Green Project

Energy Insanity

Thomas Friedman has a great column in today's New York Times on America's upside down energy policy that continues to subsidize consumption of fossil fuels while meting out credits for wind and solar power like Bumble the Beadle offering porridge to Oliver Twist. At the very moment when oil prices are shooting through the roof, the leading candidates are proposing to eliminate the gas tax this summer. Yet rather than extend the far less expensive Production Tax Credit to sustain investment in solar and wind power due to expire this year, Congress is dragging its heels.

Quoting Rhone Resch of the Solar Energy Industries Association, Friedman points out that the US has gone from enjoying 40% market share in solar power in 1997 to only 8% today. Already because of the lead time involved in renewable energy projects, many have been canceled, harming America's fledgling renewables industry. Here is the article in its entirety:

Dumb as We Wanna Be

It is great to see that we finally have some national unity on energy policy. Unfortunately, the unifying idea is so ridiculous, so unworthy of the people aspiring to lead our nation, it takes your breath away. Hillary Clinton has decided to line up with John McCain in pushing to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for this summer’s travel season. This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks. What a way to build our country.

When the summer is over, we will have increased our debt to China, increased our transfer of wealth to Saudi Arabia and increased our contribution to global warming for our kids to inherit.

No, no, no, we’ll just get the money by taxing Big Oil, says Mrs. Clinton. Even if you could do that, what a terrible way to spend precious tax dollars — burning it up on the way to the beach rather than on innovation?

The McCain-Clinton gas holiday proposal is a perfect example of what energy expert Peter Schwartz of Global Business Network describes as the true American energy policy today: “Maximize demand, minimize supply and buy the rest from the people who hate us the most.”

Good for Barack Obama for resisting this shameful pandering.

But here’s what’s scary: our problem is so much worse than you think. We have no energy strategy. If you are going to use tax policy to shape energy strategy then you want to raise taxes on the things you want to discourage — gasoline consumption and gas-guzzling cars — and you want to lower taxes on the things you want to encourage — new, renewable energy technologies. We are doing just the opposite.

Are you sitting down?

Few Americans know it, but for almost a year now, Congress has been bickering over whether and how to renew the investment tax credit to stimulate investment in solar energy and the production tax credit to encourage investment in wind energy. The bickering has been so poisonous that when Congress passed the 2007 energy bill last December, it failed to extend any stimulus for wind and solar energy production. Oil and gas kept all their credits, but those for wind and solar have been left to expire this December. I am not making this up. At a time when we should be throwing everything into clean power innovation, we are squabbling over pennies.

These credits are critical because they ensure that if oil prices slip back down again — which often happens — investments in wind and solar would still be profitable. That’s how you launch a new energy technology and help it achieve scale, so it can compete without subsidies.

The Democrats wanted the wind and solar credits to be paid for by taking away tax credits from the oil industry. President Bush said he would veto that. Neither side would back down, and Mr. Bush — showing not one iota of leadership — refused to get all the adults together in a room and work out a compromise. Stalemate. Meanwhile, Germany has a 20-year solar incentive program; Japan 12 years. Ours, at best, run two years.

“It’s a disaster,” says Michael Polsky, founder of Invenergy, one of the biggest wind-power developers in America. “Wind is a very capital-intensive industry, and financial institutions are not ready to take ‘Congressional risk.’ They say if you don’t get the [production tax credit] we will not lend you the money to buy more turbines and build projects.”

It is also alarming, says Rhone Resch, the president of the Solar Energy Industries Association, that the U.S. has reached a point “where the priorities of Congress could become so distorted by politics” that it would turn its back on the next great global industry — clean power — “but that’s exactly what is happening.” If the wind and solar credits expire, said Resch, the impact in just 2009 would be more than 100,000 jobs either lost or not created in these industries, and $20 billion worth of investments that won’t be made.

While all the presidential candidates were railing about lost manufacturing jobs in Ohio, no one noticed that America’s premier solar company, First Solar, from Toledo, Ohio, was opening its newest factory in the former East Germany — 540 high-paying engineering jobs — because Germany has created a booming solar market and America has not.

In 1997, said Resch, America was the leader in solar energy technology, with 40 percent of global solar production. “Last year, we were less than 8 percent, and even most of that was manufacturing for overseas markets.”

The McCain-Clinton proposal is a reminder to me that the biggest energy crisis we have in our country today is the energy to be serious — the energy to do big things in a sustained, focused and intelligent way. We are in the midst of a national political brownout.


Candidates talk energy policy

Americans have dealt with significant increases in their costs of living during the Bush administration. One of the most significant is rising energy costs, most visibly seen in high prices at the pump. This issue has suddenly found itself at the center of the Presidential campaign in the form of a proposal to suspend the gas tax for the summer, saving the average American, according to estimates, at most about $30 over that time.

From the New York Times:

As angry truckers encircled the Capitol in a horn-blaring caravan and consumers across the country agonized over $60 fill-ups, the issue of high fuel prices flared on the campaign trail on Monday, sharply dividing the two Democratic candidates.

Senator Hillary Rodham Clinton lined up with Senator John McCain, the presumptive Republican nominee for president, in endorsing a plan to suspend the federal excise tax on gasoline, 18.4 cents a gallon, for the summer travel season. But Senator Barack Obama, Mrs. Clinton’s Democratic rival, spoke out firmly against the proposal, saying it would save consumers little and do nothing to curtail oil consumption and imports.

While Mr. Obama’s view is shared by environmentalists and many independent energy analysts, his position allowed Mrs. Clinton to draw a contrast with her opponent in appealing to the hard-hit middle-class families and older Americans who have proven to be the bedrock of her support. She has accused Mr. Obama of being out of touch with ordinary Americans who are struggling to meet their mortgages and gas up their cars and trucks.

Mrs. Clinton said at a rally on Monday morning in Graham, N.C., that she would introduce legislation to impose a windfall-profits tax on oil companies and use the revenue to suspend the gasoline tax temporarily.

"At the heart of my approach is a simple belief," Mrs. Clinton said. "Middle-class families are paying too much and oil companies aren't paying their fair share to help us solve the problems at the pump."

Mrs. Clinton said the tax on the oil companies, which have been reporting record profits as oil prices soar, would cover all of the lost revenue from the federal tax on gasoline and diesel fuel. She also said no highway projects would suffer.

Mr. Obama derided the McCain-Clinton idea of a federal tax holiday as a "short-term, quick-fix" proposal that would do more harm than good, and said the money, which is earmarked for the federal highway trust fund, is badly needed to maintain the nation’s roads and bridges.

Here at NDN, we are pleased to see the candidates addressing energy reform and discussing America’s weakening infrastructure. NDN Green Project Director Michael Moynihan recently wrote a paper about the need to invest in America’s infrastructure, and the Green Project has been promoting a long term solution to America’s energy needs. Going forward, we encourage the candidates to incorporate long term solutions these issues into their policy prescriptions.

Green Jobs and a new environmentalism

With Democrats voting today in Pennsylvania, we are coming to the close of a six week period in which Senators Obama and Clinton have been talking non-stop about the loss of manufacturing jobs. During that time, they have, to one degree or another, been touting one of the most highly anticipated benefits of dealing with climate change – aside from saving the planet, of course – the entire sector of new “green collar” jobs that will come with it.

Skilled labor will be required to create the solar panels, wind turbines, hybrid engines, energy efficient buildings, and other, as of yet undreamt of clean technologies. Presumably, the argument goes, Pennsylvania’s un- or under- employed workers will benefit from these new jobs. The buy-in to this concept from organized labor has been strong. (The Blue Green Alliance, a partnership of the United Steelworkers and the Sierra Club, has been pushing this side of the argument. They hosted the “Good Jobs, Green Jobs National Conference” in Pittsburgh last month.)

The consensus on green collar jobs – at least on the Democratic side – is broad. New ads from the Alliance for Climate Protection showcase the bipartisan support for creating a solution to climate change. Politicians, of course, love green collar jobs. What better way to go into an economically depressed community than with the promise of a new generation of good-paying jobs?

The green collar jobs argument illustrates just how far the environmental movement has come since its first round of huge legislative successes and awareness campaigns of over a generation ago. The new attentiveness to climate has allowed the environmental community to partner with government, labor, multinational corporations, and religious and community groups to launch a powerful arsenal of multi-disciplinary arguments that environmentalists have been formulating for decades about why and how to stop climate change. These arguments go far beyond what many, until recently, saw as the traditional purview of environmentalism.

This new, broadened approach to environment is working in the fight to advance a solution to climate change – in part because the challenge is so large that it will have far reaching affects on everything from the economy to national security, and in part because the environmental movement now has the ability to make arguments that reach into the polling places of Pennsylvania. This Earth Day, it seems that the climate debate, which has been called “Environment 2.0,” goes hand in hand with environmentalism 2.0, a movement so powerful it can produce a blockbuster documentary, win a Nobel Peace Prize, and – hopefully – create a broad political consensus to save the planet while creating good, new jobs.


Earth Day and the Crisis of Markets

Since its founding 39 years ago by John McConnell, the plastics pioneer and peace activist who first proposed a holiday to honor the Earth at a UNESCO conference in San Francisco, Earth Day has grown in into a global holiday observed by billions. But the idea espoused by McConnell of stewardship of our beloved planet has taken on a new urgency, with the outbreak of multiple crises, the ongoing threat of global warming, sky high oil prices and now soaring food prices and shortages. Indeed the crises are so many and so great that some are proclaiming a neo-Malthusian crisis in a world that has outstretched its resources. Whether one believes as Paul Krugman wrote yesterday—that lack of inventories suggest the world is truly in the grip of a crisis of supply--or like George Soros and many traders that we in the midst of the mother of all commodity price bubbles—it is clear that we are in a crisis.

My view is that human ingenuity is more than equal to the task of sustaining society but that something has gone awry. And what has gone awry is the functioning of markets. Whether one looks at turmoil in the credit markets, volatility in the currency markets where the dollar has undergone a freefall, the seizure of food markets that is exacerbating the food crisis or the hard-to-explain global surge in commodity markets across the board, it is clear that the market system undergirding the global economy is under stress.

In part, the problem is that as markets have grown rapidly in the last fifteen years due to globalization, they have outgrown market structures. Certainly in the area of management of derivatives and bank supervision, market governance has failed to keep up with technology. However, it also appears that markets are failing in agriculture and oil. And more broadly, the global trading system itself is experiencing a seizure as the impulse for free trade that has powered the last 60 years of global growth has stalled—in Doha and recently, in the case of a Colombian agreement, in the US Congress.

When markets seize up—as they do from time to time and did disastrously in the 1930s—the result is a regression to earlier forms of allocation of goods. Anthropologists have shown that markets are a relatively late development in the million year history of human. Allocation based on command and control, is far more basic and when markets seize up, this is what happens. We are seeing this currently in food markets as countries ban exports and hoard grains in the anticipation of riots and political unrest.

Markets are a far better way to allocate goods and essential to today's wealthy societies but they depend critically on confidence. Confidence, in turn, depends largely on transparency and comprehensibility. When economic historians assign a cause to the current recession in the United States, they may place the blame on a technology shock in the financial markets that has created securities that no one can possibly reliably value.

It is no good to repeat the nostrum that we need to let markets resolve the crisis when the crisis is in the markets themselves. Nor are the one-off activities of the Federal Reserve sufficient in the long term. While the Fed seems to have been successful in injecting liquidity into the system, its unprecedented actions are at best an emergency response and do not provide the predictability and stability needed to promote long term growth. Instead, we now have to undertake the painful process of reforming financial, agricultural and energy markets. However, this won’t be easy.

One critical element of the spirit of Earth Day is that people need to work together. When one country goes it alone, the result is mistrust, a decline in confidence and ultimately a downward economic spiral. This was the easily foreseen--but recklessly ignored--consequence of the unilateralist policies pursued by the Bush Administration in rejecting Kyoto, a variety of multilateral initiatives inherited from the Clinton years, and of course in Iraq and foreign policy in general.

The way out of the current crisis is to resume multilateral approaches to creating functioning markets that will replace fear and mistrust with cooperation and confidence. But for that we may have to wait at least until the next Earth Day, after the next Presidential Election.

Understanding the CleanTech Investment Opportunity

NDN's Green Project was in New York on Wednesday, with a very successful panel on investing in clean technology. Green Project Director Michael Moynihan told listeners that, "With oil at $115 a barrel and climate change unsolved, clean technology may be most important components of the 21st Century economy." Peter C. Fusaro, Chairman and Founder of Global Change Associates, best selling author of What Went Wrong at Enron, and perhaps the world’s leading expert on clean technology funds, offered that "the government has to create a stable policy environment for industry." Finally, well known analyst, David Kurzman, Senior Vice President of the Clean Technology Research Group at Panel Intelligence, LLC, said that the key to successfully investing in clean technology is to "follow the smart money."

Take a look at the excellent and informative video (complete with PowerPoints) from the event:

For more information on the Green Project, check out Michael's blogging on these important issues.

A Little, Late

Why didn’t President Bush wait until next Tuesday, Earth Day to give yesterday’s speech on global warming? The stated reason is that the speech was timed to precede the Major Economies Meeting that begins in Paris today in preparation for the upcoming G-8 meeting in July. The real reason, however, may be that the President’s advisers did not want to get a huge round of negative publicity on Earth Day itself. For that is precisely the reaction the speech received. Typical are the comments in Paris of South Africa’s environmental minister, Marthinus van Schalkwyk who described the speech as a step backward, not forward, from the US position at Bali. While the President—under pressure from large US companies as well as the other G-8 leaders—deserves credit for addressing the issue, his proposals fall far short of those of Senators McCain, Obama and Clinton, many states, cities and universities and much of the business community itself.

Instead of calling for large reductions in emissions by 2020—what all three Presidential Candidates have embraced and many cities and organizations are doing--he called for an end to increases by 2025. And instead of proclaiming the need for America to lead on the issue, he once more retreated behind the fig leaf that America cannot take action unless China and India accept caps as well.

His speech coincides with new research from a University of California team that China has recently surpassed the United States in emissions as its economy continues its torrid pace of double digit growth China’s rising level of emissions underscores the need for US leadership to bring China and India into a post-Kyoto system. However, the refusal of the US to accept any discipline itself, in effect, gives China and India--whose per capita emissions are only a fraction of those in the US--a free ride.

Indeed, in line with its embrace of all things technological, China is blitzing ahead with the deployment of clean technologies across its economy. China has already invested $1 billion in wind turbines and expects to multiply its wind power ten fold by 2020. It is deploying end of pipe technologies to combat its famous pollution. And, embarrassingly, China’s cars already enjoy higher gas mileage, at 37 miles per gallon on average, than America’s fleet.

There is still a chance for the President to show leadership at the upcoming G-8 meeting in Japan in July where leaders from 16 countries including the G8, China, India and Brazil, have pledged to make climate change a priority in a special session at the sidelines. If yesterday was any indication, however, President Bush will not be the one leading the discussion.

NYT: Fuel Choices, Food Crises and Finger-Pointing

An article from today's New York Times by Andrew Martin discusses the impact of ethanol and other biofuels on drastically rising food prices:

The idea of turning farms into fuel plants seemed, for a time, like one of the answers to high global oil prices and supply worries. That strategy seemed to reach a high point last year when Congress mandated a fivefold increase in the use of biofuels.

But now a reaction is building against policies in the United States and Europe to promote ethanol and similar fuels, with political leaders from poor countries contending that these fuels are driving up food prices and starving poor people. Biofuels are fast becoming a new flash point in global diplomacy, putting pressure on Western politicians to reconsider their policies, even as they argue that biofuels are only one factor in the seemingly inexorable rise in food prices.

In some countries, the higher prices are leading to riots, political instability and growing worries about feeding the poorest people. Food riots contributed to the dismissal of Haiti's prime minister last week, and leaders in some other countries are nervously trying to calm anxious consumers.

At a weekend conference in Washington, finance ministers and central bankers of seven leading industrial nations called for urgent action to deal with the price spikes, and several of them demanded a reconsideration of biofuel policies adopted recently in the West.

Many specialists in food policy consider government mandates for biofuels to be ill advised, agreeing that the diversion of crops like corn into fuel production has contributed to the higher prices. But other factors have played big roles, including droughts that have limited output and rapid global economic growth that has created higher demand for food.

That growth, much faster over the last four years than the historical norm, is lifting millions of people out of destitution and giving them access to better diets. But farmers are having trouble keeping up with the surge in demand.

C. Ford Runge, an economist at the University of Minnesota, said it is “extremely difficult to disentangle” the effect of biofuels on food costs. Nevertheless, he said there was little that could be done to mitigate the effect of droughts and the growing appetite for protein in developing countries.

“Ethanol is the one thing we can do something about,” he said. “It’s about the only lever we have to pull, but none of the politicians have the courage to pull the lever.”

But August Schumacher, a former under secretary of agriculture who is a consultant for the Kellogg Foundation, said the criticism of biofuels might be misdirected. Development agencies like the World Bank and many governments did little to support agricultural development in the last two decades, he said.

He noted that many of the upheavals over food prices abroad have concerned rice and wheat, neither of which is used as a biofuel. For both those crops, global demand has soared at the same time that droughts suppressed the output from farms.

The full article is worth reading, as it also covers the domestic American politics and the tough choices that policy makers will have to make on this issue. Green Project Director Michael Moynihan recently blogged on some technologies that have the potential to be game changers and touched on biofuels, writing:

In the area of portable fuels, biofuels made from switchgrass and other inedible plants grown on scrubland, holds promise. At a time when food prices are soaring and many countries are hoarding rice, wheat and corn, it makes no sense to devote America's heartland loam-some of the richest land in the world-to the production of corn-based ethanol. However, technologies to convert hard-to-break-down grasses grown on scrubland to fuel do make sense.

This is an issue that NDN's Globalization Initiative and Green Project have been watching and will continue to follow closely as the debate over American energy and climate policies unfolds in the coming months.

REMINDER: NDN's Green Project in NYC tomorrow - 12 p.m.

NDN has been talking about the great transformation underway in the United States and across the globe. One new challenge that poses great risks but also great opportunity is climate change. How the United States and the world adapt to this challenge may well define the Century. Indeed, with oil trading at over $110 per barrel, the clean technologies and policies implemented to create the post carbon economy may well represent the greatest business opportunity of the coming Century.

In Europe, a cap and trade system for carbon emissions has already created a multi billion dollar market in carbon credits. That market may soon expand to include the United States. On the technology front, the next generation of electric cars and other technologies such as carbon capture, solar power, wind power and bio fuels may prove transformative. Venture Capitalist John Doerr has called green technology the biggest investment opportunity of his lifetime, bigger even than the Internet. Al Gore says it’s vital to saving the planet. But is all the hype justified? Or is clean technology potentially another bubble?

Learn the answer to these important questions on Wednesday, April 16 in New York City, when NDN Green Project Director Michael Moynihan, hosts a panel with leading clean technology experts entitled “Understanding the Cleantech Investment Opportunity.” It will feature Peter C. Fusaro, Chairman and Founder of Global Change Associates, best selling author of What Went Wrong at Enron and perhaps the world’s leading expert on clean technology funds and well known analyst, David Kurzman, Senior Vice President of the Clean Technology Research Group at Panel Intelligence, LLC. The panel will get to the heart of the green technology issue from an investment perspective and discuss what policy approaches to climate change including cap and trade, a carbon tax, the solar tax credit, and other investment incentives.

NDN’s Green Project is working to answer these and other questions and develop a legislative, regulatory and advocacy framework to address climate change, move toward energy independence, and accelerate the development of new technologies to promote economic growth.

For background reading, check out Michael's original NDN paper on public investment in infrastructure and his recent blogging on green issues.

Event Details:
Wednesday, April 16th
Regency Hotel, Regency Room
540 Park Avenue
New York, NY
Click here to RSVP

The Wild West of Climate Change

Are the Wild West days over? That is the subject of a front page article in today’s Wall Street Journal describing the UN crackdown on carbon credits created through the clean development mechanism or CDM. In the last four years, the market in these credits has gone from zero to many billions, creating multi millionaires such as Marc Stuart, the LSE-educated founder of Eco Securities, one of the subjects of the article.

The CDM is an outgrowth of the Kyoto protocol and was the brainchild of another former policy wonk investor, James Cameron, founder of Climate Change Capital. One of the key compromises of the Kyoto cap and trade system is that participants must limit their emissions to a percentage of their 1990 emissions. The choice of a year as a baseline for every country was designed, in part, to avoid difficult discussions about differences in emissions by country. If each country is compared only to its own baseline, then every country only needs to compete against itself.

This formula proved workable for most developed countries. But for developing countries such as India and China, it did not. The developing countries argued, first, that despite all the pollution evident in their skies, they still create only a fraction of the emissions of developed countries per capita. Second, in order to raise their standards of living to those of the developed world, they argued they are certain to increase emissions so much as to make their 1990 levels irrelevant. Finally, they argued they lacked the technology and capital to reduce emissions.. Thus was born the idea of the clean development mechanism. 

Under the CDM, if anyone—for example a western company—undertakes a project to reduce emissions in a developing country below what they would otherwise be—that company can create credits that can be sold to participants on the Kyoto protocol in the developed world to offset their emissions. The idea is that just as it is cheaper to make sneakers in Shanghai than London, it should be cheaper to reduce emissions there. Moreover, conditions are so bad in many developing countries, that cleaning up factories, in theory, should be low hanging fruit. The problem lies in distinguishing valid projects from invalid ones. And the UN, as the Journal article, observes has been ratcheting up the standards so that they are today approving far few projects than before. The result has been volatility in the price of credits and in the financial fortunes of firms such as Eco Securities.

In the long run, the developing countries must be brought into an internationally complete system of constraining emissions through caps or a carbon tax. In the short term, however, the CDM is the only game in town. While some projects are as simple as reforestation, others expand the market for new technologies such as carbon capture and sequestration, wind power, solar power and cellulosic biofuels. 

To learn more about carbon credits which all three remaining presidential candidates support for the United States—as well as the impact on the economy of exciting new clean technologies--come join me at NDN’s New York event this coming Wednesday “Understanding the Clean Technology Opportunity” where I will dicuss these issues with leading experts, Peter Fusaro, founder of Global Change Associates and David Kurzman, Senior Vice President of the Clean Technology Research Group at Panel Intelligence, LLC.. It's still the Wild West, to a degree, in the world of carbon credits and clean technology. But they are rapidly becoming big businesses.

Event Details:
Wednesday, April 16th
Regency Hotel, Regency Room
540 Park Avenue
New York, NY
Click here to RSVP

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