Climate Change

With news coming that the Senate has loaded up the bailout bill with a number of tax provisions, including an AMT patch and crucial tax credits for renewable energy, the House vote on the proposal, should it pass the Senate, looks to be a defining moment for pay-go.

Pay-go has been the largest stumbling block in extending renewable energy tax credits – a package so popular that it recently passed the Senate with a vote of 93 to 2. Now, a bipartisan agreement by Leaders Reid and McConnell to include these provisions in the bailout bill, which is predicted to pass the Senate tonight, will only be derailed if some in the House continue to insist on pay-go.

NDN has long argued that pay-go creates far too much arbitrary, artificial rigidity in the legislative and governing processes, and this bailout serves as a perfect example. Should a bipartisan bill designed to rescue the economy on the order of $700 billion fail due to a pay-go fight over far less costly tax provisions that are partially offset, the legacy of pay-go, a provision that doubtless has limited life to it anyway, will go from murky to downright laughable.

As the economy slides into recession, one can only hope that the popularity and job creation benefits of the tax credits, especially those for renewable energy, will garner enough votes to more than offset the votes lost from pay-go proponents.

Last week, NDN Fellow and Green Project Director Michael Moynihan released an essay calling for an investment in new, clean infrastructure. Clean infrastructure investment, which includes electricity grid modernization, public transportation, renewable energy and efficiency, and a variety of other ideas, is crucial in both ensuring near-term economic growth and long-term prosperity, as we create a low-carbon economy.

Saturday in the New York Times, Thomas Friedman issued a similar call, arguing to "Green the Bailout."

The point is, we don’t just need a bailout. We need a buildup. We need to get back to making stuff, based on real engineering not just financial engineering. We need to get back to a world where people are able to realize the American Dream — a house with a yard — because they have built something with their hands, not because they got a "liar loan" from an underregulated bank with no money down and nothing to pay for two years. The American Dream is an aspiration, not an entitlement.
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Indeed, when this bailout is over, we need the next president — this one is wasted — to launch an E.T., energy technology, revolution with the same urgency as this bailout. Otherwise, all we will have done is bought ourselves a respite, but not a future. The exciting thing about the energy technology revolution is that it spans the whole economy — from green-collar construction jobs to high-tech solar panel designing jobs. It could lift so many boats.

A national agenda focused on investing in new, clean infrastructure has the potential to begin to pull America out of the current economic downturn, enhance energy security, confront climate change, and ensure future prosperity through the creation of dynamic new 21st century, low-carbon economy. Stay tuned to the Green Project’s work on clean infrastructure moving forward.

Last night, the U.S. Senate passed tax credits for renewable energy, including extending crucial tax credits for solar and wind energy. NDN congratulates the Senate for mustering overwhelming bipartisan support for this legislation, and encourages the House to follow suit and deliver this legislation to the President's desk as soon as possible.

WASHINGTON (Reuters) - The U.S. Senate Tuesday approved a package to extend $18 billion in tax credits for using renewable energy sources like wind, solar and geothermal and also provide incentives to cut energy consumption.

The move, which alternative energy companies had been lobbying for all year, sent shares of solar power companies higher in after-hours trade. The delay in extending the tax credits had been a major damper on those stocks this year. The Senate was seen as the biggest roadblock after it shot down the extension eight times this year.

"Getting past what has been largely the deal-breaker in the past should be positive," Wedbush Morgan analyst Al Kaschalk said of the impact the vote would have on solar stocks.

Under the proposal, which will be part of a much bigger tax bill, the tax credit for producing electricity from wind would be extended for one year. The credit for other renewable sources, such as wave and ocean tide projects that generate power, would be extended for two years.

The residential and business tax breaks for solar energy would be extended for eight years.

"Solar is the winner here," Raymond James alternative energy analyst Pavel Molchanov said.

For more on the importance of solar energy to the American economy, read Solar Energy: The Case for Action, an extensive report released in August by NDN Green Project Director Michael Moynihan.

New York City -- What did it mean when oil prices today spiked by their largest amount in history, $16 in one day?  It means something is seriously wrong with the oil price market.  Analysts had no obvious explanation for the rise other than to say that it may have had something to do with the October contract expiring.  But a price spike of this magnitude --oil prices have now traveled from lows in the $90s last week to $130 today --is alarming. And oil price volatility of this magnitude in the absence of any magic changes in supply or demand is frankly unacceptable over the long term for a commodity on which so much of our economy depends.

A hint into the source of this volatility was provided at the U.S. Senate's recent summit on energy.  The fireworks commenced when Senators Bill Nelson of Florida and Maria Cantwell of Washington asked Goldman Sachs' COO, Gary Cohn, about the need to reign in speculation in the oil markets.  The Senators cited a recent study by Michael Masters, manager of a hedge fund and a trader himself, blaming volatility on speculation on indices. 

Northwestern CEO Doug Steeland echoed his belief that speculation was responsible for the bulk of volatility in the price of oil. Cohn answered that Goldman's position was that market prices were set by supply and demand and, in support, he cited a recent CFTC, trade by trade analsysis, that showed no outright market manipulation.

However, Cohn also noted that in setting up the index market, Goldman and others' goal was to create a buy side among pension funds and other long term investors for oil futures to balance the supply side of oil producers seeking money for exploration.  And, indeed, pension and others have become large players in the index market as energy futures have become another investment "class."

Today's volatility showed signs of institututions or traders shifting large blocks of money into an asset class to balance chaos in other markets.  This is not outright market manipulation.  But the emergence of oil futures indices as an asset play for huge non-energy investors, chasing yield, may be responsible for the unacceptable volatility in these markets. 

Congress and the CFTC should be examining whether this is the case and, if so, devise measures to reduce the the exposure of this nation-critical market to large shifts in money and what hedge fund traders like to call, cross market correlation.  

The passage last night by the House of Democratic-sponsored legislation to extend renewable tax credits and impose a national renewble electricity standard in exchange for expanding drilling is good news.  Crafted specifically to appeal to Republicans with the inclusion of generous drilling provisions, but also including incentives for renewables which ostensibly enjoy bi-partisan support, this comprehensive legislation should have garnered many Republican votes.  Instead, only 15 Republicans voted for the legislation and President Bush has threatened to veto it.  Given the reluctance of the Bush Administration to take yes for an answer, one has to ask, what exactly does it want?

The answer appears to be legislation entirely favorable to oil without support for renewables, or else, no legislation at all.  While the legislation thus faces significant hurdles to eventual passage, it at least serves to call the Republican leadership out on their real view toward building a low carbon energy future.  

New York City -- Amidst all the turmoil in financial markets and diminished prospects for the real economy, it may seem that growth is over for a while.  No asset class looks strong.  However, one sector is continuing to boom around the world, if not the United States, namely the construction of infrastructure. In China, Spain, Switzerland and Latin America, countries are building the foundation for their future growth and prosperity. A fascinating article in the current New Yorker by my friend Burkhard Bilger on worms, the futuristic tunneling machines used to build subways and tunnels, provides a fascinating, under-the-surface tour of rail tunnels through the Alps, subway systems in Spain and China, power lines, roadways and other infrastructure remaking the global econnomy. There is only one sad note in this engaging article. The boom in infrastructure is largely passing the United States by.

As Martin Herrenknecht, the founder of Herrenknecht AG, the largest tunneler in the world, likes to point out, for every skscraper that goes up in Malaysia or Dongtan, a subway must go down to bring the people in and out. Other tunnels must carry broadband connections, electricity, water and the sinews of a growing city.  Herrenknecht makes worms from as little as four inches in diameter to bore holes for conduit to hundreds of feet long and dozens of feet wide to bore through the Alps.  And his company has hundreds of huge projects underway.  Currently, he is helping Spain build three new subway systems and dramatically expand four others. In Switzerland, his worms are tunneling literally through the Alps to make that country--from a freight moving point of view--as flat as Holland.  China is building seven entirely new subway systems. The massive urbanization underway in Asia and the developing world is leaving as a by product a giant, state of the art physical plant that will enable those regions to compete ever more effectively in years ahead. With infrastructure development largely stalled in the United States amidst a disingenous obsession with lowering taxes on the rich, our physical plant has been left to age. The decline of our plant will be an increasing competitive disadvantage in years ahead.

The poor state of US infrastructure is all the more remarkable given that we have just emerged from a huge real estate bubble. But the recently ended boom proved to be more about financially re-engineering the debt placed on buildings than engineering buildings themselves. Indeed, the recent cycle saw far less commercial construction than typical cycles. And on the residential side, the absence of clean building or energy efficient standards means that the latest round of new units are hardly state of the art. Most tragically, an absence of effective local government and any federal leadership whatsoever means that the housing that did get built in the last eight years was put up ad hoc with little thought of the infrastructure needed to sustain it. It was founded on the quicksand of low energy price expectations and cozy relations among developers and local planners. The result is the costly sprawl we see every day in America that higher energy prices have made increasingly unsustainable.

It is not too late for America to get back into the infrastructure game. House Democrats are pushing against Republican opposition to a $50 billion second stimulus with a large infrastructure component. The Dodd-Hagel bill to create a national infrastructure bank is awaiting action in Congress. Legislation to promote green bulding standards--to build an efficient instead of inefficient physical plant is part of current energy proposals.

With economic activity now soft across the board, a new federal commitment to clean infrastructure could not be more timely.  An important task of the 21st century will be to retrofit or retire this energy inefficient, high carbon infrastructure and replace it with state-of -the-art, low carbon, energy efficient infrastructure.  And with capital on the sidelines looking for safe and secure investments, the capital is there notwithstanding financial turmoil.  Our current approach to infrastructure, however, is hindering our ability to make these critical investments in our future.

In the coming weeks and months, we at NDN are going to be talking about building clean infrastructure to jump start the slowing economy and pave the way for growth in the coming century, lest the United States fall further behind.

New York City -- According to the Wall Street Journal, Democratic staffers -- as they drafted new, comprehensive energy legislation last week behind closed doors -- could be heard chanting, "drill, drill, drill."  That's right: Democratic staffers.  And at yesterday's Senate Energy Summit, Republican Pete Domenici, a supporter of drilling made a telling observation about the new drilling mania: a few months ago, he noted, he was advising supporters not to use the word drilling, but instead to employ euphemisms like "exploration." In only a few months, drilling has not only become acceptable, it has become a drumbeat in Congress.  With drilling now headlining most of the energy bills percolating in the Democratic-controlled House and Senate, it is worth taking a moment to assess how we got to this strange point and what it means.

The immediate trigger of the drilling mania were the McCain ads for drilling and the chanting of "Drill, Baby Drill" at the Republican Convention. On the Democratic side, strategists had meanwhile come to the conclusion that while drilling would neither help energy independence nor lower prices, given the traction it was gaining among the public, it might be good politics to make it less of a partisan issue.  When Senator Obama himself came out in favor of conscientious drilling, drilling became okay for Democrats to support. 

The real question, however, is why the American people have found the idea of drilling so powerful.  For the new drilling mania has come at the expense of the ideal of building a carbon free energy future as championed by Al Gore in his Moon Shot speech in August and as recently as last year, more or less by all three Presidential candidates, Senators Obama, Clinton and McCain.  Surely, fossil fuel prices are volatile and have been steadily rising for years (though they dropped 30% in the last 60 says, due in part to the pricking of a speculative bubble.)  Surely, the United States pays a heavy strategic price for our dependence on products produced by some of our least favorite countries.  And surely, fossil fuels are harming the earth's climate, probably contributing to storms such as Gustav and Ike.  Senator McCain recognized last summer that drilling was a political winner and began a wholesale retreat from his original energy positions.  But only part of the explanation for drilling mania is the relentless Republican messaging.

At the root of the primitive appeal of drill, drill, drill is a desire to return to our oil-soaked past.  While Americans seemed ready to flirt with renewables, with push coming to shove, they have sought the safety and security of the girl who brung us to the party: oil. There is only one problem with this desire to return to the inexpensive, American produced oil and gas of our past.  It is fantasy. 

At yesterday's hearing, Shell President Marvin Vodum frankly admitted that currently there are only 30 deep water rigs on earth and every one is already in use.  No new exploration will be even theoretically possible until new rigs are built.  He estimated that in 10 years the number of these expensive, high-tech rigs might double or triple. Still, the idea that 30 or even 70 more offshore rigs over the next decade will make America energy independent or have any impact on the price of oil is absurd.  The oil that lies deep offshore, a mile or more below the surface of the ocean, is more difficult and expensive to tap by several orders of magnitude than the oil that brung us to the party.  Oil industry executives acknowledge this and also know that opening up more of America's coastline and Alaska for drilling is something they have to be for but the idea won't yield a penny of net revenue--what they are in business to produce--for years.  What they really seek is relief from litigation of projects and Vodum led with this in his testimony.  But that doesn't have the emotional appeal of drill, drill drill. 

Is there any harm in a little old time affection for the fuel of the past?  Yes, if it interferes with our commitment to developing the fuels and economy of our future.  There is a huge new opportunity for all Americans in renewable energy.  A new report suggests it may produce millions of high paid jobs.  Rededicating ourself to oil, frankly, interferes with this critical transition.

The thrust of the compromise being pressed by the bi-partisan Gang of Ten, now 20, is that energy needs in the future will be diverse and we must do all of the above, oil, nuclear and renewables.  With respect to the need for diverse sources they are right.  However, the all-of-the-above approach, while it may garner votes, avoids the hard choices in allocating what are ultimately scarce taxpayer dollars between the new and old energy alternatives.

As Senator Dorgan and others observed, subsidies for oil and nuclear energy in the form of exploration credits and insurance for the nuclear industry vastly exceed that for renewables.  The incumbent technologies with their large constituencies have stable, long term subsidies in place whereas wind and solar energy have suffered from on again, off again, support.  That must change.  And, of course, as we learned last week, relations between oil companies and federal overseers at the Department of the Interior, are more than cozy (involving outright payola.)

In the next week, it is likely that legislation will come to the floor.  While drilling is likely to be part of the package, it is vitally important that Congress keeps in mind the real goal here, to wean ourselves off of dirty fuels and build the low carbon economy of the future.

As the Congress moves closer to bipartisan energy legislation, John McCain is nowhere to be found. Instead his campaign – on the one issue that was supposed to separate him from Bush – is clinging to the old energy paradigm. It's hard to believe, but John McCain is now more out of touch than most of the Republican members of the U.S. Senate.

Bipartisan energy legislation, discussed today at the U.S. Senate’s energy summit, has gained momentum through the work of the "Gang of 10/16/22," and now looks to be one of three proposals that will come up in the Senate next week. (The House is also at work on bipartisan legislation.)

U.S. Sen. Barack Obama has said he is willing to accept a compromise on drilling to advance energy legislation that includes provisions for the expansion of renewable energy and efficiency. McCain, meanwhile, is stuck in a dogmatic anti-tax fuzz. Left behind by much of his party, McCain unwilling to compromise, show up to vote, or take any sort of stand to help make moves on energy.

Meanwhile, the bottom half of the McCain ticket has pledged to try to move him toward drilling in ANWR, which shouldn’t be hard since he only recently moved away from an opposition to drilling in the OCS to a wholehearted, singular support of it, and since he looks to be moving away from supporting Cap and Trade climate legislation.

This move away from Cap and Trade isn’t a surprise, as coming up with a serious energy policy doesn’t seem to be a goal of his ticket. Since his VP candidate knows more about energy than just about anyone else, and doesn’t believe climate change is man made – despite her absurd claims on television last night that she had never said that – John McCain owes American voters a big clarification as to where he stands on energy.

It looks like he may get the chance next week. Will he step up to plate and vote, or will his old, no show ways get left in the dust by Democrats and Republicans alike? Next week, when John McCain finds himself looking to the right on energy and only seeing James "Global Warming is a hoax" Inhofe, he’ll find himself running on empty. (Unless Jackson Browne sues him again.)

Last night, House Leadership came together on a package that dramatically expands both offshore drilling and renewable energy. The bill is designed, as NDN Green Project Director Michael Moynihan writes, to be palatable to Republicans, as it gives them almost all of what they want on drilling.

The comprehensive package, as described by the E&E Daily (subscription required):

The drilling provisions are part of a broad package that includes a repeal of oil industry tax breaks for major companies, new renewable energy mandates and investments, a new fund to speed deployment of carbon control technology, and many other measures.

Have no doubts, this is a moment of truth for Republicans in the House. (Next week, Republicans in the Senate will likely get a similar opportunity.) If Republicans truly are for an "all of the above" energy solution, this package is their chance to vote for one.

If Republicans continue their obstructionism on actually achieving anything on energy by nitpicking at this legislation, they, and not the Democratic Congress, will be responsible for failing to lower energy prices, failing to break America’s dependence on foreign energy, failing to confront climate change, and failing to harness the clean energy economic opportunity.

New York City--As used in Washington, the term "silly season" means what happens to government in an election year.  Legislation becomes almost impossible to pass, politicians grow more disingenuous than usual.  And no one does anything without assessing how it plays politically.  When one party controls Congress, the other may decide to prevent any action to create the appearance of a "Do Nothing" Congress.  As both the House and Senate now prepare to debate energy legislation once again--perhaps as soon as tomorrow or on Monday--the question is are we stuck in the silly season or is there a real chance for legislation to move forward.  

While exacerbated by it being an election year, in a sense, the failure of the government to take any meaningful action on energy this year despite a full fledged energy crisis is a textbook example in how markets move faster than government.  Since January, the price of oil climbed from about 100 up to 150 and then dropped back down to just over 100 where it closed last night.  During the interim, America experienced a mini oil shock--not as severe as those in the 1970s because prices have come down--but severe enough.  $4 dollar and up a gallon gas this summer shocked the economy, driving real changes in behavior that so far are sticking.  Americans are driving lass, taking mass transit more and are no longer buying gas guzzling cars.  Some of the changes can't be reversed.  The car companies shuttered plants making SUVS and are retooling to make hybrids or high efficiency cars.  Airlines cut routes, hiked fares and are only now staunching the flow of red ink that began this summer.  And what did government do during all this drama?  Nothing.  Nada.

In one sense, this all might be an argument for laissez faire economics.  The price signal of $4/gallon gas worked.  Demand dropped leading to a price correction.  It is hard to see how legislation if any had passed would have made things better in the short term.  And, indeed, legislation is a clumsy tool for short term objectives.

For the long term, however, one would think that Congress might have interpreted a 50% spike in prices at the pump as a signal to do something to avoid or at least mitigate the type of shock we encountered.  For example, one would think at a minimum Congress would have extended renewable tax credits to develop alternative energy sources to oil.  But Congress did not.  Majority Leader Harry Reid brought up the Investment Tax Credit eight times and Republicans blocked cloture on as many occasions. 

Lest anyone think we can leave it all up to the market, Opec's decision yesterday to cut production to make sure oil does not drop below 100 per barrel, shows that this is not all about the market.  There is such a think as a huge government controlled, anti-American cartel plunk in the middle of the oil market, controlling supply if not demand.  Thus while legislation is not the answer for short term problems, a renewed energy policy is vital to America's long term economic and strategic objectives.

The legislation likely to move to the floor tomorrow in the House and next week in the Senate has been crafted specifically to attract Republican votes.  It contains generous provisions for off shore drilling.  In addition, it has impoortant initiatives to reduce dependence on oil over the long term such as the critical extension of existing renewable tax credits, green building standards, a tax credit for weatherization, commodities market reform and incentives for oil companies to accelerate drilling on federal lands.  However, if those who want to make Congress appear to be doing nothing win out over those who want it to do something, this effort will suffer the same fate as the previous energy initiatives this year.

There is, however, a potential way to break the log jam.

This election season is unusual in featuring two Members of the Senate at the head of their respective tickets.  Both presumably want action on energy.  And as the leaders of their party, both should be able to unite their parties to break the logjam.  The legislation now has the drilling that Senator McCain wants and the support for alternatives he says he wants as well.  It also contains support for renewable energy at the heart of Senator Obama's energy plan.

Accordingly, I am calling on Senator McCain to bring his party together to support comprehensive legislation and on Senator Obama to do the same.  If the party leaders marshall their troops there is no reason we cannot see real action on energy even during the silly season.