Both natural gas and renewable energy would benefit from two basic policy reforms: (1) a shift to market-oriented environmental regulation; and (2) a system of energy pricing that sends consumers accurate signals.

As we indicate throughout this paper, natural gas and renewable energy alike would benefit from two basic reforms of energy policy. First, both resources would gain from a shift to market-oriented environmental regulation that permits polluters to satisfy environmental standards in the most cost-effective way, in return for heightened environmental performance. Second, both resources would profit from a system of energy pricing that sends consumers accurate signals, showing them the true costs-including environmental costs-of their energy decisions.

For natural gas, such measures constitute the limit of appropriate policy; a market that gas cannot capture on such a playing field should be served by some other fuel. Although renewable energy would benefit as well from such measures, much of the resultant market might fall to gas-perhaps nearly all of it, given EIA's current forecast. The case for supporting renewable energy rests on the need for a much larger renewable energy industry in the future if climate change and other environmental goals are to be met. The creation of such an industry requires rapid and sustained growth during the intervening period.

To ensure such growth, government support will be necessary. That support can take various forms: government-funded research, tax benefits, or an assured market share.⁵² Those interested in encouraging American renewable energy specifically may endorse indirect support for exports as well.⁵³ While renewables will grow increasingly competitive in several international markets, American renewable energy products will often compete against the heavily subsidized exports of other nations. Perhaps equally important, it is questionable whether a nation can build a powerful export market for any sector without supporting a domestic market in which to develop products. As noted above, the most successful exporters of renewable energy technology (e.g., Japan, Denmark, and Germany) also maintain a safe domestic haven for their firms.

To ensure the sustained growth of a much larger renewable energy industry, government support-in the form of government-funded research, tax benefits, or an assured market share-will be necessary.

Renewable energy also may benefit from permitting consumers to "choose green." Some environmentalists and entrepreneurs believe that consumers desire-and are willing to pay for-environmental attributes in their energy supply.⁵⁴ A few states have initiated pilot projects in which consumers select the "brand" of power they wish to buy, much as consumers across the nation now pick long-distance telephone carriers. In a Massachusetts pilot program, 66% of the residential and small business customers choosing to participate in the pilot decided on the basis of price, but fully 30% chose a firm offering some combination of "green" products-i.e., renewables, energy efficiency or both.

A well-structured green power market could prove large and lucrative. Nevertheless, there is no guarantee that enough consumers will voluntarily pay extra (at least in the near future) for clean energy to address environmental needs.⁵⁵ Some sort of policy safety net may be necessary to ensure that the green power market meets environmental goals.

In short, a sound clean energy policy must promote both renewables and natural gas (as well as energy efficiency). Growth in renewable energy will come at the expense of other resources, perhaps including natural gas; in coming decades, however, gas will win the lion's share of new generation contracts. Yet, an effective strategic alliance between gas and renewables will require concessions on both sides. Natural gas interests, seeking to portray their technology as environmentally superior, must concede that renewable energy has to play a growing role in the long run, and therefore must be assured a small⁵⁶ but growing market niche today. For its part, the renewable energy community must recognize the environmental contribution that gas can make today and in the near future, and the consequent need to remove artificial impediments to its expanded use. For any particular demand, the choice generally will be either renewable energy or natural gas. For environmental policy, the choice should be both.

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