Green Project

The Real Strength and Weakness of the American Economy

Note: In this piece, I take a break from my usual topic of the green economy to discuss the current financial crisis. I'll be back with commentary on green issues soon.--MM

How bad is the economy? According to some well respected financiers, it is in its worst shape since the Great Depression. That was the judgment of George Soros in a recent article. And at Goldman Sachs' annual meeting yesterday, CEO Lloyd Blankfein echoed other Wall Street leaders in calling it the worst economy in 55 years. The consensus on Wall Street is that the travails of the financial markets denote a weak-even cataclysmic economy.

But at yesterday's Goldman meeting, Blankfein also successfully defended his $68.5 million compensation in 2007 to shareholders. And, asked his opinion of the future, he hazarded that the financial turmoil may be almost over and that the economy should resume expanding in the fourth quarter. Another Great Depresssion? Thankfully, no. What we have seen is the collapse of an asset bubble that enriched a limited swath of the population over the last eight years. Those able to benefit from global liquidity made fortunes and some have had to give them back. But current financial market turmoil is not synonymous with the real strength and weakness of the US economy. The strength is that of the American people and the weakness is the stressed state of the middle class.

The source of the recent financial crisis--the inability of sub-prime borrowers to make monthly payments- has its roots in middle class stress. The sub-prime lending boom helped push home ownership from about 65% of American households to about 70%. This last 5%, what might be termed, if flipped around, the 30 to 35% percentile of American households, proved unable to make monthly payments. The conventional wisdom is that they deserve their fate-for taking out no doc loans or choosing to walk away from houses once their equity disappeared. The fact that incomes for the lower four quintiles of Americans have been flat or declining in real terms for years, that sub-prime borrowers typically must pay double digit interest rates in contrast to their well heeled counterparts and that budgets are being devoured by rising health care and gas costs has gone ignored.

Indeed, when one looks at proposed solutions to the housing crisis, conspicuously absent are provisions to strengthen the middle class. The housing bill passed by the Senate yesterday contains billions in funds for home builders and money to demolish housing to reflate prices, but not one provision to raise the after tax incomes of American families..

NDN has highlighted a series of specific ways to rebuild the American middle class from putting a laptop in every backback to strengthening our ideas based economy to reforming health care. Investment in new clean technologies promises to restore American technology leadership while updating environmental standards has the potential to create millions of new green collar jobs. It can be done! During the 1990s, income inequality began to decline thanks to the positive influence of Clinton era policies only to expand as a result of the Bush tax cuts and related measures.

The recent unprecedented activities of the Fed-designed to stem the financial crisis-may indeed be ushering in a new era of Fed activism. While they have an emergency quality, reform of our financial architecture is needed to keep pace with changes in financial markets. However, the Fed's actions and reform at the Fed will not address the problem at the root of the recent crisis-the growing financial stress experienced by America's working families. As Paul Krugman has tirelessly observed but as others have refused to acknowledge, the Gini index of inequality and numerous academic studies unequivocally show the gulf between the wealthiest Americans and every one else increasing at an alarming rate. The next president and Congress must deal with this issue.

At the end of the day, even a stratum as light as that of hedge fund managers and private equity managers cannot comfortably exist astride a financially stressed nation. America must reacquaint itself with the real source of strength in our economy, not the financial markets per se but the economic health of the working families who undergird it.

NDN's Green Project in NYC - April 16; 12:00pm

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, 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

Senate to Vote on Extending Production Tax Credit for Renewables

UPDATE: The Production Tax Credit was successfully attached to the Senate Housing Bill that passed today. The action now shifts to the House which must pass its version to send the measure to conference. We will keep you posted.

The Senate is scheduled to vote soon on rewewing the Production Credit (PTC) and your action is needed. But first, what is PTC and why is it needed?

While the price of renewable energy such as wind and solar power is steadily dropping and that of carbon-based fuels steadily rising, renewable power still requires subsidies to compete with carbon-based power. Why? In part, the technology is still developing. However, the comparatively high cost of renewables also includes the price of building new facilities-in contrast to carbon sources where facilities already exist-and carbon-based power such as oil and coal also receive immense subsidies in the form of incentives for exploration, government support of road infrastructure and other programs.

Moreover, while renewables will eventually become cheaper than carbon sources, it would be a mistake to wait until they are already cheaper to begin investing in these technologies as driving the price down requires scale. Every new technology requires a development period when it is more expensive than its predecessor. Blu ray dvd players, for example are far more expensive than the older kind today, but as volume scales, they are likely to drop in price.

In the case of renewable energy, due to the limited number of customers, there currently is no way to drive down pricing by selling to consumers . The answer to this quandary is the production tax credit (PTC), a 2.0 cent-per-kilowatt-hour tax credit for electricity generated from wind turbines and other renewable energy sources. Unfortunately, the US Congress-unlike legislatures in other countries that now lead the US in wind and solar production-has renewed the PTC on an ad hoc basis. A graph of wind power in the US shows it moving in fits and starts, rising when the credit is in place and falling off when it has not been extended in a timely manner as happened, for example, in 2000 and 2004.

Once again, Congress has put off extending the credit but the Senate is now scheduled to vote-perhaps as early as today or tomorrow on legislation proposed by Senators Cantwell and Ensign to re-extend the credit (the Clean Energy Tax Stimulus Act of 2008). If you would like to express your support for the bill, the American Wind Energy Association has a web page that allows you to contact your Senator easily and urge him or her to extend the Production Tax Credit.

Climate Change 2.0

The climate change debate has changed. As a recent New York Times piece by Andrew Revkin makes clear, it is dawning on many observers that mechanisms to slow emissions using cap and trade or other conservation mechanisms won't be enough. Nor are conventional biofuels such as corn based ethanol the answer. What is needed are true technology breakthroughs that dramatically reduce the carbon per unit of energy ratio. The emerging question is how to drive this innovation and deploy it across the economy.

Despite all the attention the climate change issue has garnered since the release of An Inconvenient Truth, real reductions in emissions have been elusive. While it would be a mistake to fault the European cap and trade system for failing to reduce emissions in Europe-the system was in a training phase until a few months ago and some sectors such as aviation will not be included for another two years--it has showcased the difficulty leaders face in setting low emissions targets. More troubling, however, may be the fact that few technologies have arisen so far with the ability to replace carbon-based fuels. Absent such technologies, strong caps would be likely to drive up the cost of numerous goods and services, effectively creating inflation. Conventional biofuels such as corn ethanol consume more energy than they produce according to several studies. Not until real game changing technologies provide alternatives to carbon-based energy will real progress happen.

What can change the game?

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.

In the area of power, renewable sources such as wind and sun might change the game. Here the problem is barriers to scaling production. Solar, for example, is currently stuck in a catch 22 where limited production is keeping costs high, slowing deployment. At a minimum the Solar Tax Credit must be made permanent. But more broadly, utilities must be prompted to purchase a larger share of power from renewable sources through renewable portfolio standards.

Finally, as more and more cars hit the road in China and India, electric cars must be part of the solution. We have written about game changing companies such as Project Better Place on this blog. Even the mass adoption of traditional hybrids technology such as that used in the Prius would make at best a dent in C02 emissions. A pure electric vehicle running on clean electric power, however, could change the game.

Both Democratic presidential candidates, Barack Obama and Hillary Clinton have proposed spending up to $150 billion on energy research and development. The key will be putting whatever money is ultimately allocated to good use to drive the development of new technologies.

Getting Climate Change right: Elaine Kamarck

Speaking of Climate Change initiatives, be sure to check out the video below of Dr. Elaine Kamarck, a former Senior Policy Advisor to Al Gore. In it, Dr. Kamarck, soon to be co-chair of the Climate Task Force, discusses the viability of Climate Change. As the creator and manager of the Clinton Administration's National Performance Review (aka, reinventing government), she definitely speaks with authority on what it would take to institute real Climate Change policies:

Gore Looks to New Tools to Solve Climate Crisis

By now, Al Gore's work on Climate Change is well known. He has won an Oscar and the Nobel Peace Prize. But Gore isn't satisfied. He has launched a $300 million campaign with the aim of influencing both policy makers and ordinary Americans to solve this problem.

From today's Washington Post:

The Alliance for Climate Protection's "we" campaign will employ online organizing and television advertisements on shows ranging from "American Idol" to "The Daily Show with Jon Stewart." It highlights the extent to which Americans' growing awareness of global warming has yet to translate into national policy changes, Gore said in an hour-long phone interview last week. He said the campaign, which Gore is helping to fund, was undertaken in large part because of his fear that U.S. lawmakers are unwilling to curb the human-generated emissions linked to climate change.

"This climate crisis is so interwoven with habits and patterns that are so entrenched, the elected officials in both parties are going to be timid about enacting the bold changes that are needed until there is a change in the public's sense of urgency in addressing this crisis," Gore said. "I've tried everything else I know to try. The way to solve this crisis is to change the way the public thinks about it."

While "An Inconvenient Truth" urged viewers to fully inflate their car tires and to install compact fluorescent light bulbs to combat global warming, Gore said he is now focused on ensuring that the United States enacts a national carbon emission cap and ratifies a new global pact on climate change in the next three years.

"The simple algorithm is this: It's important to change the light bulbs, but it's much more important to change the laws," he said. "The options available to civilization worldwide to avert this terribly destructive pattern are beginning to slip away from us. The path for recovery runs right through Washington, D.C."

Gore also appeared on 60 Minutes last night to discuss his campaign.

NDN’s Green Project is working on this very issue, and we are excited about the ongoing work by Al Gore and the Alliance for Climate Protection. NDN's Green Project will serve as a bridge between key stakeholders such as the new clean technology community and public leaders as we build a post-carbon economy.

Gore’s campaign, which aims to enlist 10 million Americans to solve this problem, will be using a set of New Tools that NDN has been advocating.

In an effort to penetrate Americans' consciousness and change lawmakers' political calculus, the group aims to enlist 10 million volunteers through a combination of network and cable commercials, display ads in magazines ranging from People to Real Simple, and online social networks. By contrast, the civil rights and antiwar movements in the 1960s each boasted about 5 million activists.

Cathy Zoi, the Alliance for Climate Protection's chief executive, said the group will focus on individuals known in the advertising world as "influencers" who talk to a disproportionate number of people in their communities. While some ads will target inside-the-Beltway policymakers, the bulk of their efforts will focus on the general public.

"This is modern organizing," Zoi said, adding that the campaign aims to convince voters that "this is a solvable problem."


Check out the first ad from Gore’s We Campaign.

Lights Out

Yesterday, in the annual Australian-born event gone global called Earth Hour, millions of people around the world turned off their lights for one hour to save electricity and demonstrate their commitment to fighting climate change. If you pointed your browser to Google, you may seen a black background that the accompanying link explained did not use less energy but was designed to raise awareness of Earth Hour and the climate change issue.

Google has been at the forefront of efforts to fight climate change and last week, I had a chance to learn more in a visit with leaders of the climate change team. The company and its founders became interested in clean energy a few years ago when, in search of renewable power for data centers, they discovered how difficult clean energy can be to find. Since then, the company has launched a series of initiatives such as its program, RE<C.

Last year, Google turned on the world's largest largest corporate solar PV array, capable of generating 1.6 megawatts of power or about one third of Google's needs. You can monitor the power production at the website:

At its server farms and in the workplace, Google has also set goals of reducing wasted energy from about 50% for desktops and 33% for servers to under 10%. And Google's fabled employee generosity includes green components. For example, Google will pay $5,000 toward the purchase of a hybrid which approximates the up front differential in cost between many hybrids and their conventional equivalents.

Google is not alone among Silicon Valley companies in pursuing clean technology. At a Bay Area listening session for the Green Project last week hosted by NPI's Pete Leyden, entrepreneurs and VCs told us about transformative potential solutions to climate change. They stressed, however, the need for stable policy to reinforce investment.

At a listening session for the Green Project in Washington, NDN members from large and small companies agreed that the issue has reached the forefront of the national agenda. Many companies see good business in energy efficiency. Dell, for example, is developing virtual servers that use less energy, Proctor and Gamble is marketing more concentrated detergent to reduce shipping costs and emissions and UPS has begun introducing hybrid trucks. But they also stressed to me the importance of thoughtful, stable policy to drive the process.

Despite enthusiasm for supportive policy, the clean tech movement has suffered recent setbacks. Californians defeated Proposition 87 which would have shifted incentives from oil production to clean technology and Congress has, amazingly, not renewed the solar tax credit due to expire this year. Due to long lead times for installations, many companies have had to kill or place on hold enterprise-sized solar power projects.

As if to highlight the need for action, last week an ice chunk the size of Connecticut broke off from the ice shelf in Antartica. While this massive piece of ice is expected to refreeze-rather than float off into the ocean as an iceberg-it shows how pressing the case for action has become and how policy must move faster if we are to meet the climate change challenge.

Denmark teams up with Project Better Place

In case you missed it, from The Register:

Denmark has become the second country to sign up to Shai Agassi's ambitious plan to wean the world off petrol-driven transportation, with the announcement of a deal between Agassi's Project Better Place and Danish utility Dong Energy. As with the Israeli deal announced in January, the latest venture will involve mass production of electric vehicles and the rollout of an extensive recharging and battery swap infrastructure.

Speaking to The Register this afternoon, Agassi said that the Israeli and Danish projects were broadly similar in size and timescale. Both will see the first vehicles on the road next year, with production ramping up into thousands in 2010, by which time the fueling infrastructure will be starting to emerge.

Also like Israel, the Danish government will be offering tax breaks on the vehicles. According to Agassi, the average price of a car in Denmark is $60,000 (about €38,000), while the tax break could price an electric car as low as $20,000 there. So the Project Better Place formula for success so far seems to be to get the attention of a power company to provide the network, and secure the tax breaks that will make electric vehicles a compelling proposition compared to petrol. This may not play so well in countries that don't already tax motor vehicles heavily, and/or that have a substantial auto manufacturing industry.

For more on Shai Agassi and Project Better Place, check out the video below of him speaking to NDN on March 12th in DC:


The Electric Car Reborn

At Wednesday's NDN conference, Project Better Place, CEO, Shai Agassi gave an inspiring talk about what promises to be the next chapter in the history of the electric car. Shai is an amazing speaker (see video) whose story is just as amazing. The second in command at SAP where he was widely viewed as the next CEO, he left to found a startup dedicated to the simple notion of ending the era of the gasoline car. His key insight that electrical infrastructure-not the car-is the key to bringing the electric car to market was conceived at Davos when he was asked for ideas on how to make the world a better place. Initially he went to Shimon Peres to discuss introducing a car in Israel whose short distances, high gas costs and interest in reducing dependence on oil make it a logical place to start. Peres challenged him to find an auto company to build the car and financing for his idea. When he secured Renault/Nissan to build the car, and $200 million in startup capital, the Israeli government responded with innovative legislation that is being downloaded by other legislatures for study faster than any bill in history. The legislation creates a sizeable differential in the tax on gas and non-gas cars for ten years. As usage shifts to electricity from gas, the tax on both will rise to preserve revenues but the differential will persist until, the Israeli government anticipates, gasoline cars disappear for good.

Part of what is so inspiring about Shai's idea is its social approach. Rather than view the car as a technical object, he looks at it as a driving contract. We expect a car to be ours, to have 5 seats (though we drive alone, we want to be prepared for a roadtrip with friends), to be fast and to be affordable. All these, the electric car can easily fulfill. But one last element has been the holdup. We also expect to fill our car up no more than about 50 times a year and for the fill up to take under five minutes. Recharging an empty battery takes longer. By focusing on the energy infrastructure rather than the car, Shai's inspiration is to use a plug-in architecture for daily charges making fillups easier as well as cheaper and a battery swapping technology to deal with those rare instances when someone needs to travel more than 130 miles.

The idea has been generating such buzz that already other car companies are looking to join up. This is what they call game changing.

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