Energy Independence

Within one week of taking office, President Obama has dispelled any doubts on whether he’s serious about tackling climate change. His stimulus plan will direct greater tax and spending subsidies to climate-friendly technologies and fuels over the next 18 months than the Bush administration did over the last eight years, and the federal government will offer itself as a model by bringing federal facilities up to the “Gold Leeds” energy-efficiency standard. Moreover, his EPA will let states that as yet are politically more climate-sensitive than Washington, including California and a dozen others, set more stringent CO2 emissions standards than the federal versions. And other climate-friendly laws and regulations are on their way, including higher federal fuel-efficiency standards for automobiles and trucks.

Sound as these steps generally are, they leave undone the hard work that climate scientists agree must be done – namely, to put in place a policy to embed the cost of carbon in the price of everything our businesses and households use, especially that electrical power which mostly still depends on the most carbon-intensive fuel we have, coal. And there’s a good reason why President Obama isn’t starting with this step, even though it’s the most important one: Making people pay more for carbon-intensive energy and the products and services produced with it means that, well, people have to pay more – and people don’t like that, especially in very hard economic times. And the inconvenient truth is, those are only the beginning of the costs to contain climate change, since retrofitting our factories, offices, homes and our power systems for less carbon-intensive and energy-intensive technologies and materials will cost everyone, well, a lot more than the stimulus package. To his credit, President Obama corrected one of his rivals for the nomination who tried to claim that we could beat climate change at little cost. And there is some other good news here: The costs to redo our lives around more climate-friendly fuels and technologies can be spread over two generations – and paying those costs will save much of planet for our grandchildren.

The current hard economic times hopefully will focus more of the climate change debate on how to contain those costs, both the direct costs to people and businesses and the indirect ones through the larger effects of these policies on the economy. And if we don’t figure that out, any systemic reform that doesn’t contain those costs may not survive long enough to make a difference. Here is where a real divide opens between the two main options for embedding the price of carbon, a cap-and-trade system and carbon-based taxes. On the direct costs, a tax-based system has the advantage: You can tax energy based on its carbon content, and then turn around and return the revenues to everybody through payroll tax cuts or simple disbursement to every household. Cap and trade could do something of the same thing by auctioning off its permits to generate greenhouse gases and then using those proceeds for tax cuts. But so far, every cap-and-trade plan either gives away its permits (businesses wouldn’t have it any other way) or uses the auction revenues to pay for other climate-friendly initiatives. In either case, cap-and-trade leaves everyone’s incomes lower, a pretty nasty outcome for most of us.

Another inconvenient truth here is that carbon-based taxes also have the advantage on indirect costs. The great asset of cap and trade is that it applies an actual cap to CO2 emissions. But whenever demand for the energy that produces those emissions is greater than had been expected when the cap was set – for example, because the summer is hotter than expected, the winter is colder, or the economy grows faster than anticipated – demand will hit the cap, and prices will spike for both the permits and the energy that underlies them. Adding a new layer of national price volatility in energy prices, on top of what we already have to bear from international forces, would be another nasty outcome.

Carbon-based taxes have their own problems. They don’t involve a set, annual cap on greenhouse gases, so keeping us on a safe emissions path would probably entail adjusting the level of the tax on a pretty regular basis. And the prospect of enacting a large, new tax and then choosing what offsetting taxes to cut could itself easily turn into a nasty piece of political business. It’s no wonder that President Obama isn’t eager to referee this fight. Of course, the public’s faith that of all of our national leaders, he alone is best equipped to drive and guide our responses to daunting challenges is also the main reason he’s the president today.

New York City -- President Obama's executive orders today on energy that include allowing states to set their own emissions standards and his decision to accelerate standards for 2011 cars are a welcome relief after the climate obstructionism of the Bush years. Welcomed by Republican Governor Schwarzenegger and other governors on both sides of the aisle, President Obama's order will give states the flexibility denied them by the Bush Administration to take action on cleaning their states and taking action on climate change.

The President's statement made clear that the various initiatives are designed to enhance, not in any way harm, the competitiveness of the U.S. auto sector. This quick action on the climate issue is another sign of the urgency with which the new Administration views climate change. We expect more executive orders to help create a clean economy in coming days.

President-elect Barack Obama today announced his energy policy team (excluding the Secretary of Transportation, who will play a huge role in energy policy and Secretary of the Interior, who will oversee many environmental issues). Obama has signaled his strong desire to create a coherent energy policy and tackle climate change by creating a White House position (Assistant to the President for Energy and Climate Change) tasked with coordinating this portfolio.

From the transition's press release:

President-Elect Barack Obama Announces Key Members of Energy and Environment Team

CHICAGO – Today, President-elect Barack Obama announced key members of his energy and environment team, including Dr. Steven Chu, Secretary of Energy; Lisa Jackson, Environmental Protection Agency (EPA) Administrator; Nancy Sutley, Chair of the White House Council on Environmental Quality (CEQ); Carol Browner, Assistant to the President for Energy and Climate Change; and Heather Zichal, Deputy Assistant to the President for Energy and Climate Change.

President-elect Obama said, "In the 21st century, we know that the future of our economy and national security is inextricably linked to one challenge: energy.  The team that I have assembled here today is uniquely suited to meet the great challenges of this defining moment. They are leading experts and accomplished managers, and they are ready to reform government and help transform our economy so that our people are more prosperous, our nation is more secure, and our planet is protected. I look forward to working with them in the years ahead."

In his Saturday address this morning, Barack Obama started filling in details of his emerging economic strategy.  Major elements of this speech - massive investment in our infrastructure, putting computers in our schools and making universal connectivity to the internet a national priority, health IT and making our government buildings more energy efficient (for both see here) - should be familiar to NDN readers, as they are ideas NDN has been championing for some time.  

Needless to say we are pleased with the direction the President-Elect is taking, and are anxious to work with him to turn these powerful words into reality next year.  

Here is the full text of this important speech: 

Good morning.

Yesterday, we received another painful reminder of the serious economic challenge our country is facing when we learned that 533,000 jobs were lost in November alone, the single worst month of job loss in over three decades. That puts the total number of jobs lost in this recession at nearly 2 million.

But this isn't about numbers. It's about each of the families those numbers represent. It's about the rising unease and frustration that so many of you are feeling during this holiday season. Will you be able to put your kids through college? Will you be able to afford health care? Will you be able to retire with dignity and security? Will your job or your husband's job or your daughter's job be the next one cut?

These are the questions that keep so many Americans awake at night. But it is not the first time these questions have been asked. We have faced difficult times before, times when our economic destiny seemed to be slipping out of our hands. And at each moment, we have risen to meet the challenge, as one people united by a sense of common purpose. And I know that Americans can rise to the moment once again.

But we need action - and action now. That is why I have asked my economic team to develop an economic recovery plan for both Wall Street and Main Street that will help save or create at least two and a half million jobs, while rebuilding our infrastructure, improving our schools, reducing our dependence on oil, and saving billions of dollars.

We won't do it the old Washington way. We won't just throw money at the problem. We'll measure progress by the reforms we make and the results we achieve - by the jobs we create, by the energy we save, by whether America is more competitive in the world.

Today, I am announcing a few key parts of my plan. First, we will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won't just save you, the American taxpayer, billions of dollars each year. It will put people back to work.

Second, we will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We'll invest your precious tax dollars in new and smarter ways, and we'll set a simple rule - use it or lose it. If a state doesn't act quickly to invest in roads and bridges in their communities, they'll lose the money.

Third, my economic recovery plan will launch the most sweeping effort to modernize and upgrade school buildings that this country has ever seen. We will repair broken schools, make them energy-efficient, and put new computers in our classrooms. Because to help our children compete in a 21st century economy, we need to send them to 21st century schools.

As we renew our schools and highways, we'll also renew our information superhighway. It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the internet, every child should have the chance to get online, and they'll get that chance when I'm President - because that's how we'll strengthen America's competitiveness in the world.

In addition to connecting our libraries and schools to the internet, we must also ensure that our hospitals are connected to each other through the internet. That is why the economic recovery plan I'm proposing will help modernize our health care system - and that won't just save jobs, it will save lives. We will make sure that every doctor's office and hospital in this country is using cutting edge technology and electronic medical records so that we can cut red tape, prevent medical mistakes, and help save billions of dollars each year.

These are a few parts of the economic recovery plan that I will be rolling out in the coming weeks. When Congress reconvenes in January, I look forward to working with them to pass a plan immediately. We need to act with the urgency this moment demands to save or create at least two and a half million jobs so that the nearly two million Americans who've lost them know that they have a future. And that's exactly what I intend to do as President of the United States.

Thanks for listening.

More Background: Note this passage from an essay Rob Shapiro and I released in early November, A Stimulus for the Long Run: 

This change should be directed toward creating a 21st century, low-carbon, innovation-driven economy, as the development, spread and efficient use of economic innovations will continue to be the most important factors driving all our future progress in growth, productivity, and incomes. For example, productivity gains are increasingly tied to an employee's capacity to operate effectively in workplaces dense with information and telecommunications technologies. Within a decade, workers who cannot perform in such work environments will be marginalized economically. Therefore, the stimulus should help businesses and workers prepare for the ideas-based economy, through grants to community colleges to keep their computer labs open and staffed in the evenings and on weekends for any adult to walk in and receive free computer training, a plan Obama endorsed as Senator. The stimulus also could include an innovative program to provide inexpensive laptops to every sixth-grader in America and spread broadband installation to schools, local libraries, and human services offices that currently lack it.

There is already a broad consensus on the need to include infrastructure investment in the stimulus, but instead of addressing only roads and bridges, America can also take this opportunity to invest in a new generation of clean infrastructure. The federal government can lead the way, through greening its buildings and vehicle fleets and putting 1,000 megawatts of solar power on its roofs. It also can provide funding to help modernize the electrical grid and build a new generation of light rail systems for urban areas, as well as greater support for research and deployment in renewable energy and energy efficiency technologies, and tax credits and other incentives for greening America's homes and private buildings.

Aside from energy, the other rapidly rising business cost squeezing wages and jobs is health care. To help hold down these costs for the long haul, the stimulus can provide support for hospitals, clinics and physicians to purchase and install the hardware and software for standardized electronic medical records systems. This will serve as a first down payment for 21st century health care reform, and will ultimately reduce costs and promote best-practices at the nation's hospitals.

These are all investments we know we have to make if we intend to make the U.S. economy more efficient, innovative and sustainable. They also are all investments that will ultimate pay for themselves several times over. Congress and President-elect Obama can use this opportunity not only to create more jobs, but to do so in ways that will help drive the development of a real, 21st century workforce and genuine 21st century economic infrastructure. And taking this course by passing a stimulus for change could be an early and important opportunity for him to practice both his new politics and a new form of economic leadership.

New York City - Watching the spectacle of auto CEOs seeking aid on Capital Hill, it is interesting to contrast their reception with that of their better heeled Wall Street counterparts.  Though--or perhaps because the auto guys--compared by the New York Post this morning to Moe, Larry and Curley--are the poor men among recent corporate CEOs seeking money, they have been treated far more contemptuously.  They have had to travel hat in hand to Washington.  In contrast, bankers for the most part have stayed in New York, while the G -men, like borrowers calling on the Morgan Bank in days of yore, have made the trip to see them.  Many Americans cannot resist gloating over the plight of the auto CEOs.  Indeed the headline of today's Post was Rust in Peace.

Are people really more angry about their cars breaking down and high paid auto workers than about 30% interest on credit cards, bait and switch mortgages and fee-based banking?  I don't think so.  Reflecting on the different treatment, I think the answer is that neither group has sympathy among the public but bankers have sympathy among those in power.  This has spared them the humiliating treatment of publicly asking for money at hearing after hearing.

Outside of Detroit, hardly anyone in government even knows a car guy.  In contrast, bankers and financiers are densely intertwined with the political class in Washington.  Washington routinely taps people from the financial industry to work in government and countless Schedule C employees not to mention cabinet officials go to Wall Street upon leaving government.  Most policy wonks know dozens of people in the financial sector.  There lies the difference in how the two sectors, both suffering in the current downturn, have been received.  (There also lies the risk of crony capitalism.)

It also helps the financial sector that a large group of government organizations, from Treasury to the SEC to the Fed to the CFTC are devoted to its well being.  The auto industry though regulated with respect to safety and emissions has no similar agencies with a stake in its ongoing health.

However, if policy makers were to put aside the cultural and career affinity they may have for finance as opposed to manufacturing, they would find that the auto industry is every bit as important to America's future.

Finance is a great way to make money.  However, you don't have to believe with Kevin Phillips that finance becomes an outsized part of countries in decline to acknowledge that financial business gravitates to sectors and regions that are putting money to productive use.  Strong industry in a country makes for strong financial opportunities.  Silicon valley was a driver of Wall Street wealth building in the 1990s.  American firms, not British or Japanese ones, took most of the business. 

However in the last decade, as the center of productive uses for capital has moved to China, US financial institutions have had to chase business there and eventually, they will find themselves outmaneuvered by Chinese banks.   And markets recognize this fact.  If the Big Three go under, the stock market and US financials may decline in value as well.   The irony is that if that happens, the financials stand a good chance of getting more billions from TARP or the FED.  The result in that scenario would be that we lost not only the money but the car companies, too.  It makes more sense to put together a real plan to get our auto industry back on track.  

New York City - Clean infrastructure stimulus is coming and it is coming fast, perhaps as soon as January 20th, given the new accelerated timetable of President Elect Obama and the Congressional leadership.  For us at NDN, this is an exciting moment, as we have been advocating on behalf of a large green stimulus package that works for the long term as well as the short term for quite some time.

Clean infrastructure stimulus has the ability not only to create jobs in the near term -- particularly in sectors and regions hard hit by the now official recession, the manufacturing belt and the construction industry -- but also to create the clean, modernized physical plant and infrastructure that America needs to ensure our future prosperity.

However, how the stimulus is structured and carried out is as critical as the dollar amount.  On Tuesday, the nation's governors presented President Elect Obama with a list of $176 billion in infrastructure projects ready to go.  However, to get the money out onto the street quickly, moving it through the usual government channels won't work.  Rather, we need to create a new process and structure to get the money out quickly and efficiently.

Dick Ravitch, the former New York City MTA Chairman and head of New York Governor Paterson's new infrastructure commission, knows more about how federal funds flow to the states under ordinary circumstances than most.  Funds normally move slowly.  He argues this is no time for business as usual and his recommendation, an emergency infrastructure board, well supervised, with proper auditing controls and carefully monitored by Congress, is critical to getting funds flowing and jobs starting quickly. 

Rather than allocate money to agencies, Congress should authorize a board to fund valid projects.  Infrastructure projects that get funded should be ones teed up and ready to go with all their zoning and permitting in place so that the only thing missing is funding.  This is a far better way to move the funds out quickly than the usual funding channels that generally go through the Department of Transportation.  At the same time, money should be allocated according to sound, consistent principles to ensure orderly dispensation of funds.  The interests of the people can be adequately addressed by states identifying those that are high priority.

Projects with a green advantage such as public transportation projects, projects that employ green building, water projects and others that move us toward a low carbon economy should go to the head of the line.

As excited as we at NDN are about the speed with which green stimulus is now moving forward, moving money out quickly but also responsibly is vital to making this historic stimulus work.  If the money is spent wastefully, or perceived as being spent wastefully according to political expediency, it will not only be a tragic missed opportunity but also reduce its impact and undermine market confidence. 

Indeed, just yesterday, China's sovereign wealth fund announced it would no longer invest in American banks because of the erratic changes in US policy.  I wrote recently about the problem with the Treasury managing the bailout fund like a hedge fund.  What we need is structure and consistency but a streamlined process to move money out onto the street where it is needed quickly and effectively.

At the same time, we cannot let red tape or ordinary bureaucratic lethargy slow funding when a key purpose of stimulus is to get the money out quickly to create jobs and get the economy moving again.

We don't have that much time to get this right, but we do have a great deal of will as we face up to the severe economic challenges facing the country. An emergency board with emergency powers but also the proper rules in force to guarantee the judicious but expeditious spending of the tax payer's money is a good idea that the incoming Administration and Congress should embrace.

Following are links to some of NDN's work on a clean infrastructure stimulus:

A Vision for a Modernized Electric Grid: Clean Infrastructure for a 21st Century Economy

Understanding the Cleantech Investment Opportunity

A Stimulus for the Long Run

Accelerating the Development of a 21st Century Economy: Investing in Clean Infrastructure

Solar Energy: The Case for Action

Investing in Our Common Future: U.S. Infrastructure

President Elect Obama's comments at the press conference yesterday announcing Peter Orszag as head of OMB, following his announcement on Monday of other key economic appointments – Tim Geithner as Secretary of the Treasury, Larry Summers as director of the NEC and Christina Romer as head of the CEA – illustrates the tightrope that the new Administration will have to walk in addressing the economic crisis.

On the one hand, on Monday the President Elect highlighted the immense economic challenges facing the country that will require a stimulus package that Larry Summers has said "must be speedy, substantial and sustained."  On the other, however, it is important that the stimulus not be perceived as wasteful spending.  And thus it was appropriate for President Elect Obama to highlight his cost cutting challenge to Orszag, namely to eliminate waste from the federal budget.

By it very nature, a rapidly implemented stimulus cannot be as focused as ordinary elective spending.  To accomplish its goal, the stimulus must be broad, get the money out on the street quickly, and be large enough to do its job.  However, if the money is perceived as being dropped from a helicopter (in the metaphor popularized by Fed Chairman Bernanke), it may undermine faith in the government and hence confidence in markets.

As the stimulus package is developed and released, all eyes will be on whether it appears to be thoughtful or wasteful of the public's money.  President Elect Obama's comments yesterday were thus encouraging in suggesting he recognizes this requirement and that his team will work to ensure that the stimulus meets this crucial test.

As we at NDN have argued, investments in infrastructure not only have a short lead time in getting money where it is needed, they also are not wasteful because they will continue to pay dividends for years to come.  We need new, up to date roads, bridges, rail lines, water mains, fiber and power lines to undergird our future prosperity.  However, as we have also argued, a key part of infrastructure investments being up to date is that they acknowledge our energy and environmental challenges.  Retrofitting older buildings, requiring that every new government facility meet green standards and making transportation investments based on their energy and environmental implications is investing in the future. 

Placing a gigawatt of renewable solar power on government buildings over the next 5 years, for example, is not only desirable but is also cost effective.  Investing in our electricity grid can not only create jobs today but stimulate the economy down the road.  And funding a clean infrastructure bank to make energy smart infrastructure investments will not just stimulate the economy but raise productivity in the future.

In short, energy and environmentally smart represents a responsible use of the public's money.  And making these sorts of investments is one way to meet the challenge of stimulating the economy responsibly.  In coming weeks, we look forward to working with the Administration's new team, Congress, and stakeholders on a stimulus package that addresses both our short and long term economic challenges.

New York City - Should the federal government build or incent others to build a new electron superhighway? In other words, a backbone for a 21st century electrical grid?  At NDN's recent event on clean infrastructure, U.S. Rep. Jay Inslee asked precisely that question and it's one more and more energy leaders are asking.  

Our current grid, as former CIA Director Jim Woolsey has noted, resembles nothing so much as the road system before interstates were built. Had President Eisenhower not built the interstate system after observing the autobahns in Germany and fretting over the difficulty of moving an army from one end of America to the other, our roads would be a network of streets, shopping boulevards and country roads, slowed by trucks as well as tolls.  There would be no easy way to travel between one large city and another and trade and distribution of goods would be drastically hampered.  

This is precisely the situation we have today in the world of electricity, where mid-20th century wires are now tasked with carrying 21st century loads and tolls are collected by dozens of utilities along the way. As a result, instead of a national market in electricity, we have a balkanized patchwork of local fiefdoms each with vastly different prices. Electricity producers face obstacles in moving their electrons to market -- hardly an ideal solution.

How would an electron superhighway work? One proposal by the Energy Department would build major high voltage (765KV) trunk lines traveling East to West and North to South, particularly in the underserved center of the country. Like Interstates 10, 40, 80 and 90 which link the East and West and Interstates 5, 55 and 95 (as well as those in between) which link the North and South, these large roads would facilitate long distance movement of power.  Relieved of this burden, utilities could focus their resources on localized distribution. While the proposal might cost $60 billion to $100 billion (a weekend's worth of bailout money), the long-term benefits would be tremendous. In fact, the proposal could be financed through a miniscule tax of less than a penny on the average monthly utility bill.

A particularly interesting approach to building an electron superhighway would be to run the cables underground. No one wants a high voltage transmission line running anywhere near their home, leading to complex obstacles to siting new lines. Additionally, underground lines are far more expensive than overhead ones and it is harder to identify problems when they occur. However, new superconducting wire (eliminating almost all the resistance in a wire by cooling it down using liquid nitrogen) that can be laid in a three-foot trench and is already being implemented in Long Island could be run underneath bike paths, along roads and in other unobtrusive places. While this technology, proven in pilot projects and now being tested at scale is new, it could revolutionize long-distance power transmission.

The interstate highway system is not the only model for moving goods. The Internet backbone, though jumpstarted by federal investment, is run privately for profit. Similarly, private companies own the long distance natural gas pipes. And private companies own the railroads.  

Of these, the Internet system is probably least illustrative because it remains unregulated.  Natural gas is produced at a comparatively limited number of points, simplifying its long distance transportation requirements.  America's rail system, a relic of the 19th century, is probably not a model for a ubiquitous electricity network.

It may be that federal ownership is not necessary. However, a national tax on electricity would certainly be easier to implement than hundreds of individual rate cases -- the traditional method for funding investment. Important obstacles to greater federal involvement in electricity remain, however, in the form of state regulators and some utilities that have traditionally opposed a larger federal role.

As America confronts its 21st century challenges, in particular, developing a grid that can facilitate a national electricity market and also accommodate decentralized generation of renewable power, the idea of an electron superhighway merits serious attention. At a very minimum, work should accelerate on how to implement an electricity backbone. As FERC Commissioner Jon Wellinghoff, quoting Albert Einstein, remarked at NDN's clean infrastructure event, "physics is easy, politics is hard."

On Wednesday, the Wall Street Journal reported that President-elect Barack Obama’s Chief of Staff-designee Rahm Emanuel "promised that a major economic stimulus would be 'the first order of business’ for Mr. Obama when he takes office Jan. 20. The focus of spending will be on infrastructure, specifically 'green infrastructure.'"  

According to Congressman Emanuel's statement, this green infrastructure will include mass transit, modernizing the electrical grid, and universal broadband Internet access, all of which NDN has been arguing should be included in the next Administration's agenda. NDN strongly supports this policy direction and will work with Members of Congress in support of this agenda.  

NDN has long been a strong and vocal advocate of a clean infrastructure stimulus because of its ability to create jobs and stimulate the economy in the short term while also creating a basis for future prosperity.

NDN Green Project Director Michael Moynihan first articulated the vision of clean and green infrastructure in his 2007 paper, Investing in Our Common Future: U.S. Infrastructure.

As Moynihan wrote more than a year ago, America needs "a GREEN Act requiring that federal infrastructure and buildings...not only address issues like global warming but also establish American leadership in green technologies of the future." Wrote Moynihan, "Only by working together can Americans reverse the decline in infrastructure that is eroding our present economy and make the forward-looking public investments needed to ensure future prosperity." To that end, NDN has proposed a number of green stimulus measures including a clean infrastructure bank, modernization of the electrical grid, support for mass transportation, and greater broadband access.

Recently, Moynihan, NDN Globalization Initiative Chair Dr. Robert Shapiro, and NDN President Simon Rosenberg have authored a number of essays and analyses on clean infrastructure and clean technology:

• Clean Infrastructure Stimulus to Be the Obama Administration's "First Order of Business"
• A Stimulus for the Long Run
• Accelerating the Development of a 21st Century Economy: Investing in Clean Infrastructure
• Solar Energy: The Case for Action

Additionally, earlier this week, NDN hosted a Capitol Hill forum entitled, "A Vision for a Modernized Electric Grid: Clean Infrastructure for a 21st Century Economy," with U.S. Reps. Jay Inslee and Earl Blumenauer, FERC Commissioner Wellinghoff, and other energy experts. Click here for video and photos of the event.

Word has just come down that U.S. Rep. Henry Waxman (CA-30) has defeated Rep. John Dingell (MI-15) in the race for chairman of the powerful House Energy and Commerce Committee. This will have a dramatic impact on the course of climate change and energy legislation in the 111th Congress.