Innovating Our Way Into Benefits From Energy Policy

We hear a lot about how legislation to mitigate the worst effects of climate change will cost a bundle. And to be sure, it does SOUND like transferring to a new energy economy would require a period of adjustment, and the costs would get passed onto the customer. But the CBO study of the Waxman-Markey bill specifically showed those costs to be miniscule, the price of a postage stamp per day. And David Roberts says that, when you factor in all the savings of the bill, Americans will come out ahead:

Cost-effective low-carbon alternatives are plentiful. Many remain unexploited not because they can’t compete in a free market, but because there isn’t one. A variety of market barriers, market failures, and behavioral failures plague the energy sector: monopolies, oligarchs, myopic accounting, misaligned incentives, perverse regulation, information bottlenecks, immature business models, cultural inertia, plain old bad habits. Underutilization of cost-effective clean alternatives is especially true in efficiency. (See: McKinsey & ACEEE.) Hell, recycled waste heat alone could generate 742 terawatt hours of power a year in the U.S., according to Lawrence Berkeley National Lab (PDF).

Market failures can be overcome through smart legislation, regulation, and investment designed to encourage not just alternative technologies but alternative systems. When we get our accounting right, we see they’re all over. The era of cheap energy in the U.S. has produced, among other things, a relatively sclerotic and unimaginative energy sector, particularly in electricity, which is dominated by monopolies. (The average power plant is no more efficient today than it was 50 years ago.)

But that languid pace of innovation is changing, and quickly. The past or even present pace of energy innovation is no adequate predictor of the explosion on its way.

In addition to the avoidance of costs that would be due to climate change, observers underestimate the value of innovation and efficiency, particularly the latter, a key obsession of Energy Secretary Steven Chu. Yesterday the White House announced a series of energy efficiency efforts which, if successful, will save millions of tons of carbon dioxide and gigawatts of power over the future. These things tend to snowball, as efficient lighting can beget even more efficient lighting, and efficient windows can beget even more efficient windows, etc. If we start building with efficiency in mind today, the savings in the future are really exponential. And the market has already been created for green building.

So I would rather talk about the benefits of climate change legislation than the costs, because over the long run, the benefits will more clearly show themselves.

Looking Beyond Waxman-Markey, Because Looking At It Is Too Ugly

By now you probably know that the Waxman-Markey climate bill will hit the floor of the House tomorrow. This has become almost a stealth issue in America, which is astounding. The President stressed his support of the bill at his press conference Tuesday and nobody asked a question about it. Today he's whipping support publicly and calling lawmakers privately, accusing Republicans of spreading misinformation and casting the bill as a "jobs bill," always a good maneuver in an age of double-digit unemployment. Yet it's not a front-and-center issue in most people's minds. An ABC poll showed support of the bill if it raised electric rates by $10 a month, and opposition if it raised them $25 a month.

And yet this is a world-historical vote, which seeks to address one of the foundational issues of our time - the fact that a runaway climate has the potential to make large sections of the world uninhabitable, cause mass death, and require disruptive adaptation costing in the trillions of dollars. So $15 a month swings support one way or the other? And nobody, not even the President, can get it on the front page?

Keep in mind that the bill, as currently constructed, is not even sufficient to the task. The energy efficiency aspects of the bill are sound - so sound that this EPA analysis, stating that Waxman-Markey would result in less renewable energy than in a status quo ante environment, is mainly because the efficiency targets are so strong that they would significantly reduce the amount of electricity required. But the other part of that reflects the inadequacies of the bill:

The bill also won’t sufficiently drive up the price of dirty fossil fuels to encourage a big switch to renewables, the analysis says. (Here’s how that sounds in untranslated EPA-speak: “Allowances prices are not high enough to drive a significant amount of additional low or zero-carbon energy . . . in the shorter term.”)

Enviro groups, which have misplayed this debate dramatically, don't want to upset the precarious balance that has allowed the bill to progress this far by strengthening it with amendments. And so we're stuck with a bill that has an insufficient carbon emissions cap, gives away scads of allowances to polluters and farm interests, maintains the ethanol scam, does too little on the renewable energy standard, doesn't invest enough in clean sources of energy and fails to advance the ball to a significant degree. Ed Markey says that this is the political reality of getting a bill like this to pass. And at Grist, Dave Roberts tries to look on the bright side:

Anyway, on odd-numbered days, I think I’ve reached a fragile zen detente with the whole process. Mainly, I’ve been trying to focus on a different question: will there be an energy revolution? After all, the American Clean Energy and Security Act is not the only shot for Obama to make good on his campaign promises on energy. Nor is the legislation our last chance to tackle the climate crisis. No bill can carry that kind of weight, not at this moment, with this Congress. America is at the tail end of an era of cheap energy and heedless economic growth. Waxman-Markey is just the struggle to get an extremely hidebound, backward-looking set of political institutions to acknowledge that the old order is collapsing. Building a new order is something else entirely.

The question is, what’s going to happen after the bill is passed? An energy revolution will require a combination of social, technological, business, legal, regulatory, and legislative changes. Federal legislation can’t do all the lifting. Conversely, other changes can compensate somewhat for a weak (at least at the outset) federal framework. What will ultimately make the difference is not the specific mechanics of the bill but the, ahem, Sweep of History. (And who better to capture the Sweep of History than Some Blogger?)

I am reasonably optimistic, despite the flaws in Waxman-Markey, that history is on our side, and that the arguments happening today in Congress will soon be seen as peculiar and archaic.

Read the whole thing.

That's a good way of denying the present, by painting a rosy, hopeful outlook for the future. And his analysis isn't far wrong. But it does nothing for the political realty today. And that reality shows that climate change is just not yet a "touch and feel" issue for enough Americans to make a dent in the political debate. And that we have a better chance finding disruptive technologies that blow the clean energy space wide open than waiting for some Congressman who has a coal mine in his district to come around to realize the scope of the problem. I hope Roberts is right about the future, because I'm not sure the politics will advance too much from the present.

...I agree that this is a good way of looking at it:

As we see a lot of big, landmark style bills coming to the floor in the coming months and stress out over whether they are "good" or "bad," failure or success, and instead look at legislating over the longer term as a process of constantly pushing toward better policy. Obviously, congress' institutional structure -- it's very hard to pass anything substantial or with any kind of speed -- creates an incentive geared towards achieving huge breakthroughs, since you may only get this chance -- and this majority -- once...But there's no law saying that Barack Obama and the rest of the Democrats can't take another bite at the health care apple -- or energy, or financial regulations, or whatever -- after the mid-terms or, hell, as soon as the first bill passes.

One quibble, which I will explore in my next post.

Smart Spending

I never expected a massive Keynesian stimulus to be easy. But the fact that the Obama transition needs to allay fears about the package is worrying. What economy are these neo-Hooverists looking at? Jobless claims keep jumping - expect another half-million to be out of work by next month. The housing market is still crippled with no sign of recovery. And even the lead economist of the IMF, no left-wing liberal, is warning of another Great Depression if governments don't replace consumer spending with massive spending of their own.

Dominique Strauss-Kahn, the head of the IMF, is pushing governments to increase their own spending in order to support growth. The IMF has always been a big enemy of deficits. Why the reversal?

We are facing a crisis of an exceptional breadth, the basis of which is a collapse of demand. The consumer and business confidence numbers have never fallen this much since they've first been recorded. We've NEVER seen this!...

It is imperative to curb the this loss of confidence, to relaunch it and, if necessary, replace private demand, if we want to avoid a recession that turns into a Great Depression. Of course, in normal times, we would recommend that Europe reduce its budget deficits. But these are not normal times.

The fears that the Obama team is responding to are largely about limiting pork-barrel spending in the final bill. I think the nation can survive if a pet project makes its way into a trillion-dollar bill. Somebody has to build that pet project, too, and the whole point is to get money into people's hands in exchange for public works. However, that's not to say that we shouldn't be careful about the spending. On the contrary, I believe that funneling money to build more highways and roads that perpetuate unsustainable suburban sprawl is a bad idea. The opportunity of the stimulus is that we can create new economic opportunities based on building green industries and projects that can reduce our dependence on fossil fuels.

"We've let our infrastructure crumble for a long, long time from water to roads to bridges. It makes sense to invest in them now," Biden said.

But environmentalists and their allies view old-fashioned highway construction as encouraging longer commutes and increasing the energy-consumption crisis of the past year. "They're going to put a bunch of money through a broken system to stimulate the economy. That doesn't make sense to me," said Colin Peppard, a transportation expert for Friends of the Earth.

Peppard's group recently began a "Road to Nowhere" campaign, saying that new roads would lead to "new pollution -- keep the economic stimulus clean."

This doesn't mean that existing infrastructure shouldn't be upgraded in the meantime. But projects like rail, smart energy grids, building out broadband, and developing alternative energy need to get their share of the pie. And there are examples of where "old infrastructure" and "green infrastructure" can work together. The best example is in the building trades. The commercial real estate industry wants their own bailout, and they're going to be the next of many industries seeking one. Now, just handing over money to developers who bought high and are underwater, when the default process works perfectly well and wouldn't disrupt the greater economy much at all, makes no sense. However, if we offered developers a deal like the Architecture 2030 proposal, which would save money in energy costs and have a societal good, that would be worthwhile. And it could be extended to ordinary homeowners as well.

An outfit called Architecture 2030, founded by Edward Mazria, suggests that we offer homeowners not just low-interest loans, but a sliding scale of low-interest loans that's conditioned on renovating their homes to increase energy efficiency. Their proposed scale is on the right. The nickel explanation is below:

"Mazria walked me through a hypothetical example that highlighted the huge incentives the plan could unleash. Say you're a homeowner with a $272,000 mortgage at 5.55%, paying about $1550 a month. You decide you want your mortgage rate to drop to 3%. In order to qualify for the reduction, you have to improve the energy efficiency of your home 75% below code, and it's going to cost you a pretty penny: about $40,000.

Existing tax credits would take care of about $10,000 of that cost. The rest would get tacked on to your existing mortgage, bringing it up to $302,000. But, at 3%, you'd be paying only about $1280 — saving almost $300 a month on the mortgage alone, plus another $150 in reduced energy costs. The value of your home rises, you have more disposable income, you've given work to someone to do the upgrades for you — and s/he's now paying federal taxes, and you've reduced your carbon footprint."

The Architecture 2030 folks claim that their program (which has a component for commercial buildings as well) would cost a mere $170 billion over two years, and in return would create over 8 million new jobs, jump start a new $1.6 trillion renovation market, save consumers a boatload of money, and reduce CO2 emission by about half a billion tons. What's not to like?

I think they're being a little sunny about the positive impact, but not very much.

We definitely need to be smart like this, but it's a tough job. There are a lot of competing interests at play, and nobody's going to be totally happy. At the very least, however, this cannot look like a highway bill.

...Matt Stoller has a good piece on the politics of this. The Blue Dogs appear to favor highway and road projects, but the question is whether they have enough clout to get what they want. Also, a bill like this includes Congresscritters seeking money for their districts that split ideological lines. For instance, the major green jobs repositories in California are Bakersfield and Palm Springs, which have Republican members. I don't think the Blue Dogs are going to be able to dictate this so easily.

More Backward Thinking

This is bad news for my array of green energy stock portfolios:

For all the support that the presidential candidates are expressing for renewable energy, alternative energies like wind and solar are facing big new challenges because of the credit freeze and the plunge in oil and natural gas prices.

Shares of alternative energy companies have fallen even more sharply than the rest of the stock market in recent months. The struggles of financial institutions are raising fears that investment capital for big renewable energy projects is likely to get tighter.

Advocates are concerned that if the prices for oil and gas keep falling, the incentive for utilities and consumers to buy expensive renewable energy will shrink. That is what happened in the 1980s when a decade of advances for alternative energy collapsed amid falling prices for conventional fuels.

“Everyone is in shock about what the new world is going to be,” said V. John White, executive director of the Center for Energy Efficiency and Renewable Technology, a California advocacy group. “Surely, renewable energy projects and new technologies are at risk because of their capital intensity.”

I can confirm that the stocks are falling off the cliff.

It would be a catastrophic mistake to let renewable energy projects to go unfunded. The minor fluctuations in oil and gas prices belie the very major upward trend that is certain to continue as we reach peak production levels. The fact that natural gas-producing nations are considering the creation of a cartel shows you that these markets will remain artificially high to prop up the price, and that the interests of consumer energy needs or the environment will be the last thing on the list.

We can replace the trouble in the venture capital funding with a serious investment at the federal level in green projects. And you can combine that with energy efficiency policies like we have in California - and there's a legitimate economic benefit in doing so, because the job-creation possibilities are great:

OAKLAND, Calif. — California’s energy-efficiency policies created nearly 1.5 million jobs from 1977 to 2007, while eliminating fewer than 25,000, according to a study to be released Monday [...]

“Consumers were able to reduce energy spending,” the study said, adding that “these savings were diverted to other demand.”

“When consumers shift one dollar of demand from electricity to groceries,” the report said, they create jobs among retailers, wholesalers, food processors and other businesses.

If we let the renewable industry fail, we imperil jobs in this country, we cut off the one area that can bring us out of the economic slowdown, and we consign ourselves to a deindustrialized shell of a nation, losing power and losing time. We cannot chase the golden goose of cheap energy anymore. It's time for a change.