NDN Blog

In a Newsweek Op-Ed yesterday, Fareed Zakaria rails against current American climate and energy policy (or lack thereof) in the context of this week’s G-8 in Hokkaido, Japan.

Whether it's Barack Obama or John McCain who enters the White House in January, the new president could well find his approval ratings sliding fast. The increasingly grim economic news is likely to overshadow all else. Britain's prime minister, Gordon Brown, is already experiencing this reality. While most of the British media would argue (vigorously) that Brown's low poll ratings relate to his charisma, or lack thereof, he is also clearly suffering the political effects of economic malaise.

Like the United States, Britain is going through a credit crunch, a financial crisis and a housing collapse all at the same time. Brown, however, argues that the central problem is skyrocketing food and fuel prices—"that's what hurts the average family most," he said in a conversation last Tuesday. Brown said he hoped that the Group of Eight countries would take them on at its summit in Hokkaido, Japan, this week. "The great challenge for the G-8 is, can we coordinate policies to prevent crises. In the 1980s, we had currency coordination. But with finance globalized, that's not the challenge of the present," he said. "The new problem, worldwide, is energy. We need to coordinate our energy policies."

Brown argues that even in the short- and medium-term, the G-8 countries could do something. "The market assumes that demand will always increase, and in a circumstance of constrained supply, that means prices rise. But we can send a signal that demand is going to moderate, that we are serious about efficiency and alternative energy sources. But it would have to be a clear signal sent by all the major consuming countries."

Last month, Britain laid out plans to generate 35 percent of its electricity needs from renewables by 2020—up from 5 percent now. The country is already the world's largest generator of wind power (with mostly off-shore turbines) and plans to generate 60 times current levels in 12 years. It has also cleared regulations to increase nuclear energy. "You cannot get to a new energy mix without a substantial rise in nuclear power," Brown said.

The contrast with Washington is blinding. George Bush still has not made a serious speech, announced a serious plan or presented Congress with a serious set of laws to move the country toward new energy sources. With oil prices at their highest levels since the discovery of oil (even in inflation-adjusted dollars), and with their rise threatening to push the country and the world toward 1970s-style stagflation—he hasn't brought himself do it. And while we stand pat, the rest of the world is moving. In a recent ranking of countries for environmental performance, jointly produced by Yale and Columbia universities, the United States came in 39th, well behind every other advanced industrial country. (Germany ranked 13, Britain 14 and Japan 21.)

Washington's inaction also stands in contrast to intense activity in the private sector, fascinatingly described in Fred Krupp and Miriam Horn's new book, "Earth: The Sequel." Krupp heads the Environmental Defense Fund, but this is not a gloomy global warming tirade. It's an optimistic account of the progress being made by American industry in renewable energy. The authors explore every new technology, from solar to wind to geothermal, and introduce the men and women who are inventing the future.

But they would be the first to point out that, even though American research labs are rising to the challenge, government action remains vital. The idea that government should "stay out" is meaningless. It is in knee-deep already; energy is a highly regulated industry. In fact, it's notable that we have low productivity and runaway inflation in two crucial areas these days—food and fuel. Both have been nationalized, protected or subsidized by governments around the world for decades. A host of regulatory and legal barriers make renewable and small-scale energy production less attractive, profitable and manageable than it could be. But Krupp and Horn focus on the central policy change that the United States needs to make—enacting a cap on carbon. America is the only developed country that does not put a price on carbon.

Imagine if President Bush were to announce at the G-8 summit that the United States would institute a cap on emissions. We would instantly have the world's largest carbon market and it would, instantly, change the price of clean energy. It would unleash a tsunami of economic activity in renewables that could, over time, give American productivity the next big boost it needs. It would, of course, also quickly send a signal to the market about future demand for oil, which would in turn affect the price.

But somehow I don't think that's what Bush is going to say in Hokkaido this week.

Zakaria is right to suggest that America do what much of the rest of the world seems to know we must: restore American leadership globally by comprehensively tackling climate change and reforming energy policy. He also knows that by doing so, we will address demand for fossil fuels, and fundamentally alter the current energy and economic paradigms. Solutions to the energy and climate dilemmas are not, as some argue, mutually exclusive. Rather, creating a prosperous 21st century depends on understanding that they can be one in the same. The private sector has figured this out, and is making a lot of money while doing so. Let’s see if the government can’t get the picture too.

As climate change, energy prices, and the impact of the “Third Oil Shock” on the American and global economies continue to make front page news every day and change the way we live, NDN’s Green Project is excited to announce a series of events and thought-provoking papers examining these critical issues over the next month.

Building on previous work in the green space, including a forum in New York City entitled, Understanding the Cleantech Investment Opportunity, and talks by energy expert Amory Lovins and electric car innovator Shai Agassi, NDN’s upcoming Green Project will be offering some thoughts on intellectual underpinnings for building the post-carbon economy.

We kick off this important and timely series on Wednesday, July 9, on Capitol Hill with U.S. Sen. Jeff Bingaman (NM), Chairman of the U.S. Senate Committee on Energy and Natural Resources and one of our nation's foremost leaders on energy, who has chosen NDN to host his next address on climate change. This event will start at 8 a.m. in 325 Russell Senate Office Building. Click here to RSVP.

NDN will also be releasing an important new paper by NDN Green Project Director Michael Moynihan entitled, Solar Power: The Case for Action. In this paper, Moynihan places solar energy in the context of major changes needed to our energy policies, including how to reinvent our national economy to cope with high energy prices and increase our technological competitiveness in a post-carbon future.

On Wednesday, July 16, Dr. Robert J. Shapiro, Chairman of the NDN Globalization Initiative, will host a lunch for the NDN community on his new paper, Addressing Climate Change without Impairing the U.S. Economy: The Economics and Environmental Science of Combining a Carbon-Based Tax and Tax Relief, which details a strategy for implementing a carbon tax and using 90 percent of the revenue to cut the payroll tax. The lunch will be held at 12:30 p.m. at NDN: 729 15th St. NW, 1st floor. For more information or to RSVP, contact Kevin VanderMolen at kvandermolen@ndn.org or 202-384-1216.

On Saturday, July 19, in Austin, Texas, Michael Moynihan will join NDN President Simon Rosenberg and Andrei Cherny at Netroots Nation in speaking on A New Era of Possibility—Looking at America's Role in the World after the Bush Presidency.

Finally, NDN has an event in the works to examine the impact of high energy prices on such important elements of the economy as the auto industry, transportation, aviation, the exurbs and, indeed, the American Way of Life. Please stay posted for more details.

Do not miss these events that together will help develop our understanding of the impact of climate change and energy policy on our nation. To read NDN’s latest thinking on these issues, check out the Green Project blog.

The last couple weeks have seen copious coverage of John McCain's inconsistency on energy policy. These discrepancies have been noted with some curiousity, but with a series of ads on energy security, McCain is clearly attempting to assume the energy security mantle in this campaign, and perhaps it is worth taking greater notice of them. After all, climate change is his signature "maverick" issue - the main issue that he claims not to follow President Bush on.

The problem is that his biggest maverick endorsers - those that he can use to paint himself as bipartisan (or as putting "Country First," his new slogan) - don't really agree with him on his maverick issue. Arnold Schwarzenegger, one of the most progressive executives in the country on energy issues and a McCain endorser, criticized McCain's offshore drilling plan as "blowing smoke." From the Los Angeles Times:

Gov. Arnold Schwarzenegger made a veiled swipe at Republican presidential hopeful John McCain on Thursday when he said at a climate conference here that anyone suggesting offshore oil drilling could bring down gas prices was "blowing smoke."

The remark was also a dig at his host, Florida Gov. Charlie Crist, who riled environmentalists, tourism promoters and the state's political leaders on both sides of the aisle last week when he voiced support for McCain's proposal to lift bans on exploring for oil off the coasts of California, Florida and the Eastern Seaboard.
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From his podium at the conference, Schwarzenegger said, "Politicians have been throwing around all kinds of ideas in response to the skyrocketing energy prices, from the rethinking of nuclear power to pushing biofuels and more renewables and ending the ban on offshore drilling," Schwarzenegger said. "But anyone who tells you this would bring down gas prices any time soon is blowing smoke."

Another issue McCain faces is that Joe Lieberman, sponsor of the leading climate change legislation in the Senate this year, supports McCain, but John McCain's climate change goals are far more modest than Lieberman's legislation. In fact, McCain skipped the Senate vote on the issue, and indicated that he did not support the legislation.

So, if McCain is a maverick on energy, why don't his two signature maverick endorsers - both leaders on his signature maverick issue - agree with him on fundamental aspects of that very issue?

NDN’s Green Project is pleased to announce that one of the U.S. Senate’s most well-regarded leaders, U.S. Sen. Jeff Bingaman (NM), Chairman of the Energy and Natural Resources Committee, is scheduled on Wednesday, July 9, to deliver a major policy address on climate change to the NDN community.

As Chairman of the Energy and Natural Resources Committee, Sen. Bingaman has been a strong voice for addressing our nation's energy challenges through reducing America’s reliance on fossil fuels, cutting greenhouse gas emissions and increasing investment in innovation and technology necessary to build a clean energy future.

Chairman Bingaman's speech is scheduled for 8 a.m. in Room 325 of the Russell Senate Office Building, in Washington, DC.

Sen. Bingaman has been a long-time friend of NDN and has supported the missions and goals of NDN throughout the years.

NDN’s Green Project is a program of the Globalization Initiative that seeks to develop the legislative and regulatory framework to address climate change, enhance energy security, and accelerate the development of green technologies to promote economic growth.

NDN’s Green Project Hosts Senate Energy and Natural Resources Chairman Jeff Bingaman for Major Policy Address
325 Russell Senate Office Building
Wednesday, July 9
8 a.m.
Click here to RSVP

On Monday at the National Press Club, I attended an event put together by the U.S. Climate Task Force, which is chaired by Dr. Robert J. Shapiro, also Chair of NDN’s Globalization Initiative. At this event, Dr. Shapiro released his paper entitled, Addressing Climate Change without Impairing the U.S. Economy: The Economics and Environmental Science of Combining a Carbon-Based Tax and Tax Relief, which details a strategy for implementing a carbon tax and using 90 percent of the revenue to cut the payroll tax. (The remaining 10 percent would be used to fund research, development, and deployment of clean technology). The end effect would be to combat climate change while limiting the economic burden and increasing the political salability of such a solution to climate change.

The proposal is fascinating, and the event, which featured a panel of climate change experts, was equally so. The take-away from the event was that putting a price on carbon is obviously crucial to combating climate change, and that returning the money collected by a carbon-pricing scheme through a reduction in the payroll tax is an innovative and progressive idea. Internationally, it is crucial for the U.S. to lead in the effort to combat climate change, especially because any agreement will need to bring the developing world on board. China’s carbon emissions have already surpassed America’s, and will only continue to grow. Tackling the prevalent use of coal and providing consumers with alternative forms of energy, in large part through increased investment in research, development, and deployment of low-carbon sources, must also be central to confronting climate change.

Climate Wire (subscription req’d), had this to say about Dr. Shapiro’s proposal:

As energy prices climb higher, even the most environmentally minded politicians have shied away from the tax, deeming it to be too much of a political landmine.

The tax would start out at $14 per ton in 2010 and rise to $50 per ton in 2030. Most of the revenue generated -- projected to be about $4 trillion over 20 years -- would cycle back into the economy, primarily through a cut in the payroll tax.

"We are reducing one tax and applying a second tax. The reason is, we want to encourage one kind of behavior and discourage another kind of behavior," explained Robert Shapiro, chairman of the U.S. Climate Task Force and a co-author of the new report. "This is not the imposition of a tax -- this is a tax shift."

Here is NDN’s press release endorsing Dr. Shapiro’s paper:

NDN ENDORSES SHAPIRO PAPER ON CARBON
TAX/PAYROLL TAX TRADEOFF

The U.S. Climate Task Force yesterday released an important paper in the debate over how to address climate change and global warming entitled, Addressing Climate Change without Impairing the U.S. Economy:The Economics and Environmental Science of Combining a Carbon-Based Tax and Tax Relief.

Authored by Dr. Robert Shapiro, former Under Secretary of Commerce for Economic Affairs in the second Clinton Administration and Chairman of NDN’s Globalization Initiative, and economists Dr. Nam Pham and Dr. Arun Malik, the paper represents a valuable addition to the literature on potential policy solutions to the problem of carbon emissions.

NDN strongly endorses the report’s bold recommendation to put a price on carbon and supports the report's central idea that a well-crafted carbon tax, combined with a reduction in the payroll tax, has the potential to staunch the release of greenhouse gases without harming the economy and will promote job creation. In endorsing this carbon tax proposal, NDN remains committed to the effort to develop comprehensive climate change legislation that accomplishes the goal of reducing carbon emissions through a tax on carbon, a cap and trade system, a cap and dividend system, or some combination of the above.

A number of countries and localities have adopted a carbon tax to help stem greenhouse gas emissions. Such a tax, however, can increase costs to energy or industrial consumers and potentially impose a drag on economic growth. Using computer simulations that employ the U.S. Department of Energy’s energy consumption and pricing model, Dr. Shapiro’s paper makes the important point that how this tax revenue is recycled through the economy is critical to the effect of the tax on the American people.

Using carbon tax revenue to reduce the payroll tax helps to mitigate the impact on the economy by increasing disposable incomes of working families and reducing what is, in effect, currently a disincentive to employment. While the payroll tax has historically played a critical role in funding Social Security, it is levied as a tax on wages. So, reducing the tax and any future increases likely required to accommodate an aging workforce helps to promote employment. And by tying the payroll tax deduction to the revenue to be gained from putting a price on carbon, Dr. Shapiro’s proposal offers a way to limit carbon emissions without lowering economic growth.

“The idea of balancing a carbon tax with a reduction in the payroll tax is appealing because it has the potential to put a price on carbon without lowering economic growth,” said NDN Green Project Director Michael Moynihan.

Moynihan added that NDN will continue to work with the U.S. Congress, the presidential campaigns, the U.S. Climate Task Force, the clean technology community, the environmental community, industry and other interested stakeholders in meeting the important challenge of climate change.

A Gallup Poll released today shows that energy and gas prices are considered by more Americans to be extremely important than any other issue in the Presidential election.

Additionally, 19 percent more Americans believe that Barack Obama would be better able to handle energy issues. He leads John McCain 47 - 28. For more of NDN's Green Project work on energy security and climate change, click here.

Mobile phones have made the headlines this year due their role in political organizing the world over, from the aftermath earthquake and environmental protests in China to political campaigns here in the United States. Now, what many have recognized as the true power of mobile technology is being realized in Africa. In Tuesday's Guardian, Richard Wray writes that "the dramatic spread of the handset is revolutionising the way money circulates."

For consumers in developed markets, using a mobile phone for banking services is a smart add-on to a bank's branch network. But to people in the developing world, the arrival of mobile banking - or m-banking - is potentially revolutionary.

If money is an economy's lifeblood, improving its circulation plays a critical role. Many Africans living in rural areas, for instance, rely on money sent home by members of their family who work in towns and cities. But getting that cash to a village that could be hundreds of miles away is a tricky business. In Kenya, for example, workers in urban areas hand wages over to bus drivers, who promise to stop off at the worker's home village en route to their destination.

Even those who do have a bank account - and they make up only a few per cent of Africa's 950 million population - are restricted in what they can do with their money because of the dearth of branches in rural areas.

But the dramatic growth in mobile phone use in Africa - phones now outnumber cash machines by several thousand to one - is paving the way for a new set of services that turn the humble handset into a banking tool with the potential to transform Africa's economy.

Services have sprung up that let people transfer cash by text message to other mobile phone users and give Africa's vast number of "unbanked" their first access to financial products. Instead of using a bank branch, these services rely on local retailers who already sell mobile top-up cards.

"We wanted to offer something that would work," explained Mung Ki Woo, who heads Orange's m-payments division. "Instead of giving people a plastic card, why not use something many people already have: a mobile phone? And instead of doing transactions at a bank branch, why not let people go to their local retailer to deposit and withdraw cash?"

The article goes on to discuss the proposed creation of m-banking systems that allow access by all users, regardless of cell phone carrier. It also discusses the expansion of this technology to microfinance, which would potentially allow these small loans that have changed the lives of millions for the better to be expanded to many times more people.

M-banking is truly revolutionary, and a broad-based implementation that allows mobile technology to substitute for visits to banks will have dramatic economic development impacts. The emergence of technology that enables bottom-up politics and banking may yet be the beginning of a new era of prosperity and engagement that will be felt globally.

Sen. John McCain has a new ad out today on climate change. Check it out:

Sounds great right? John McCain doesn’t follow the President on climate change and wants to curb greenhouse gasses.

Not so fast.

From the New York Times’ Elisabeth Bumiller:

Mr. McCain, the presumptive Republican nominee, is to provide an audience of Houston oil executives with more details of his proposal to lift the federal moratorium on offshore oil and gas exploration in states that want it. Mr. McCain’s position is welcome news for the oil industry, which has called for years for the ban to be lifted.

"With gasoline running at more than four bucks a gallon, many do not have the luxury of waiting on the far-off plans of futurists and politicians," Mr. McCain plans to say. "We have proven oil reserves of at least 21 billion barrels in the United States. But a broad federal moratorium stands in the way of energy exploration and production, and I believe it is time for the federal government to lift these restrictions and to put our own reserves to use." Mr. McCain first made public his position on the moratorium on Monday in Virginia.

Just so this is clear: On the same day that John McCain releases a new ad discussing his commitment to confronting climate change, he also proposes drilling for offshore oil and gas.

Politically, McCain may be seeking the energy security mantle, but he will have trouble claiming to care about climate at the same time, especially when it looks like he is just giving handouts to the oil industry. This move will not help in the short term as wells in these places will not come online tomorrow, and the amount of oil and natural gas extracted would not lower prices in any meaningful way.

Plus, offshore drilling is so unpopular in Florida, that even Jeb Bush opposed it as Governor. In fact, as First Read points out:

No Republicans in Florida have gotten elected statewide without endorsing the moratorium on off-shore oil drilling.

Between this drilling proposal and the gas tax holiday, it sounds like John McCain’s Straight Talk Express may be in bad need of a fill-up.

The Front Page of yesterday’s Wall Street Journal features an excellent article by Guy Chazan entitled “Russia Outflanks EU’s Pipeline Bid.” The article describes Russia’s efforts to dominate European natural gas supply and politics by outmaneuvering American backed European attempts to build a pipeline to make them less reliant on Russian natural gas. The potential for heavy-handed petropolitics, exemplified by Russia’s 2006 shut-off of gas to Ukraine, has American policy makers concerned once more about Russia’s political influence in Europe.

During the Cold War, the balance of power was measured in nuclear warheads. Now a new kind of contest is playing out. The battlefield is Europe's energy market. The objective is pipeline proliferation. And Russia is winning.

Europe is witnessing a race between two mammoth pipeline projects that would bring natural gas to the Continent from the Caspian and beyond. One of the plans -- hatched in Europe, championed by Washington and named for a Verdi opera -- has been hobbled by bureaucracy. The other, backed by the Kremlin, is rolling ahead with a speed and success that has surprised and frustrated the West. The outcome could shape energy supplies, and political influence, in Europe for decades to come.

Europe is not the only place this dynamic is playing out. Chinese influence in oil-rich African nations has been much maligned due to a policy emphasis energy security, even at the expense of human rights. (Sudan is only one, albeit the most publicized, example of Chinese influence on the region.) This political turmoil, as well as high prices domestically, means that energy security has emerged as a hot topic in American media.

Responding to Chazan’s article on the Wall Street Journal’s "Environmental Capital" blog, Keith Johnson argues that:

You can have energy security, you can give consumers a break, or you can do something for the environment. But aiming for all three at once—that is, what passes for energy policy in the U.S. and Europe—appears next to impossible.

Take the U.S. High oil prices have given legs to Big Oil’s demand for more access to federal lands and coastal areas—a bid for energy security–even while many in Congress are still opposed. But environmentalists figure high oil prices will spur alternative energy and help fight climate change. The Liberman-Warner climate bill foundered thanks in part to high energy prices right now. Meanwhile, the consumer gets whacked regardless—with higher gas prices, or higher electricity bills, or both.
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As the scramble for energy heats up, it’s useful to remember that the rules of the game aren’t changing—the game itself is. Energy policy isn’t a cardigan moment or a Rose Garden speech—it’s become the currency of international influence. And the countries that ruthlessly focus on one pillar, rather than trying to juggle all three, are more likely to come out ahead.

Johnson is incorrect to argue that this is a new dynamic, however. Energy security has been the backbone of American politics in the Middle East since the Presidency of Franklin Roosevelt, and what has been called a “New Great Game” in Central Asia has been an ongoing chess match over oil and natural gas for decades. Johnson is correct that a ruthless pursuit of energy security is more likely to work than other approaches, but the solution to this energy security issue has little to do with climate or economic security. Rather, Europe needs to employ stronger policies and act in a more hard-nosed fashion against Russian advances, and doing so does not mean subverting goals of handling climate change. This is more a matter of having leadership that knows when the trade-off of playing hardball in favor of political security is well worth it.

Securing Energy and the Economy: Avoiding short-term policy traps

The fundamentally new elements of the energy paradigm are that these resources are no longer available on the cheap in the Western world, in large part due to the rise of the developing world, especially Asia, and the concern about climate change. Johnson seems to argue that pursuing energy and climate security while trying to keep energy costs low is impossible. In the short term, he is probably correct. In the longer term, he couldn’t be more wrong. And, in the short term, there are better ways to protect consumers.

The link between energy and economic security is easy to see. If countries do not pursue energy security, they become unable to feed their economies and maintain economic security – talk about a hit to consumers. In the short term though, pursuing lower energy prices can come at the expensive of both energy and climate security and results in silly ides, like a gas tax holiday or opening up off shore drilling.

Thomas Friedman, in yesterday’s New York Times, weighed in on the dire policy consequences of Egypt’s attempts to keep energy prices low:

From Shubra we drive into the desert toward Alexandria. The highway is full of cars. How can all these Egyptians afford to be driving, I wonder? Answer: The government will spend almost $11 billion this year to subsidize gasoline and cooking fuel; gas here is only about $1.30 a gallon. Sounds like a good deal for the poor — only the poor have no cars, and the fuel subsidies mean less money for mass transit.

Think about these numbers: This year Egypt will spend $6 billion on education and $3 billion on health care, far less than the subsidies for fuel. This is a terrible trap. The subsidies should have been phased out when food and fuel prices were lower. Now that they have soared, the pain of removing the subsidies would be politically suicidal. So education and health care get killed instead.

America is not currently in the trap Friedman describes, but with the wrong policies, could find itself moving in that direction. Incentives must be designed to stimulate infant technologies and decrease in amount over time as those technologies commercialize and scale, not the other way around.

Securing Energy and Climate: Building the 21st Century Economy

Climate and energy security are also not mutually exclusive. If all the West cared about was energy security, America could just build all the coal plants it wanted. We are, after all, the Saudi Arabia of coal. But that is fundamentally not in our climate or economic security interests.

What America needs is a policy that is focused on energy and climate security, indeed such a policy must see the two as interrelated, and must encourage the scaling of technologies capable of taking the place of fossil fuels. Building a 21st century post-carbon economy will not be simple and will not happen tomorrow, by this November, or by November of 2012, but failing to get on that path will ultimately prove the most difficult available option, as failure means economic surrender. Conventional sources of energy will remain important into the future, but the faster America is able to transition away from a hydrocarbon economy, the better our economic, energy, and climate security will be.

The hallmark of this election cycle, at least on the Democratic side, has been the emergence of bottom-up politics, much of the time focused around the internet and social networking sites. On facebook.com, a supporter created Barack Obama group has over 500,000 members, and he currently has over 900,000 supporters.

The Republicans have been a little slower to get the message on the value of bottom-up politics. Their most recent facebook.com group epitomizes their top-down approach. Entitled “Republican National Committee - Official Group,” it was created by the Director of RNC eCampaigns, and the results are not promising. As of this posting, the group boasted 13,186 members, 11 videos, all posted by the same administrator, and this ambitious group graphic: