lucy G. Moses Professor of Law. “I find myself skeptical about programs where the government undertakes to choose a technological winner.” Doing so distorts markets in all sorts of unintended ways. Government support of ethanol, for example, means 40 percent of the U.S. corn crop is now used to make a (not particularly green) transportation fuel.

What the U.S. (and the world) needs are policies that encourage the smarter use of energy, more intelligently designed standards and regulatory systems, and markets that encourage innovation. Winning the energy future is less about designing the next generation of super-efficient car engines, and more about putting in place the carrots and sticks that make it worthwhile for companies to create them, and for consumers to buy them. This intersection of policy and commerce is precisely where the lawyers come in. 

“Legal systems are of fundamental importance in creating incentives to innovate in energy, and have profound influences on what consumers do and how they behave,” says Dean Schizer. 

Energy policy in the U.S. has been developed largely by lawyers, and decisions over where to locate power lines, for instance, or offshore wind farms, must pass through an environmental regulatory gauntlet. “When you have regulations, it’s the lawyers who are writing them,” says Michael Graetz. “When you have subsidies or tax credits, the design is often at the mercy of the lawyers.” Michael Gerrard notes that energy law is one of the most rapidly growing legal fields in America. When he announced that he would teach a seminar on energy law at the Law School in 2010, 130 students tried to sign up for the 18 available slots.

The question of how to do more with less energy, and how to encourage greater efficiency, invites a host of approaches. Promulgating new design standards for buildings, appliances, or cars goes a long way. Energy efficiency standards adopted over the years by Congress have generated enormous savings in electricity use in refrigerators, air conditioners, and washing machines. Legislation passed in 2007 will lead to the effective phasing out of the century-old incandescent bulb in 2012. “The amount of energy that would be saved by that is the equivalent of the output of 11 nuclear power plants,” says Gerrard. And President Obama recently proposed boosting the average mileage standard for the U.S. auto fleet to 56.2 miles per gallon by 2025.

But standards can be a tough sell, especially in areas where electricity remains relatively cheap—and they can founder on the shoals of politics. That is why many experts favor a higher gas tax. A new levy at the pump would take technological and consumption choices out of the hands of regulators and put them into the hands of consumers and companies. Dean Schizer and colleague Thomas W. Merrill, the Charles Evans Hughes Professor of Law, have proposed a gas tax plan with a twist. The government would set a threshold of 10 percent below the current market price—i.e. $3.60 if the price is $4.00—and deploy a tax to establish a minimum price. Should the price fall to $3.30, consumers would pay a 30-cent-per-gallon tax. Rather than keep the tax, however, the government would rebate it equally to consumers each year. In this scheme, those who drive less (or who drive fuel-sipping cars) would come out with a profit, while those who drive more (or drive gas guzzlers) would pay more. “It’s a way to redirect money from people who are inefficient to people who are efficient,” Dean Schizer adds. (He allows that there should be regional adjustments, since residents of Morningside Heights are less reliant on cars than, say, residents of Shaker Heights.)

A national gas tax in the U.S. would be a great start, but only a start. The U.S. houses 4 percent of the globe’s population. And while it consumes an outsized chunk of the world’s oil, that proportion is shrinking in recent years. “We have a fiction that there is a national solution to a global problem,” says Scott Barrett, Lenfest-Earth Institute Professor of Natural Resource Economics at Columbia’s School of International and Public Affairs. That is why many analysts favor more far-reaching efforts such as a global carbon tax or a global cap-and-trade system. Placing a high price on fossil fuels, and sending a permanent signal to the market, “would accelerate the transition to renewable energy by making fossil fuels more expensive,” says Steven A. Cohen, executive director and chief operating officer at Columbia’s Earth Institute. Once the politicians agree on this track—carbon trading, or a carbon tax—lawyers would have to construct the binding international legal structures that would facilitate enforcement, trading, and collection. 

Given the difficulty in getting global governance organizations to drive positive change, energy experts have long hoped that a new technology would appear and save politicians and consumers from having to make tough choices. “Each president has pursued a technological silver bullet,” says Graetz. “For Nixon, it was the breeder reactor; for Carter, it was synfuels; and for Obama, it’s solar/wind/fuel cells.”

Considering this history, perhaps the best hope for progress lies in forsaking the concept of boosting supply for the notion of slashing demand. The most efficient and cost-effective power plant is the one you don’t need to build. In July 2009, McKinsey & Company issued a report finding that “the U.S. economy has the potential to reduce annual non-transportation energy consumption by roughly 23 percent by 2020, eliminating more than $1.2 trillion in waste—well beyond the $520 billion up-front investment (not including program costs) that would be required.” The owners of the Empire State Building, for instance, by investing in a carefully thought-out retrofitting, have reduced energy consumption by 40 percent and are now reaping higher rents from better-quality tenants. “If you want to change the world, you not only have to build new buildings better, but you have to renovate
and retrofit existing buildings,” says Anthony Malkin, president of Malkin
Securities, which owns the iconic office tower. (Malkin is the grandson of
Lawrence Wien ’27.)

But in many areas, markets left to their own devices will not change the status quo. Current regulatory schemes do not provide incentives for utilities to help customers reduce energy use sharply. Emitting carbon costs nothing, even though it exacts huge costs on people and the environment. What’s more, many important breakthroughs in technology stem from research and development in basic science, a function many companies no longer support. All of this calls for sophisticated public-private partnerships to help develop new technologies and market structures. Gerrard, for one, calls for “a concerted and consistent program of national support for the research and development of new energy technologies.”

While there is plenty of reason for skepticism, there still is good reason to believe that America can be a leader in a new world of energy. The true genius of the American economic system has been the ability to turn brilliant business ideas into great global business concepts and brands. And it is precisely the sophisticated public-private partnership—government support for research and infrastructure, the protection of intellectual property, deep capital markets, a massive domestic market, a genius for branding and marketing—that allows this process to happen. Time and again, American entrepreneurs and companies have turned an invention into a national standard and then into a ubiquitous global product: the sewing machine, the Model T, McDonald’s, Facebook.

The real breakthrough will come when renewable, carbon-free energy technologies can compete on price with existing fossil-fuel technologies. “The lawyers’ role in all this,” notes Michael Graetz, “is one of institutional design and the formation of
legal structures that enhance the ability of engineers and entrepreneurs to operate
most effectively.” 

If the legal world can indeed provide that leg up for developers, it is possible the Next Big Thing to emerge from America and conquer the commercial world just might be a cheap plug-in electric vehicular drivetrain, or a super-efficient wind turbine.

Daniel Gross is a columnist and economics editor at Yahoo! Finance.

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Illustration by David Plunkert