Invest in Clean Infrastructure

This past weekend, I attended the Aspen Institute's Clean Energy Roundtable, an annual gathering of business, political and policy leaders working in clean energy. Inspired by the many insights and ideas presented, here are my thoughts on the state of clean energy today and what lies ahead. 

First the good news.  Prices of key clean energy technologies are plummeting, bringing many technologies such as distributed solar and energy storage closer and closer to mass deployment.  The cost of solar panels today is about 20% below that of a year ago.  And it should continue dropping for the forseeable future. In other words, the performance/price ratio is improving exponentially, like computer chips if not quite as fast and for different reasons, cost economies for the most part as opposed to breakthrough technologies.  The main driver of the plummeting costs is volume and successful efforts by the Chinese government to vertically integrate the Chinese solar industry--that now supplies over half of the world's solar panels.  (In advanced thin films, costs per watt are also coming down.)  Even more dramatic price drops are occurring in battery storage across a range of chemistries with prices halving in the the last year.  Plummeting prices that translate to rising performance are good news for developers, electric car-makers and the global industry at large.

The story is more complicated, however, in the United States where we are in what might be described as the best and worst of times.  This past year saw torrid growth in solar deployment in the US with solar capacity doubling; Wind installations also grew and wind is now a very competitive source of power.  Solar--already competitive with subsidies and in some markets--will be very competitive in several years.  That is the good news.  The bad news is that solar generation still supplies only .2% of US electricity and, what's more, growth has been driven by the 1603 provision in the tax law that allows tax credits to be redeemed for cash.  This provision expires on December 31 this year. Since the financial crisis, tax credits deals to build everything from affordable housing to energy have exceeded the pool of capital from investors seeking to shelter profits.  That means tax credits absent the 1603 provision can be worthless.  With extension of Section 1603 uncertain , the solar industry may face significant challenges beginning this winter.

Similarly, on the wind side, the end of the 1603 credit would take a toll and the production tax credit for wind, itself, expires at the end of next year. While companies are scrambling to start projects before these deadlines pass, afterwards activity may fall of the proverbial cliff.  In short, while global fundamentals for clean energy remain strong, the sector remains quite sensitive to government subsidy.  In the US with subsidy likely to to change and-especially with gas prices likely to stay low as more shale gas comes onstream, we may see more clean energy activity shift overseas.  (One potential fix to this problem: moving clean energy off "subsidies" and giving them equal access to the master limited partnership tax break that extractive industries like oil and gas enjoy.)  Cheap American shale gas could nicely complement intermittent, renewable energy, but effortst to bring the technologies together have lagged.

Indeed, despite intense focus by Silicon Valley and the support of the US government, the US is not catching up with Europe or China on clean energy and in many measures, we are falling further behind.  A few years ago, Germany adopted an export promotion plan that included factories as exports.  It exported gas turbine and solar panel factories to China which is how China has so rapidly come to dominate many areas of clean manufacturing.  The Germans have done well selling machine tools to the Chinese while creating demand (and green power) at home through an aggressive feed in tariff  The US, however, except for a few bright spots like Applied Materials that makes equipment to manufacture panels, First Solar, a thin film manufacturer, here and there innovators like Sun Edison and Tesla--and a few large companies such as GE and IBM, has yet to find its way.

Why?  Unlike Germany that has deep credentials in improving manufacturing incrementally, we have excelled through innovating and creating new industries. For example, France Telecom deployed the minitel years  before America  went online but US companies ultimately came to dominate online technology once we created the open Internet platform that allowed yankee entreprenurship to flourish.  Yet despite developing scores of breakthrough energy technologies in our national labs and robust funding of clean energy companies, as I have written before, clean tech innovators have run up against the brick wall of a regulatory system that funnels purchasing decisions to regulated utilities.  The latter are dis-incented by law to invest in new technologies.  Meanwhile, in many states, the consumer remains locked out of the action entirely behind the Iron Curtain of the electricity meter. The sector is still attracting capital but time is running out to upgrade the regulatory structure to what I have described as Electricity 2.0 to create large, gatekeeper-free platforms that reward innovation and investment.

If there is one strong positive on the clean energy front, it is that the consumer has been given a small seat at the table, notably through the introduction this year of the first two electric cars, the Chevy Volt and Nissan Leaf, and in the form of the proliferation of direct generation of electricity, primarily from solar.  The electric car is a technology that can engage the consumer on the ultimate playing field of new, more,  better.  However, if the the cars fail to thrill, clean tech will experience a potentially huge setback.  For that reason making electric cars and charging infrastructure work has to be a key priority for the industry.

More broadly, the once almighty American Consumer who has not only driven domestic growth in recent decades by controlling a huge chunk of GDP but also funded the development of the Pacific rim, has been the missing force in the clean energy sector.  Consumers are prohibited from directly buying clean energy by law in many states in contrast to communications or the Internet where consumer demand drives rapid product life cycles and profits at a speed in synch with venture capital.

Indeed, the write once, make money everywhere, model of the Internet is providing stiff competition for capital to clean tech where local regulations and the gate-keeping role of utilities can sap the energies of even the best funded, most visionary entrepreneurs.

Nonetheless, my final takeaway was that while challenges abound, clean energy remains one of the largest, most important and potentially, most transformative projects of the 21st Century.   Our job is to engage the consumer, sweep away barriers and play to America's strengths in innovation, entrepreneurship and out-of-the box thinking  in the face of obstacles.

The OPEC cartel that meets in Vienna today has thrived in its 50-year history. First ignored, then despised for using the "oil weapon" on the West, and ultimately granted a strange legitimacy due to age, it has assumed all the trappings of an international organization. This week's meeting of Mahmoud Ahmadinejad 's Iran, Muammar Gaddafi's Libya and Hugo Chavez' Venezuela to fix quotas, for example, will take place not in Gaddafi's tent but in a sumptuous building on the Helferstorferstrase in Vienna. Press is likely to report not on why oil prices are set by a cartel of the world's worst leaders but rather on whether oil quotas are modestly adjusted to cover wells out of order since the Libyan revolt

Unfortunately, the cartel's victims have not fared as well. OPEC has over the last century engineered a massive transfer of wealth from the rest of the world to its rulers. At key junctures, it has used the "oil weapon" to destabilize the global economy as with the 1970s oil shocks, the 1980s debt crisis triggered by soaring oil bills and the 2008 financial collapse (when it cut quotas with prices over $100). Less well known is the role of oil price spikes in stoking misery and instability in developing countries. The final victims have been the people of the oil states themselves who have not shared in the wealth enjoyed by a few while seeing democracy pushed indefinitely into the future.

Adam Smith famously observed "Seldom do businessmen of the same trade get together but that it results in some detriment to the general public." Based on a long history of economic study, today cartels are illegal in virtually all developed countries. The question with OPEC, therefore, is not why it is bad but why has it survived. During the first Gulf war in 1991, the US and its allies saved Saudi Arabia, liberated Kuwait and dictated peace terms to Iraq. Yet after the war, all three countries continued as prominent OPEC members. In 2002 we invaded Iraq again, this time overthrowing Saddam Hussein. But rather than insisting that Iraq leave OPEC, the United States actually became a de facto OPEC member through the provisional Iraq authority.

The superficial answer to this question of why OPEC has persisted is it has successfully claimed sovereign immunity. Unlike a private cartel -- hundreds of which have been prosecuted by the Justice Department since 1990, OPEC is comprised of governments that happen to set quotas for oil. But this argument is weak. The 1976 Foreign Sovereign Immunity Act contains an exception to immunity in the case of governments engaging in commercial activities. The real reason that OPEC has survived is a lack of US resolve to break it up. In 2007 and 2008, the House and Senate passed legislation that would have forced the Justice Department to go after OPEC. However, a veto threat from President Bush prevented final passage of the legislation.

There is an equally strong case for trade action against OPEC, made compelling by Senator Frank Lautenberg. The WTO unequivocally prohibits quota-based cartels except in the rare case of conserving resources or national security and of the 12 OPEC members, five are WTO members and 3, observers. Yet to date, the US Trade Representative has not filed an action.

These tools alone might suffice to end OPEC. But the ratcheting up of US engagement in the region recently creates a new opportunity to break the cartel.

The Middle East -- the geographic center of OPEC -- is clearly undergoing fundamental change. Not only, of course, did the US midwife democracy in Iraq, we remain the guarantor of security of Saudi Arabia, Kuwait and the UAE, and are now also supporting the rebels in Libya. The expanded US and EU role in the region provides an opportunity to make a simple case to all parties. US and more broadly EU support must be contingent on a timeline for withdrawal from OPEC.

In short, the conditions exist to end OPEC. We only need resolve. Here is a plan forward. By July 4th, Congress should pass legislation revising the FSIA to strip OPEC of any hint of sovereign immunity. The US Trade Representative should immediately begin studying action against the OPEC countries in the WTO. The Obama Administration should make it clear to parties we aid in the Middle East they need to plan to transition out of OPEC. We can end OPEC but only if we act. Time is of the essence due to the tenuous state of the global recovery.

With gasoline prices edging northward of $4 dollars in many states and some analysts predicting $5 per gallon gas by Memorial Day, gasoline prices are on everyone's mind.  Whether due to political unrest now roiling the Middle East, the revival of demand in the global economy or speculation about supply disruptions, 2011 is promising to be a rough one for consumers.  Yet paradoxically, it is shaping up to be another bonanza for oil exporters.  It may be OPEC's first trillion dollar year. 

Unfortunately, an oil bonanza is no more likely to bring stability to the Middle East this time than in years past due to the corrosive influence that oil revenues have had on democracy.  And for consuming nations like the US, it will come at a high cost.  While the answer is clearly to shake the oil addiction, acheiving oil independence has been an unrealized dream since President Nixon first proposed it decades ago.

Now, however, for the first time, there are signs that oil independence and true energy security may be achievable.  One nation Israel, is taking steps now that may enable it to shake the oil addiction.  A company playing the leading role in the transition is Better Place, a Palo Alto-based startup launched by Shai Agassi.  Tomorrow, NDN will host a breakfast in New York City with Michael Granoff, head of oil independence policies for Better Place who has been deeply involved in the company from the outset who will discuss Better Place's role in Israel's historic effort to end oil dependence.

If you have ever driven an electric car--and that includes a hybrid or even a golf cart---you have probably noticed electric drive is quieter than gas, has higher torque, meaning you accelerate faster. And it is clean: mechanics who work on electric engines do not need to wear gloves.  Add to that the fact that electricity is far cheaper than gas and better for the environment.  The disadvantages have traditionally been range compared to a gasoline car, time to charge and up front cost.  The newest batteries, however, have solved the range problem. 

That leaves charge time and up front price and Better Place has developed a unique business model, analagous to that for cell phones, that addresses these challenges.  In turn, the Israeli government has enacted important policies to speed the transition to emission free cars.  All told, Better Place's is an intriguing business model and story with the potential to revolutiionize transportation not only in Israel, Denmark and Australia where trials will soon begin, but throughout the world.

I hope you can join us for this special event with Michael Granoff, a leader in electric transportation and energy security, the second in our series of New York Clean Energy forums. 

"Securing Oil Independence through Electric Cars at Scale: Lessons from Israel" with Michael Granoff, head of oil independence policies for Better Place.

The event will be on Tuesday, April 12, at 8:30am at the Harvard Club, 35 W 44th Street in the
Mahogany Room.  RSVP here.

Today Senator John McCain, announced that he intended to block the Defense Authorization Bill, unless Senate Democrats strip out the Dream Act, Dont Ask Dont Tell and Secret Hold Amendments.

Jessica Brady of Roll Call  has the full story at McCain Threatens to Block Defense Authorization Bill:

The Arizona Republican, who is ranking member of the Armed Services Committee, said Democrats were using the defense measure as a tool to push liberal agenda items in the runup to the midterm elections.

“So I intend to block it, unless they agree to remove these onerous provisions,” he said.

McCain blasted Senate Majority Leader Harry Reid (D-Nev.) for attaching both the DREAM Act and a proposal to end the use of secret holds in the Senate to the measure. McCain also criticized Democrats for using the defense bill to try to repeal the military’s “don’t ask, don’t tell” policy.

Meanwhile, Senator Robert Menendez has indicated that he is currently shopping around an immigration legislation package to Republican Senators. CQ Politics has a story up Democrat Shops Immigration Bill 'with plenty of ideas."

Sen. Robert Menendez says he will introduce broad legislation in the coming weeks that includes a path to citizenship for undocumented residents and an overhaul of enforcement measures.

A lack of Republican support has prevented an immigration overhaul from moving forward this year in the Senate. Menendez, D-N.J., said Wednesday that the legislation “will have plenty of Republican ideas in it” but for now he is still looking for GOP cosponsors.

The senator said he would offer the bill before the end of the current work period, which is expected to wrap up by early October.

We will be following both stories closely as they develop.

Earlier this afternoon, Simon went on Fox News to talk about the Obama administration's response to the Gulf oil spill. Check out the clip:

In about 30 minutes, at 2:30 Eastern time, NDN's President Simon Rosenberg will be on Fox News to talk about the Obama administration's response to the oil spill and the achievements it ought to take credit for. Be sure to check it out!

And this past Sunday morning, Alicia went on Fox and Friends to talk about the Democrats' plan to let the Bush tax cuts for the wealthiest 1 percent of Americans expire. Rolling back the tax cuts will reduce the deficit by 25 times the amount that continuing unemployment benefits will add to the deficit.

One of the most important pieces for the future of transportation, energy, and climate is how we power automobiles. An interesting piece from the Wall Street Journal's "Environmental Capital" blog discusses a new study on the future of global oil supplies:

Here's an intriguing thought: Global oil supplies are indeed set to peak within a few years, and no, that is not bullish for oil. Quite the contrary—it will spell the end of the "oil age."

That's the take from Deutsche Bank's new report, "The Peak Oil Market." In a nutshell: The oil industry chronically under invests in finding new supplies, exemplified both by Big Oil’s recent love of share buybacks and under-investment by big oil-producing nations. That spells a looming supply crunch.

That will send oil to $175 a barrel by 2016—and will simultaneously put the final nail in oil's coffin and send prices plummeting back to $70 by 2030. That’s because there's an even more important "peak" moment on the horizon: A global peak in oil demand. That has already begun in the world’s biggest oil-consuming nation, Deutsche Bank notes:

US demand is the key. It is the last market-priced, oil inefficient, major oil consumer. We believe Obama’s environmental agenda, the bankruptcy of the US auto industry, the war in Iraq, and global oil supply challenges have dovetailed to spell the end of the oil era.

The big driver? The coming-of-age of electric and hybrid vehicles, which promise massive fuel-economy gains for short-hop commuting but which so far have not been economic.

Peak Oil, which used to be dismissed by many as kind of wacky theory (even though the idea was originally formulated by an oil company geologist), seems to have arrived firmly in the mainstream with the likes of Deutsche Bank onboard. Some argue that the arrival of peak oil will generate a massive shock to civilization, but, true or not, it will certainly be a game-changer that necessitates and speeds the deployment of new technologies. So if the Peak Oil believers are right, it's incumbent on us to start investing in these technologies today: Oil prices spikes have generally been economically problematic – or worse – some have triggered recessions.

For more on the "coming-of-age of electric and hybrid vehicles" and the general future of clean transportation and automaking, join us at NDN at noon today for Insights into the future of Clean Transportation, which will showcase speakers from the Center for Automobile Research, the Auto Alliance, and Better Place. If you can't make it, watch the event live online. 

Albuquerque, NM - At the Hispanic National Bar Association's 34th Annual Convention, I just presented on the issue of "Immigrant Rights."  So I was going to just show a blank screen since immigrants don't enjoy the most basic due process rights in immigration proceedings.  Actually, I provided an overview of the latest actions taken in this area by all three branches of government and and I made the case for passage of immigration reform this year.  My first impression: very encouraged by the fact that the decent size room we were provided was completely full, not one empty seat.  Now, keep in mind that most HNBA members are in private practice and "public interest" law is not exactly part of the day to day work of the pool of mostly corporate litigation, corporate transactional, and criminal lawyers.  So I was encouraged at the sight of a full room, and at hearing our topic discussed over and over at breakfast plenaries, during lunch key note speeches, and even in the corridors of the convention hall.  This tells me that the violations of basic due process and human rights under the guise of immigration law have so permeated our society - particularly our demographic - that even "unusual" suspects, corporate lawyers who have not had immigrants in their families for centuries, are in tune and outraged at some of the most shocking violations of the Constitution in the name of "enforcing immigration law."  

This elite group of Hispanics could all report having clients who have suffered due to the broken immigration system, people who through no fault of their own have been discriminated against as "illegals" merely for the color of their skin, and some reported even being the object of this persecution themselves.  It is clear that the toxicicity of the issue of immigration has spilled over even into our judicial system.  There was a great deal of consensus among judges that the sharp rise in Hispanic defendants sentenced before them is largely due to Hispanic legal residents and undocumented immigrants that are caught in immigration enforcement efforts.  

Judge Martha Vazquez, Chief Judge for the U.S. Circuit Court of New Mexico, called the current immigration broekn system a "system of de facto immigrant criminalization," and highlighted the excessive penalization of immigrants in sentencing because illegal entry is an offense that calls for sentencing enhancement for past offenses.  And U.S. citizens might be guilty of illegal entry - she highlighted the case of a U.S. citizen who travelled to Mexico and while there was robbed of all his documents and wallet.

This defendant decided to just walk back into the U.S., but upon crossing back, he failed to go through customs inspection, which constitutes illegal entry.  Over a decade earlier he had been sentenced for assault and had served his time.  He committed a subsequent offense years later, and because of his "illegal entry," record of prior sentences must be taken into account to enhance a subsequent sentence by several years.  Judge Vazquez's point is that this person was essentially doing time twice for the same offense - he had already been judged for the original offense and carried out his sentence.  But the second sentence forces the judge to have this person serve time again for the prior offense.  

New York City--This past weekend, Vice President Biden made news when he said that the economy was probably in worse shape at the beginning of the year than anyone thought.  Although he told George Stephanopoulos that it is premature to speak of a second stimulus, the implication of his remarks is that more economic aid may be needed.  Indeed, Democratic-leaning economists such as Paul Krugman and Laura Tyson have floated the idea of a second stimulus.  Meanwhile on the other side of the aisle, Republicans are already campaigning against a second stimulus.  What is driving the talk of a second stimulus is the poor jobs number last month that suggested the green shoots are turning brown.  This, therefore, may be an appropriate moment to look at what has happened to the first stimulus.  Is it working?  If not, is another one needed?  Is anything impeding the flow of funds.  Alternatively, should policymakers be looking elsewhere for more economic fuel.

During the initial debate over the stimulus, I argued on behalf of a board--an idea first suggested by Dick Ravitch, former head of the New York MTA--to accelerate infrastructure spending.  We did get a board but its focus is to track the stimulus not carry it out and a website, Recovery.org that President Obama said would provide unprecedented transparency regarding the stimulus.  Here is my take on the stimulus so far.

First, the website and accounting surrounding the recovery package really does provide unprecedented transparency for a large government initiative, even allowing readers to comment on and discuss recovery projects.  The good news is this allows us to debate the stimulus on the basis of thorough data.  The bad news, however, is that six months into the Administration, the data show that only about $65 billion worth of projects have been started, or about 8% of the total two year budget.  A far smaller amount of money has probably been actually dispensed.  As I anticipated, the strategy of moving the money through the normal bureaucratic channels as opposed to an emergency board has slowed its disbursement and therefore moderated its stimulative effect.  On the other hand, using existing channels provides a degree of oversight.  In the inevitable tradeoff between speed and oversight, implementation of the the recovery package has erred on the side of oversight.

In many ways the most interesting portion of the stimulus--the part I first proposed last year--was that directed to clean energy.  The success of these funds in stimulating clean energy innovation is important to America's future, but for the most part, it is too early to measure their effect.  DOE recently announced procedures for giving out the approximately $4 billion in smart grid funds.  However, companies have been hampered in applying pending agreement on smart grid standards.  The Administration is doing everything right in this respect, spearheading a drive to accelerate the development of open standards.  However, this money, therefore, has yet to be spent. 

As another indicator of the development of renewable energy, the price of photovoltaic panels has dropped this year.  The rate of decline about 1% per month, however, cannot be attributed with certainty to any one factor and probably is more related to Spanish policy than what we have done in the United States.

Around the country, work is beginning on numerous infrastructure projects.  However, the normal delay in government contracting--even for "shovel ready" projects means that the bulk of stimulus funds remain to be spent.  In contrast, as the New York Times reports today, the French have been much more successful in rapidly deploying stimulus funds.  However, they are able to do this, in part, due to their more centralized governmental structure.

In its first months in power, the Administration framed its policy response to the economic crisis as consisting of three key initiatives: first, pass a recovery package to stimulate demand, second stabilize financial markets to leverage financial activity around that demand and finally, address the mortgage crisis.  This framing was in my view correct.

So how are we doing on each?  The first policy response, the recovery package to spur demand and create a multiplier effect is underway but money is entering the economy slowly so that we won't really feel it until the end of the year.  There is a silver lining to this timing.  It will hit at about the time that some are afraid we may be approaching a double dip.  However, the slow pace will keep us on tenterhooks well into the fall.  The rescue package for the banks has been reworked a number of times, but the fact that the large banks have been making profits and that some have repaid their loans from the TARP indicates progress has been made on this front--most due to the effect of reversing the mark-to-market rules that were forcing massive market-roiling markdowns of illiquid securities--and the high tailwinds for the industry provided by low cost money from the Fed.  Finally, the mortgage industry remains largely as it was in February with the combination of initiatives suggested by an interagency taskforce yet to really take effect.  People are still losing their homes to foreclosure.

So does this mean we need a second stimulus?  On the contrary, it means that as of now the stimulus funds have yet to really hit the economy and talk of a second stimulus is, as the Vice President stated, premature.  What would be more useful is to try to accelerate the spending of the funds already allocated.  Much progress has been made on banking.  More should be done to reduce the cost of mortgages and keep people in their homes.

While retrofitting buildings is leading to some new green jobs, clean energy which I believe must be an important driver of future growth has yet to impact the economy in a major way.  To fulfill the President's goals, it is time to think seriously about roadblocks to the development and uptake of new technologies in the energy sector as well as the deployment of renewable energy.  The American Clean Energy and Security Act recently passed by the House and now slated for consideration in the Senate provides some incentives to modernize our electricity grid.  Key to the process is opening up the close-knit industry to innovation.  One of the subjects we are researching most aggressively at NDN is how to remove roadblocks in the energy industry that block innovation, open markets to new players and technologies and unlock the full economic potential of the energy network. 

In short, as I argued last year, how recovery money is spent and how quickly it is spent--not whether we do a "second" stimulus--will ultimately determine the speed of recovery.

Ever since the Waxman Markey American Clean Energy and Security Act or ACESA began congressional hearings this spring, many people have predicted its demise.  Yet the bill which will create a cap and market system in the United States--in preparation for climate discussions early next year in Copenhagen--create a renewable electricity standard and address other climate-related issues has moved steadily forward, first through committee and now to the floor of the House.  Today, President Obama made calls to critical House members whose support is needed to pass the bill. The bill may come to a vote as soon as tomorrow but probably only if Speaker Pelosi and the House leadership believe it has the necessary votes to pass.

This is an important piece of legislation.  As I have argued, this year represents the best chance for passage of a bill to put a price on carbon in many and probably for the forseeable future with a new President in office, Copenhagen coming up next year and with sizable Democratic majorities in both the House and Senate.  As the critical moment of truth approaches, proponents are actively working phones, faxes and email to bring support to bear. 

Polls show that Americans support the bill.  Most major environmental organizations support it as well, though some environmentalists wish it were stronger.  As I have argued, however, one cannot expect perfection in landmark regulation of this nature.  Just getting the principle of limiting greenhouse gas emissiosn on the books would be a historic legislative accomplishment.  On the other side, the American Petroleum Institute and some business groups oppose the legislation.  However, the bill includes substantial incentives to explore carbon capture and additional measures to allow coal producing regions to diversify their economies over the long term.

It remains to be seen if the bill will pass, but it has come a long way and--if past is prologue--will go the distance.

Those interested in trying to push the bill across the goal line can find out what groups are doing here.