Currently viewing the tag: "Carbon IRA"
How I arrived at the Carbon IRA (individual retirement Account)
I’m thinking maybe a little more context is necessary for people to “get” the Carbon IRA (individual retirement account) concept and why my book, Carbon IRA + YouTility: How to Address Climate Change and Reduce Carbon Footprint Before Its Too Late, has such salient messages.
A chemical engineering education and electricity industry career pretty much makes you a systems person. You think in terms of systems, boundaries, and surroundings. After several decades in the electricity and energy sectors, and wrestling with the macro-carbon footprint challenge, I finally realized a few things weren’t going to change anytime soon:
- Economic growth is predicated on buying and consuming stuff
- Low cost energy supports economic growth
- Carbon-laden fossil fuels are the backbone of low-cost energy, especially electricity
- Therefore, carbon is the ultimate externality – the environmental impact that isn’t properly reflected on the accounting ledger
- Thus, until carbon-free energy replaces fossil fuels, we are doomed to aggravate carbon-induced climate disruption.
These aren’t immutable “truths” like the laws of thermodynamics. But they sure have been immutable in my lifetime. At least globally. So the “problem statement” is pretty straightforward.
When my two daughters were in high school and college, we had many dinner conversations about dad’s job (electricity industry) and climate change (what my daughters were having nightmares about). I kept saying, until everyone on the planet learns to consume less and we accelerate the transition to renewable energy sources, it will get worse before it gets better. And it has.
So we came up with this slogan. Think:Less! Note the double meaning. Think less, or simplify how you think about global climate change. Think about consuming less stuff. Period. End of Story. We even made a stack of bumper stickers!
Of course, no one really knew what the hell we were talking about. But it led me to the more important challenge. Environmentalists have been preaching the three Rs – reduce, recycle, reuse – in my memory ever since the first Earth Day in 1970. By the new millennium, that still wasn’t working.
After more dinner conversations, I had an epiphany.
- You have to reverse the growth-at-any-cost economic mantra
- One approach is to reward behavior and consumer choices which result in less carbon
- If you make the behaviors permanent, you can make progress on carbon and climate
- You can’t depend on volatile energy price signals to sustain these behaviors
- Converting the avoided carbon into money is a bona-fide incentive
- Putting the money towards a retirement account encourages a lifetime of better behaviors and choices.
Hence, the carbon IRA concept was born. It turns traditional economics inside out. Since nothing else seems to be working fast enough, maybe it’s time for a radical departure?
It was a honor to be selected to participate in the New England Complex Systems Institute International Conference on Complex Systems (ICCS2020) in July 2020 and present the Carbon Individual Retirement Account (Carbon IRA) concept. Here’s the poster I presented:
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It’s a memory that’s fading but for the first earth day in 1970, a popular DJ in Chattanooga, TN (one of two places I grew up), Chickamauga Charlie, and his radio station sponsored a city-wide cleanup. My family lived in what were then pretty remote suburbs, but I remember that day trudging through parts of the city I’d never seen before with kids I’d never interacted with before. We cleaned up city streets and vacant lots with the kinds of junk I’d only seen in the huge junkyard my dad occasionally went to for car parts. Change – and teenage optimism – were in the air!
For the 20th anniversary of Earth Day, I launched a monthly newsletter called Common Sense on Energy and Our Environment. My wife and I published it for six years but it really never took off. I learned something that would presage the bitter partisan divide America faces today: People paid lip service to the value of an independent, objective publication on controversial environmental issues, but they would only support one that advocated for “their side.”
For this 50th anniversary, my uplifting message is that reducing our carbon footprint shouldn’t be as difficult as people make it out to be. We can address half the carbon footprint challenge by the 70th anniversary of Earth Day or even earlier by implementing on two ideas:
- Create long-term or lifelong permanent incentives for individuals to reduce their carbon footprint (electric vehicles, biking or walking to work, meatless diet, rooftop PV, energy conservation, etc) by converting the avoided equivalent carbon into funds deposited in retirement accounts or other long-term financial obligations. I call this the Carbon IRA
- Allow electric utilities to own non-carbon distributed and on-site energy infrastructure for homes, buildings, and large facilities (solar PV, storage devices, EV chargers, smart thermostats, state of the art HVAC, etc); apply the regulated rate of return business model; unleash a new frenzy of responsible investment; and displace fossil-based resources with non-carbon.
Most experts agree that greater electrification based on renewables and nuclear, along with electric transportation, is the ultimate path (along with minimizing resource consumption in the first place). These two policy pillars will get us there faster, better, and less expensively. Along the way, there will plenty of opportunity for natural gas fired power plants, firing US sourced natural gas, to handle the intermittency of renewable energy.
We can convert electricity from climate disruption villain to climate solution hero!
As part of a larger US infrastructure rebuild, such a strategy can satisfy many seemingly conflicting political forces – globalism (address carbon-induced climate disruption), nationalism (focus on US infrastructure needs), rural populism (jobs, jobs, jobs), liberalism (yes, an industrial policy), and conservatism (incentives to change behavior, not laws).
Why do I say it’s not that hard? We built out the largest “machine,” the post WWII US electricity grid in twenty five years using the utility regulated rate of return business model and it now drives the entire economy (sadly, without appropriate recognition). Economists prove over and over again that properly aligned incentives can quickly and substantially change consumer behaviors.
All we need is the collective will to confront multiple emergencies – the ticking clock of climate change, the anemic retirement savings of most Americans, the indebtedness of many young adults, and the consequences of rampant global, unchecked, capitalist ambition, now staring at us every time we look in the mirror with our COVID19 masks on.
And guess what? We could again lead the world to a better place.
In recent news reports on COVID19 pandemic, I’m glad to hear pundits and politicians refer to the electric utility model for emergency response. Utilities assist each other during major outages, sharing and moving personnel and resources to hard-hit areas, to keep the lights on and save lives. This has been a traditional part of utility operations for decades, and thankfully has survived the deregulation/competitive era which nominally began in the late 1970s. It’s part of utility culture.
At that time, many industries were eventually transformed by what is commonly known as neo-liberal/conservative economic and cultural philosophy which argued, in effect, that everything is better with competition and markets. The list includes trucking, airlines, natural gas, electricity, water, education, and health care. Given today the disparities in wealth, dislocations in resources, and the environmental issue of our time, global climate disruption, it’s easy to blame this philosophy for the ills we seem to be facing as a nation and society.
Maybe the better way to look at it is that this “strain of economic thought” has run its course and it is time to work within a new framework.
In my mind, that framework is the traditional regulated utility. The basic business model is the utility invests to expand and maintain its infrastructure to serve everyone in its “service territory” and a government entity, the public utility commission, sets a regulated rate of return on that investment. Approved operating costs are passed along to the ratepayer. This way, investors earn a fair return, the system is equitable to all, and rates are kept reasonable. While electricity prices vary around the country, there isn’t a person that pays a rate that is excessive to the value of the service.
Most importantly, this approach keeps things predictable enough so that utilities can plan on a multi-decade basis. This is critical for infrastructure businesses.
As I argue in Carbon IRA & YouTility: How to Address Climate Change & Reward Carbon Reduction Before It’s Too late, we could solve at least one half of our carbon discharge problem by quickly returning to the traditional utility business model, this time allowing utilities to own customer infrastructure – such as smart thermostats, efficient AC systems, storage devices and rooftop photovoltaic systems – which help optimize the grid for everyone.
Now, I’m not a health care industry expert but I don’t seen why this business model can’t be applied in the same way. Public and private hospitals compete for resources, segregating care based on who can pay, etc.; insurance companies adversarially fight to keep costs in check, and state government agencies struggle to create standards, fund innovation, and oversee the whole mess. Rather than debate the merits of socialism or capitalism applied to health care, why not a third way?
Consider each large health care organization (i.e., hospitals, doctor network, accepted insurance providers, etc.) a “public utility” and regulate the businesses’ financials and performance using a public government commission. It’s worked well for other “essential services.” Why shouldn’t it work for health care?
I don’t think anyone reflects on a personal health care event with the words, “Gee, that worked well!” And I don’t think anyone witnessing this morass called the COVID19 pandemic response is saying, “Damn: This is working really great!”
Market-based economics work best for new industries and innovation. Markets don’t work well for critical or essential services or commodities (that’s why commodity businesses tend to have three major suppliers and are reduced to an oligopoly). Markets work worst during crises, why you see price-gouging and hoarding.
Anyway, I’m glad the pundits and politicians are invoking utilities and their ability to collaborate for crisis response and perhaps will apply some of their processes over the long haul. Because what we are witnessing during COVID19, the lack of coordinated analyses, communication, response, could very well embarrass this country forever.
