Energy Independence

With rapidly rising energy costs changing the way Americans live and work and global warming threatening even greater harm to our future prosperity and well-being, it is clear that a fundamental change in America’s energy policy is needed. Bold new policies and leadership can turn these twin crises into historic opportunities.

In that spirit, NDN is pleased to announce that on Friday, August 1, Assistant U.S. Senate Majority Leader Dick Durbin will deliver an address on the economic benefits for America in moving from carbon-based fuels to renewable energy sources. Senator Durbin’s remarks will be followed by a panel discussion on "Energy and the American Way of Life." Both events are hosted by the NDN Green Project.

During the panel discussion, energy leaders and experts will discuss how this transition can take place. NDN Green Project Director Michael Moynihan will also be discussing his new paper entitled, Solar Energy: The Case for Action.

Assistant Majority Leader Durbin will speak at 11:15 a.m. on Friday, August 1, in the Ballroom of the Phoenix Park Hotel, 520 N. Capitol St., NW, in Washington, DC. The panel will follow the senator’s remarks. Lunch will be served. Please click here to RSVP.

NDN’s Green Project is a program of the Globalization Initiative that seeks to develop a legislative, regulatory and advocacy framework to address climate change, enhance energy security, and accelerate the development of green technologies to promote economic growth. Through this initiative, NDN serves as a bridge between key stakeholders such as the new clean technology community and public leaders as we build a post-carbon economy.

For more information on this event, please contact Courtney Markey at cmarkey@ndn.org or 202-384-1214.  We look forward to seeing you Friday, August 1, at 11:15 a.m.

A new ad out today from the McCain campaign seeks to blame Barack Obama for rising gas prices. Take a look at "Pump," and the interesting imagery:

The overall narrative that the McCain camp is trying to pin on Obama through the first half of this ad and its dark imagery is evident: a figure we don’t know much about who is a pop sensation built only on false hopes and making our lives worse. The image of Obama floating in front of spinning gas prices while crowds chant his name is especially pointed.

The ad continues to be over the top by being almost entirely intellectually dishonest. Note the wording of the blame that McCain puts on Obama: "Some in Washington are still saying no to drilling in America." The ad uses the word "still" because McCain changed his view on drilling about a month ago, and, even if he had his policy, gas prices would not be any lower.

McCain also tries to have it both ways, as his campaign generally tries to point out Obama’s inexperience, but then goes back and holds Obama responsible for three decades of American energy policy, while giving himself a free pass. In fact, courtesy of Politico's Ben Smith, a recent quote from a McCain speech, that works more as a self-indictment than anything else:

"Let me give you a little bit of straight talk on energy. Our dangerous dependence on foreign oil has been thirty years in the making, and was caused by the failure of politicians in Washington to think long term about the future of the country."

McCain looked to be gaining momentum on energy security and offshore drilling, at least as being able to point to a specific plan on energy prices (even an ineffective one). This ad has a desperate feel, and is so easily debunked and ironic, that it seems like McCain has decided to just run against Hope.

Austin, TX - The Administration agrees to a "time horizon" for removing our troops from Iraq. A senior diplomat is sitting down with an Iran nuclear negotiator. Secretary Gates publically calls for troops to be moved from Iraq to Afghanistan. The EPA releases a report confirming the very real and imminent threat of climate change. Bush agrees to cut greenhouse emissions at the G8. Taken together, this seems like an across-the-board repudiation of many fiercely held Bush Administation positions, all closely associated with the Vice President.

Where's Dick and his team of neocons in all this? There are of course many areas where the Administration seems deeply dug in, but change has come to the White House. Why, for what reasons, this is all happening now, it is too soon to tell. But change nevertheless has come to the White House in the final months of the Bush Administration.

1030am - Lots of talk here about Maliki's endorsement of Obama's timetable for withdrawal. What an extraordinary moment in what has been a remarkable political year, and what will no doubt be an important, even historic, trip abroad by U.S. Sen. Barack Obama. Even Maliki has joined the neocon repudiation chorus.

1035am - Speaker Pelosi is doing a remarkable job here at Netroots Nation. I am very proud of her for recognizing the importance of this gathering, and her thoughtful and powerful presence here this morning.

1050am - Asked about her agenda, the Speaker said health care, her innovation agenda, infrastructure and green energy. And throughout her 10-ten talk, her language was modern, her understanding of the issues detailed, her ability to weave a narrative compelling. I'm not sure too many politicians of either Party could have done as good as a job as she is doing this morning.

1120am - Gore has arrived, and is just knocking the ball out of the park.  He is as good as I've ever seen him.  He has captured the room, and I have to believe has now officially engaged/involved the netroots in his crusade.  This is an important day in the development of a national movement to solve the climate crisis. 

Amazingly, Gore and Pelosi are now just sitting and taking questions. This has been a great morning.  Kudos to Gina for her stage management of this powerful session. 

An article in today's Washington Post is enough to make even the most experienced Washington hands sweat. A new EPA report has concluded that climate change does, in fact, pose grave pubic health risks including, but not limited to, death, destruction, and making summers in Washington D.C. even less bearable. Of course, as Melissa Merz noted last week, the White House has also decided that the EPA will not regulate the very emissions that cause these grave public health risks. Go figure.

From the article by David A. Fahrenthold and Juliet Eilperin:

Climate change will pose "substantial" threats to human health in the coming decades, the Environmental Protection Agency said yesterday -- issuing its warnings about heat waves, hurricanes and pathogens just days after the agency declined to regulate the pollutants blamed for warming.

In a new report, the EPA said "it is very likely" that more people will die during extremely hot periods in future years -- and that the elderly, the poor and those in inner cities will be most at risk.

Other possible dangers include more powerful hurricanes, shrinking supplies of fresh water in the West, and the increased spread of diseases contracted through food and water, the agency said.

The strong warnings highlighted the contorted position that the EPA has staked out on climate change. Last week, the agency decided not to regulate greenhouse gas emissions, at least not until after President Bush's term ends.

A former EPA official told a House panel this week that senior administration officials and several Cabinet members supported regulating the emissions before the White House changed course and barred the EPA from concluding that they endanger public welfare.

The most surprising part of this report is that the White House actually let it get released – unlike other climate reports earlier in the administration. So, just as the government informs itself (and, surprisingly, the public) that it should be doing something about this tremendous risk to the future of humanity, we learn that President Bush will not, so as to maintain his legacy.

[Former EPA deputy associate administrator Jason K. Burnett] also told the panel that senior EPA officials met with representatives from Exxon Mobil, the American Petroleum Institute, and the National Petrochemicals and Refiners Association, who argued that Bush should not undermine his legacy by regulating greenhouse gases.

This is quite the legacy that President Bush is preserving while the climate changes, ignoring reports of the EPA and a Supreme Court ruling (not to mention common sense and broad scientific consensus). Last time I checked, the vast majority of Americans were not huge fans of the President’s legacy. Perhaps he should use the last few months of his failed presidency to try something (anything) new.

I remember someone who won a lot of votes 8 years ago as having some decent ideas.

New York City -- Yesterday's inspiring speech by Vice President Gore, once more, reminded us of how different the world would have been under a Gore Presidency compared with the last eight years.  Gore challenged the United States in 10 years--recalling President Kenenedy's call to send a man to the moon in a single decade--to convert itself entirely to renewable fuels (with nuclear plants permitted to continue to operate). 

How realistic is that goal?  In fact it is far more realistic than his critics allow.  Unlike the moonshot, however, the barriers are not technological but largely political.

Wind energy is already competitive in many part of the country with natural gas-based power--the fastest growing current source.  For this reason, Texan T. Boone Pickens has been investing in wind.  And there is every reason to expect, as wind power scales, that it will approach parity with coal over the next decade.  Coal is the cheapest source of power, but the dirtiest and coal's price has doubled this year alone.  In contrast, wind's cost profile is declining.  The main barriers to wind currently are issues of grid hookup related to its variability and surprisingly, public resistance to windmills in people's backyard.  In Germany thanks, in part to liberal incentives, but also to public acceptance of seeing windmills, wind currently accounts for 20% of power generation.  It can easily surpass that figure in the United States.  A carbon regime in the form of a cap and trade system or tax would accelerate cost convergence with coal.

Solar energy, the other major renewable, is currently far more expensive than ordinary grid power, but its price is declining rapidly--by 20-30% per year.  At that rate, it will achieve grid parity in about 8 years if fossil fuel prices stay constant.  But since fossil prices are increasing, solar may achieve grid parity far earlier. 

Moreover, solar is strongest during hours of peak demand when utlities must pay high rates to bring on extra increments of power.  Thus, solar has already achieved parity with peak retail prices--say at 2 p.m. on an August day in the midst of a heat wave--in some parts of the country.  Since utilities, like the bus system, must be built for rush hour, if solar can meet beat peak prices, in theory, it could absorb a very high level of all increases in demand.

However, the truth is that cost parity when it arrives--and it will arrive--will not be enough to achieve Gore's vision.  That's because energy incumbents and a host of disincentives for utilities to make the switch to renewables, stand in the way. 

Utilities, under the most common method of regulated pricing, make more money selling power from old, fully depreciated plants they own than from new facilities owned by someone else--like you or me on our rooftops or T. Boone Pickens.  Thus, absent policy changes, they may actually slow or block the adoption of rewables.

What is needed to break down this incumbent resistance?

First, regulators must decouple utility profits from the levels of electricity they sell as California and some states have already done.  Otherwise, the only rational strategy for utilities is to try to monopolize sales themselves--and block the development of renewables.

Second, regulators must encourage net metering--the ability of consumers to sell excess power back to the grid.

Third--and this is crticial--regulators must go beyond net metering and allow what I call net billing to allow consumers to buy power directly from power producers after paying an appropriate transporation and distribution cost. 

Fourth, the grid must be modernized and artifical barriers removed to grid hookup. 

Finally, the existing tax credits for renewable energy, the Investment Tax Credit geared to solar and the Production Tax credit that largely benefits wind must be set for the next eight years--to drive the production scale critical to reducing costs.  These tax credits are, by the way, only a fraction of those afforded to conventional fossil fuels. 

Indeed the incentives granted to fossil fuels were on display yesterday in the House where Republicans blocked a move by Democrats to require oil companies to actually explore the 68 million acres of federal land currently at their disposal or else have to relinquish the lease to someone else.  In addition to making federal lands available to oil and coal companies, the federal government also provides huges tax incentives, support for the construction of infrastructure and other measures that some tally at over $2 trillion per year.

If Congress and regulators can get the policy right to put renewables on an even footing with incumbent energy sources, the equivalent of a moon shot can be achieved.  But it will take real leadership to break through the incumbent's entirely natural resistance. 

Later this month, the NDN Green project will be releasing a paper on solar energy and we also will be holding an event on the impact of high fuel prices on the American economy and the promise of clean technologies to create a new post carbon economy that we hope will encourage more discussion of these issues.

Speculative bubbles have a long history. So do comparisons of the modern economy with earlier ones (tulipmania, the south sea bubble, and the Mississipi bubble, for example, the details of which Charles Mackay covered in his classic book, Extraordinary Popular Delusions and the Madness of Crowds.)

In our own era, however, a new pattern seems to have arisen: instead of occasional bubbles, the steady and predictable appearance of one after the next. In recent years, the American and global economies have lurched between a real estate bubble in the 1980s (that led to the 1991 meltdown), the developing economy bubble that led to the Asian financial crisis in 1998, the Internet bubble from 1998 to 2000 and the now deflating housing bubble of the 2000s. Each time, an asset class becomes extraordinarly attractive, money flows in and then the music stops. And then it starts all over again as it appears to be doing, now, with the latest bubble in commodities.

The news Friday and over the weekend was of the continuing collapse of one bubble, the housing one and the rise of a new bubble in commodities. On Friday, talk swirled of the collapse of IndyMac Bancorp and the potential collapse of Fannie Mae and Freddie Mac. Over the weekend, the Fed and the Treasury came up with a rescue plan for the latter which will be tested today. Meanwhile, commodities prices continued their crazed rise. As always, people continue to debate whether the commodities bubble is based on fundamentals or is speculative. As always, they forget that it can be both for bubbles almost always start out with something real only to balloon and pop.

Two interesting articles today shed light on this not so new chapter of the global economy. One by Edward Hadas in the Journal points out that investment funds dedicatd to commodities have soared from $70 billion to $220 billion in the last three years. This added liquidity has exacerbated the impact on prices from rising demand in India and China. Whereas in oil markets, a plausible case can be made for a long term supply demand imbalance, the doubling of the price of Appalachian coal--consumed largely in the US--this year points to financial causes.

The ballooning in any market comes not from the buyers--who are simply doing what they ought to do--but from the presence of immense liquidity in the financial system, that encourages the buyers to outbid one another for the product. This is what happened in housing--buyers bid up prices on expectations they would continue to increase forever--thanks to the enabling factor of the financial markets. Now it's happening in commodities. It is the liquidity--or easy money--that makes huge bubbles out of real demand.

A second piece by Wolfgang Munchau in today's FT, observes that in the past, the vehicle for reining in excess liquidity was the G-8 whose finance ministers regularly met to try to keep exchange rates and money flows in balance--not always successfully, but at least regularly. The explosion of savings and therefore liquidity in the developing world and oil belt, however, means that the primary source of liquidity today (over 80% of global capital) lies outside the G-8. There is no central mechanism for controlling liquidity which has also soared as billions of Chinese, Indian and others save one third to one half their annual earnings for retirement. It is this money that China, in essence, has lent to Americans to buy its goods at Wal-Mart. The Chinese end up with trillions in US bonds and Americans end up with goods in their garages. However, that's not quite the end because some portion of this liquidity ends up searching for high returns in the next, big thing or bubble.

A saner approach to things would have been for the Chinese currency to appreciate against the dollar, so that we would have bought less Chinese stuff and China would have accumulated less dollars. However, there is currently no good mechanism to rein in the liquidity or keep exchange rates in balance. Absent that, the default mechanism is boom bust, the ballooning of a new bubble every few years and then its bursting.

There is usually a small silver lining to this cloud. With each bubble, large amount of capital get spent on the asset class in question--office buildings in Dallas in the the 1980s, hotels in Bangkok in the 1990s, fiber optics in the US in the 1990s and McMansions across America in the 2000s. However the consequences for ordinary families can be severe when the bust comes. This time around, many Americans will lose their homes.

The current round of high commodity prices will have effects of their own. They are already stimulating increased investment in commodities--private equity funds are buying up and re-opening old mines--and high energy prices may drive investment in new renewable fuel technologies. The latter would have the benefit of freeing us from future commodities-based inflation.

However, with the S&P commodities index up 71% in the last year, it is increasingly clear that we are in a bubble with all that entails. And if history is a guide--and in this case it surely is--once the world gets through the housing bubble, we should anticipate coping with the consequences of the next bursted bubble in commodities.

New York City -- The media has discovered a new word to describe how America is reacting to high oil prices and the shaky economy: Trading Down. The genesis for this new interpretation was the surprise news that Wal-Mart's sales jumped 5.8% last month while overall consumption is down. Buffeted by soaring fuels prices, rising food prices, resetting mortgages, consumer debt and other headwinds, the American family is shopping at Wal-Mart, buying smaller cars instead of big ones--or buying no cars at all and otherwise lowering its aspirations.

Trading down, as accurate as this interpretation may be, is never popular with Americans. As one advertising campaign during the height of the housing boom put it, your ancestors did not come to America to rent. And neither did they come here to lose ground economically. America has always been the land of opportunity and should be. The question, therefore, is how are these diminished expectations going to square with our very identity as a nation.

The answer is that trading down won't work for long. Americans demand improvement, progress and a better tomorrow. While they may make due with a crisis as they did in the 1970s, they won't be satisfied indefinitely. The political leaders who view the current crisis as an opportunity to reposition America, not as something to adjust to, are those who will ultimately win elections and the support of the American people.

To this end, current stimulus proposals focused on tax rebates and the extension of unemployment benefits--while sound enough--smack too much of acquiescence. To get out front on how to get through this crisis and even turn it to our advantage, our political leaders should be figuring out how to build a new, leaner, less oil-dependent American economy that once more delivers the American Dream.

Here are a few ideas to stimulate America's economy in a way that addresses the current fuel crisis but also begins to move us into the future:

First, the government should immediately extend the solar tax credit. The imminent expiration of this credit is causing projects to be cancelled and people to be layed off every day, eroding America's solar industry. The cost of this is only about $1.5 billion and it may actually generate more revenue than that down the road from additional economic activity.

Second, the federal government should provide a substantial tax credit of $2,000 above any existing credits for the purchase of hybrids (or other battery driven) and high gas mileage vehicles. This will jump start the ailing car industry, put money into the economy immediately and help address the high cost of fuel.

Third, the government should provide an immediate $3 billion to the states and cities to help meet soaring demand for public transportation. Many states and cities are seeing their public infrastructure overwhelmed and this money used for maintenance and to keep down fares would have an immediate stimulus impact on the economy.

Fourth, the government should provide tax credits to Americans to winterize their homes before the winter heating season, by installing new windows and energy efficient appliances.

Finally, the government should authorize funds for workforce housing. Currently, policemen, firemen and teachers--not to mention regular families--can only find housing miles away from where they work. Now high gas prices are devastating their incomes. Money for workforce housing construction would again show up quickly in the economy and also give people a chance to move closer to their jobs, reducing energy consumption.

In coming weeks, we hope that these ideas are seriously debated and that others emerge that in addition to dealing with our current problems, will also help us build for the future. NDN will be holding an event on the impact of high energy prices on the American way of life and potential solutions soon. Stay tuned.

Ooops ... The Financial Times reports today that China and India once again have rejected a cap on CO2 emissions -- and without these countries and the other large developing nations that will follow their lead, the world cannot seriously address the threat of climate change. China and India's response should be no surprise: as fast growing developing economies, their appetite for the energy that produces most of the CO2 increases sharply every year. Moreover, their modernization programs are concentrated in the most energy-intensive industries around - basic manufacturing and energy-intensive agriculture - while most of their own domestic energy supplies lie in coal, the most climate-damaging fuel. One way to move forward is to give them an alternative to a CO2 cap. Carbon-based taxes should be more appealing, since China and other fast-growing developing countries need more revenues to support the basic public goods of modernization -- infrastructure programs and greater access to education and health care. But that won't be enough: we will have to make it worth their while economically to join us, Europe and Japan in a global campaign to address climate change. That will mean offering them better and cheaper alternatives to the hundreds of coal-burning electricity plants they plan to build every year into the indefinite future. Better alternatives for the climate are widely available, for example, in hydropower or natural gas-fueled generating system, and perhaps soon, in solar and wind as well.

In the end, however, the United States, along with Europe and Japan, probably also will have to make those alternatives cheaper by providing large technology transfers at cut rates. And the United States is the only country that can make any of this happen, at least regarding China. As the largest foreign direct investor in China, its largest export market, and the guarantor of the sea and air lanes across which all of China's trade and oil supplies travel, China's leaders recognize America as the indispensable economic and military power for China's own progress. All we need is a president and administration prepared to use that position to advance the global agenda on climate change.