Energy Prices

Monday Buzz: Climate Change, Civic Generations, Canadians, and More

NDN had major essays run in several publications this week. First off, NDN fellows Morley Winograd and Mike Hais had an ideas piece published in Politico, entitled "A New Generation Shapes a New Era." Here's an excerpt:

...Meanwhile, outside the Beltway, America’s demography is steadily and quietly changing in a way that will fundamentally reshape the country for decades to come. A new generation, the millennial generation (born between 1982 and 2003), is coming of age to make over or realign U.S. politics. The approximately 95 million millennials compose the largest American generation in history. There are now about 17 million more millennials alive than there are baby boomers (born between 1946 and 1964), previously the largest generation, and 27 million more millennials than members of generation X (born between 1965 and 1981), the relatively small generation between the boomers and the millennials.

While about 4.5 million millennials have reached voting age every year since 2000, the generation didn’t enter the electorate in large enough numbers to make a real difference until 2008. And make a difference it did. Millennials were decisive in securing the Democratic presidential nomination for Obama. In November, millennials supported Obama over John McCain by a greater-than-2-to-1 ratio, accounting for 80 percent of Obama’s popular vote margin and turning what would have been a squeaker into a decisive victory.

But the 2008 election was barely the tip of the millennial iceberg. Important as they were a year ago, not even half (41 percent) of millennials were eligible to vote, and they accounted for less than one-fifth (17 percent) of the voting-age population in 2008. A bare majority of millennials will be eligible in 2010. Close to two-thirds of them (61 percent), representing a quarter of the electorate, will be able to vote when Obama runs for reelection in 2012. By 2016, eight in 10 millennials will be eligible to vote, and they will account for 30 percent of the electorate. In 2020, when virtually all millennials will be old enough to vote, they will account for more than one-third of the electorate (36 percent). With numbers like these, the millennial generation will be in position to dominate U.S. elections and politics for decades to come...

Morley and Mike were also featured in the front-page story of Saturday's The Globe and Mail (Saturday is the Canadian equivalent of the Sunday paper here). From the Globe and Mail piece:

...The key to this debate may lie in a statistic. There are now more millennials than boomers. To be precise, there are 17 million more people born between 1982 and 2003 living in the United States than there are people who were born between 1946 and 1964. There are 27 million more millennials than there are Gen-Xers, the generation in between. The millennials constitute the largest generation in American history.

Millennials identify as Democrats over Republicans by 55 to 30 per cent; in one poll 80 per cent identified with Mr. Obama, and only 10 per cent identified generically with Republicans.

The boomers, who were raised to believe in ideals — hence the culture wars of the past 50 years — taught their children civic responsibility, says Morley Winograd, co-author of Millennial Makeover, a book that explores the phenomenon.

In the last election, millennials constituted 17 per cent of the electorate. In 2012 they will make up 25 per cent. By 2020, they will make up 36 per cent of the electorate, and will be the dominant demographic for decades to come.

"As long as they hold on to these more politically progressive ideas, which generations tend to hold onto throughout their lives — it's not true that they get more conservative as they get old — it obviously bodes well not just for Democratic politics but for activist government in economic matters, though not in social issues," he says, "which is the reverse of what we've seen."

Morley and Mike also appeared in The Hill talking about Obama's plans for the auto industry.

Next, Rob had a big piece published this week in Roll Call, "The Economy Will Force Quick Action on Climate Change." Here's an excerpt, though the whole essay is really worth reading:

...But with everyone’s attention now fixed on our economic crisis, this process can be accelerated. And as President Barack Obama has suggested many times, rebuilding the economy and dealing with climate change need not be mutually exclusive, if we enact the proper policies.

The proper approach here is a straightforward one.

First, enact a carbon-based tax to move people and firms to prefer and choose less-carbon-intensive fuels and technologies. Second, as we change the relative prices of different forms of energy based on their effects on the climate, protect people’s incomes and the overall economy by returning all or virtually all of the revenues through payroll tax cuts or lump-sum payments to households.

Third, use the certainty of a substantial tax on carbon, along with additional subsidies, to promote the development of new climate-friendly fuels and technologies that can capture a new and fast-growing global market.

Rob was quoted in the Houston Chronicle on climate change as well.

Carbonomics

In the current New Yorker, David Owen has a provocative, cautionary article on the difficulty of addressing climate change that points out that the only thing ever shown to truly lower CO2 emissions is a well timed industrial implosion.  Greenhouse gas emissions are the result, generally, of prosperity. 

While the article has many interesting observations, Owen draws a fine point on a subject that is often neglected and has relevance both to proposals to put a price on carbon and the future of Detroit, namely the mathematical equivalence between cheaper gas--anathema to many environmentalists--and, paradoxically, higher fuel economy 

The centerpiece of emissions policy for decades has been higher fuel economy standards.  However, as Owen notes, if higher gas prices such as those last summer lowered miles traveled and stimulated use of mass transit, then their mathematical equivalent, improved fuel economy or fiddling with the other side of the equation, can only reverse those trends. Higher fuel economy and, indeed, to a degree energy efficiency writ large suffer from the same problem.  Both encourage greater consumption of energy as cost declines.

Although Owen does not explore the next question, consider the impact of higher fuel economy and energy efficiency on energy independence--another major driver of efforts to get off fossil fuels.

Higher fuel economy which is to say cheaper driving if it leads to more driving as it appears to do may not reduce consumption of gas or oil and therefore either their price or money transferred to oil producing states.

This does suggest an interesting difference between hybrid and pure electric cars.  Whereas hybrids by improving gas mileage may promote more driving, limiting their effect on emissions, pure electric cars such as the planned Chevy Volt should unequivocally lower carbon emissions and oil consumption (since electricity generally produces less CO2 than gasoline thanks to its use of hydro, nuclear and natural gas-fired power not to mention renewables.)

But you say didn't cutting back on gas use last year after prices spiked, cause the price of oil to collapse, reducing payments to foreign oil producers?

First, the falloff in driving followed a price spike.  It only showed, therefore, that people consume driving like other normal goods, using more when costs drop and less when they rise.  The subsequent collapse of oil prices is much more tied to the collapse of the global economy than to any conservation efforts.

All of which brings us to the other main proposal for reducing emissions, the one now gaining traction in Congress: putting a price on carbon through a cap and trade system or tax.  In contrast, to better fuel economy or energy efficiency writ large, a cap that absoutely limits emissions or a cap and trade system that allows emissions at a price, by raising the price of fossil fuels should lower their consumption and thus greenhouse emissions.

This is not to say it will be easy to implement a cap and trade system or tax. However, it does suggest that we ought to try as the focus on fuel economy and energy efficiency alone will not get us to a lower carbon economy.

The Virtual March on Washington for Energy Independence, April 1-3.

Today is the first day of the three day Virtual March on Washington, organized by T. Boone Pickens, to promote the Pickens plan to get America off of foreign oil and onto new cleaner forms of energy.  The Pickens plan, in a nutshell involves increasing electric transmission capacity to bring wind power onto the grid and replace gasoline burning cars with those running on natural gas or, for lighter uses, electricity.

While opinions vary on whether there is enough natural gas in the US at an affordable price to ultimately replace foreign-imported oil, there is no doubting Pickens' energy and passion to promote his cause--or his ingenuity in using diverse media from television to Facebook to Twitter and partnerships with the NAACP, Rock the Vote, Ted Turner, AWEA and others--on its behalf.

If you haven't seen the commercials, you can learn more about the Pickens plan and the virtual march at www.pickensplan.com.

The Waxman-Markey Energy Legislation

Yesterday, Representatives Waxman and Markey, Chairmen of the House Energy and Commerce Committe and Energy and Environment Subcommittee, respectively, introduced draft energy legislation.  The ambitious bill lays out a sweeping agenda for energy reform that shows the intensity of commitment in this Congress to energy reform and dramatically increases the chance for passage of important energy legislation this year.  Today, the White House endorsed the legislation, further increasing the chances of action.

Key proposals include a cap and trade system to reduce emissions 83% by 2050, modernization of the grid, a renewable portfolio standard and support for new energy technologies including the politically important one of clean coal.  Coming on the heels of the major investments in clean energy included in the $787 billion ARRA legislation passed earlier this year, America is on the verge of the largest transition in energy priorities in our history--away from carbon based energy--toward new cleaner forms of energy.

Speaker Pelosi has already signaled her intent to move the legislation forward in the House where it will likely pass.  As usual, the key battleground will be the Senate where cap and trade legislation appears to be about four to five votes short of the 60 needed for cloture.  If cap and trade falls short, the Senate could move forward on the energy portions of a bill.  However, this would weaken the US negotiating position in Copenhagen next year.  Bringing a few more Senators on board is thus the key to comprehensive action.

The four titles of the bill map the major countours of the energy discussion, support for clean energy and clean technology including electric cars and a modernized grid, energy efficiency, a cap and trade system to limit heat-trapping pollutants and a transition title to minimize the disruptive impact of change this large on industry and consumers.

In addition to the Waxman-Markey bill, a variety of bills on the smart grid, grid modernization, renewable fuels, energy writ large and the reduction of carbon emissions through cap and trade or a carbon tax are also in play.  Some, such as Senator Harry Reid's transmission bill and Senator Bingaman's energy legislation have the imprimateur of highly influential legislators. 

While the Waxman Markey draft legislation is not designed to be the final say and leaves some details unspecified, we at NDN look forward to working with these leaders, the Administration and others to advance the legislation's critical energy goals.

The time has never been more ripe for moving America and the world decisively away from the carbon-laden fuels of the 19th and 20th Centuries toward a new, low carbon, renewable energy future.  That, in turn, should help drive the next great wave of economic growth one would expect from a major leap forward in the single most import imput--after people--in the economy, energy.

 

Is Cap and Trade a Dead Policy Walking?

In his February 24 speech to Congress, President Barack Obama asked Members “to send me legislation that places a market-based cap on carbon pollution.” So yesterday, House Energy and Commerce Committee Chair Henry Waxman took the first step by introducing his cap-and-trade plan. Yet sometimes, the political sands shift underneath a policy approach that was once viable, even embraced broadly, and its chances of becoming law ebb away. Until the media and the public make the connection between the policy and the new environment, the approach becomes a dead policy walking. It happened to Social Security privatization and the flat tax -- good riddance to both -- and now it appears to be overtaking cap-and-trade.

Cap-and-trade combines a regulatory cap on greenhouse gas emissions with a market-based scheme to trade as financial instruments the “permits” to produce those emissions. For all of cap-and-trade’s initial promise as an answer to climate change, the current financial crisis has made its vulnerabilities painfully clear. The strategy would have the government create trillions of dollars in new, asset-based financial instruments. These emissions-right-backed securities, like their cousins, mortgage-backed securities, also would throw off a host of new derivatives to be profitably traded by the “professionals.” Unsurprisingly, cap-and-trade’s fiercest promoters include Wall Street institutions that see emissions-permit trading as a lucrative new market that could earn them billions in new fees, commissions and, while it lasts, speculative gains. But after Wall Street’s meltdown, the proposition for another round of the financial merry-go-round that produced the worst economic crisis in our lifetimes seems either very naïve or very cynical.

That’s not the only tricky problem facing cap-and-trade. The other part of the policy’s design, the hard cap on emissions, ensures that the prices of the permits will be very volatile. Here’s why. The cap in cap-and-trade is set as a percentage reduction in annual emissions, figured from some baseline. The problem is that no one can forecast with precision how much energy American businesses and households will need from one year to the next, because no one knows how cold the winter will be, or how hot the summer, or how fast the economy will grow a year from now. When energy companies see that demand is going to outpace the forecast, so they will need more permits to keep on selling energy, the price of those permits will rise sharply. It’s not just theory: We use a small-scale cap-and-trade program to reduce the emissions that produce acid rain, and the price of those permits moves up and down an average of more than 40 percent per year. In the same vein, Europeans adopted their own cap-and-trade system for energy emissions a few years ago, and the price of their permits has moved up or down by an average of 17 percent per month.

For years, economists have worried that this basic feature of cap-and-trade would produce new volatility in energy prices. They’ve also cautioned that the result would likely be less investment in climate-friendly fuels, since no one would know what the price of their carbon content would be. Now there’s another, equally serious problem: The unavoidable volatility of the prices of emission permits also would attract furious financial speculation, since speculators live off of volatile prices. And we now know the risks that we all run when rampant speculation occurs in financial instruments tied to our economic foundations, such as housing -- or energy.

Like the excesses that helped create our current crisis, the financial markets for emissions permits also could well produce serious insider trading and manipulation. That’s because the final purchasers of the permits, large energy companies and utilities, would see shifts in demand for the underlying energy coming before anyone else. This information would create golden opportunities for insider profits and market manipulation, and erecting a “Chinese wall” inside the companies to segregate the production division from the trading division would work no better than it has on Wall Street. That may explain why until its own collapse, Enron was a prominent advocate of cap-and-trade.

The only reason to play another round of Russian roulette with the economy would be if cap-and-trade were the only way to address climate change. Happily, it isn’t: Many economists and some politicians support the major alternative, carbon-based taxes with rebates. This approach would create no new financial instruments to trade and abuse, and produce no additional price volatility, because the price of carbon would be set. It also would be relatively simple to administer and enforce. And it can be designed to recycle its revenues in payroll tax reductions or rebates. In this way, the carbon tax would change the relative price of different forms of energy, based on how much damage they do to the climate, while protecting people from the additional, direct costs of the tax itself. The revenues could also be recycled as a flat payment to each American household, providing relatively more help to low and middle-income families. The policy’s only real weakness is that it has no cap. But the tax rate could be adjusted periodically if actual emissions exceed its goal. And modeling shows that a carbon tax of about $50 per-ton of CO2 would produce slightly larger reductions in emissions than last year’s leading cap-and-trade proposal, the Warner-Lieberman bill.

For years, many politicians and environmental leaders have believed that any kind of tax to deal with climate change would be dead on arrival. That may be changing, especially if the tax is paired up with rebates to take away much of its political sting. More importantly, the costs and lessons of the financial crisis may effectively swamp the prospects for cap-and-trade. If cap-and-trade has become a dead policy walking, those who care deeply about climate change will find that a carbon tax system has become the last, reasonable policy standing.

More on the Gutting of the American Car Industry

The gutting of the US auto industry is a negative development for the economy, the consequences of which have not, I believe, been fully thought through.  And the contrast between the treatment of banks and the auto industry gets to the crux of what underlies at a very deep level our current economic malaise and long term prospects for recovery.

Further on this subject, the cover article in the current Harper's by Thomas Geoghegan, a Chicago lawyer, explores how both the financial and manufacturing crisis stem from a single cause, the elimination of contract rights and usury caps protecting people in recent years that have seen credit card rates jump from a few percent to 30% or more. Usury or excessively high interest rates, Geoghan points out, is something that societies have regulated since Biblical days for good reason.  Sky high interest rates simultaneously impoverish those at the bottom while monopolizing capital at the top in the pursuit of huge but inevitably unsustainable profits.  Echoing Kevin Phillips argument that  declining societies turn to finance as the only way to support--if temporarily--excessive consumption, Geoghan describes how the prospect of absurdly high returns siphoned capital from productive sectors leaving us doubly impoverished.  He writes:

Some people still think our financial collapse was the result of a technical glitch--a failure, say, to regulate derivatives... In fact, some New Deal-type regulation was actually intoduced in recent years...think of the Sarbanes-Oxley Act.  The problem was not that we "deregulated the new Deal" but that we deregulated a much older, even ancient set of laws.

The first of these were contract rights.  "As one company after another "reorganized" in Chapter 11 to shed contract rights, working people learned that it was not rational to count on those rights and guarantees, or even to think in these future-oriented ways.  No wonder people in our country began to live for the moment and take out loans and start running up debts.

And then we dismantled the most ancient of human laws, the law against usury, which had existed in some form in every civilization from the time of the Babylonian Empire to the end of Jimmy Carter's term, and which had been so taken for granted that no one ever even mentioned it to us in law school.  That's when we found out what happens when an advanced industial economy tries to function with no cap at all on interest rates.

Here's what happens: the financial sector bloats up.  With no law capping interest, the evil is not only that banks prey on the poor (they have always done so) but that capital gushes out of manufacturing and into banking.  When banks get 25 to 30 percent on credit cards, and 500 or more percent on payday loans, capital flees from honest pursuits like auto manufacturing.  ...  What is history, really, but a turf war between manufacturing, labor and the banks?  In the United Sates, we shrank manufacturing.  We got rid of labor.  Now it's just the banks. 

Geoghegan's unusually provocative article is worth a read.  More broadly it raises an important question.  Will the United States undertake real reform to strengthen contract rights, limit usury, downsize our financial sector and upsize our productive base.  This is an outstanding opportunity for meaningful reform to address the middle class impoverishment that, as NDN has long noted, lies at the root of our current crisis and whose reversal is also critical to our democracy.

Cars, Banks and the Future of the Clean Economy

Yesterday, the Obama Administration's task force on the auto industry concluded that America's auto industry must downsize.  Drastically.  Cutting 50,000 jobs at GM--the company's proposal--is inadequate, the Administration concluded in its review of the GM plan.  Nor can GM continue to sponsor so many brands which the task force dubbed distracting to management.  Instead, the Administration believes GM should pare back to perhaps Chevy and Cadillac.  As for Chrysler, the Administration ordered it to sell, ie. hand itself over to Fiat or file for bankruptcy.

At issue is the $6 billion or so the industry needs to keep going. 

Does anyone else notice the irony that this pronouncement came on the heels of a plan to provide 1 to 2 trillion dollars to banks to take bad loans off their books with no concessions, no plan for a turnaround, no paring of brands, no industry review or task force, in fact, nothing at all required?

I support bailing out the banks.  And I support doing it without micromanaging the business beyond changing management at the top--and securing warrants to reduce the cost to taxpayers--as I don't think government is well suited to managing businesses.

But I don't think anyone in the government including the task force after reading the industry's plans and conducting one or two trips to Detroit know more about cars than the car industry itself.  Nor does anyone in the government know more about cars than about the banking industry which the government regulates and has been bailing out--and therefore learning about--for over a year at the cost of trillions. 

One other thing about the government's dual standard for financial services and autos bothers me, namely wrapping condemnation of the auto business in environmental rhetoric. While the car industry took a hit from high gas prices last summer--an external shock it could not control--and has shown a consistent tin ear to fuel economy, its problems today have little connection to the environmental profile of cars.  From a strict profit and loss perspective, investing in hybrids and electric cars--though critical to a future that may no longer exist in the United States--is not good for present cash flow.

The primary problem facing all the automakers today, not just GM and Chrysler but Toyota, Honda and the rest is that sales have fallen off a cliff becasue of lack of financing.  Few people can pay all cash for a car.  And currently only those with sterling credit can get a car loan.  The auto industry, from Honda whose sales are down over a third to Chrysler, is a casualty of the financial crisis created by our banks.  But it and the hundreds of thousands of Americans who work in the auto supply chain will now have to pay a far higher price.

The Big Three have one problem the Japanese carmakers don't, their legacy healthcare and retirement costs from when times were good and unions were strong.  These have been exacerbated, however, by the stock market collapse--again a financial problem not of their making. 

If America is serious about reaping the economic benefits of a clean technology revolution that encompasses transportation--as I believe we must be and the President has indicated he believes we must be as well, we can't do it with a gutted auto sector.  By gutting the auto sector, we are only making ourselves more dependent on financial services as the chief engine of our economy--a strategy that has proven ill advised.

To rebuild our economy we need more engineering and less financial engineering.  And to do that we will need a healthy auto sector.  In a previous post I outlined some of the reasons that finance is advantaged in the policy process relative to manufacturing.  Until we address the anti-blue collar, anti manufacturing barriers in our policy process, we will not succeed in placing our economy back on a sustainable path to long term growth.

Lessons from Detroit: 10 Years Later, the Overhaul of the Domestic Auto Industry and Its Parallels with the Republicans' Problem

Note: Morley Winograd and Mike Hais, NDN Fellows, are co-authors of the critically acclaimed Millennial Makeover: MySpace, YouTube, & the Future of American Politics. Winograd and Hais also have a long history with Detroit and Michigan. Winograd lived there for 50 years and was Chairman of the Michigan Democratic Party from 1973 to 1979. Winograd later served in Washington, DC, as Senior Policy Advisor to Vice President Gore, during which time he witnessed the events described in the essay below. Prior to joining Frank N. Magid Associates in 1983, Hais was a political pollster for Democrats in Michigan and an Assistant Professor of Political Science at the University of Detroit.

With President Barack Obama's expected annoucement later this morning, the current debate over whether to save our domestic auto industry has revealed some starkly different views about the future of manufacturing in America among economists, elected officials and corporate executives. There are many disagreements about solutions to the Big Three’s current financial difficulties, but the more fundamental debate is whether the industry  should bend to the will of the government’s and taxpayers' priorities or serve only the needs of the companies’ customers and their shareholders. 

Detroit had an opportunity -- nearly 10 years ago to the date -- to change. To understand the globalizing world around it, to understand that consumers' priorities and values -- especially those of the rising Millennial Generation -- were changing drastically. While some may think it's a leap to compare an overhaul of Detroit with an overhaul of the discredited Republican Party, the similarities are there:  

But when the government becomes a major stockholder in private enterprises, the brand becomes political. And as General Motors learned to its regret, when a company’s brand is as damaged as badly as the Republican Party’s is now, the chances of it prevailing in any debate about the automotive industry’s future is greatly diminished. Very aware of the public tsunami of anger over AIG bonuses, Wall Street excesses and public perception of corruption and lack of accountability, President Obama is not in a forgiving mood. He has made clear the domestic automobile industry has to be seen as a contributor in ending America’s dependence on foreign oil and improving our environment to secure his support. Almost exactly ten years since the debate at the Detroit airport, as a price for its financial support, the federal government will in fact be telling at least General Motors which vehicles to produce for its customers.  Given that arrangement, both parties to this newest partnership need to find “win-win” solutions for the industry’s future that match the optimism and civic spirit of the Millennial generation who will have to pay for the results of their decisions.

The last time the industry seriously engaged in such a debate was during the Clinton Administration and the companies’ failure to effectively respond to Vice President Al Gore’s offer to partner with them in producing more environmentally sensitive products gives substance to President Obama’s charge last week that their current difficulties were caused by executive “mismanagement” in the past.

Attempts to nudge Detroit into producing more fuel-efficient vehicles have been going on since the 1973-4 Arab Oil embargo, which led Congress to establish Corporate Average Fuel Efficiency (CAFÉ) standards for cars and light trucks. The original fuel efficiency target was for cars to meet an average of 27.5 miles per gallon (mpg) by 1985. On Earth Day, 1992, candidate Bill Clinton proposed to raise that standard even further to 45 mpg if he were elected President.

When Al Gore was asked to join the ticket, auto industry executives, terrified at the prospect that the man who had called for the abolition of the internal combustion engine might become Vice President, implored the leadership of the United Automobile Workers (UAW) to meet with the candidates and bring them to their senses. The lobbying effort worked.  Clinton agreed to delay the adoption of higher CAFÉ standards until it could be proven that such goals were attainable. 

This formulation opened the door for what came to be known as the Partnership for a New Generation of Vehicles or PNGV.  Reluctantly supported by the Big Three, PNGV provided approximately a quarter of a billion dollars in government research funds to demonstrate the feasibility of producing a midsize sedan that could get 80 mpg. Often called “the moon shot of the 90s,” each car company was to make a prototype of such a vehicle by the politically convenient year of 2000 and begin mass production by 2004.  

After a few years of technological research, the partnership settled on the combination of a hybrid gasoline and electric powered propulsion system as the most promising approach. But by 1997, the car companies began to resist expending their resources to develop even a prototype for such a vehicle. Vice President Gore, who had been in charge of the  PNGV program since its inception, decided to meet with the Big Three CEOs to make sure they did not forget their  past commitments. The answer from Detroit was emphatic: profits were coming from SUVs and heavy-duty trucks, not cars. Gore countered that argument by offering to trade the administration’s support for tougher regulations on the permissible amount of sulfur content in the diesel fuels that would power some of the new hybrid SUVs, if the car companies would join in expanding the scope of the PNGV plan to include SUVs, the very product they said the marketplace was asking for. Gore suggested each company produce a concept SUV by 2002 and three production prototypes by 2006, capable of getting 80 mpg. He also suggested they advance the mass production goal for cars to 2002 by deploying a 60 mpg five passenger sedan in 2002 rather than waiting for an 80 mpg version in 2004. 

Ford’s Peter Pestillo and his UAW ally, Steve Yokich, quickly replied, “no way.” Pestillo maintained, “We need much more time than that to make them cost competitive.”  Not all of the auto executives were blind to the challenge. General Motors’ Vice-Chairman, Harry Pearce had been the driving force behind GM’s ill-fated EV1 electric car experiment. And William Clay “Bill” Ford, Jr., great grandson of the company’s founder and Chairman of its Board of Directors envisioned building  a 21st century version of the Model T that would be environmentally friendly as well as inexpensive. Gore asked the companies to respond to his suggestions by September 1998, the fifth anniversary of PNGV.  

But it wasn’t until May of 1999, that the auto company CEOs joined the Vice President to settle the issue of SUVs and PNGV.  Gore began the meeting, held in a back room at the Detroit airport, by suggesting that developing these products could enhance the industry’s image as well as each company’s individual brands.  Ford's Pestillo asked for still more time to consider the idea: “While we love the progress we are making in PNGV as it’s currently constituted, it’s not yet clear to us that the technologies we have been working on apply to the design of an SUV.”  But Pearce used the platform (basic body design) issue raised by Ford to make Gore’s point. He sketched a future auto industry where the line between cars and trucks would not be as clear, describing what we know today as “crossovers”.  It might therefore be wrong, he suggested, for PNGV to be limited to just one platform. 

Gore took the opening and suggested the companies think about what such an announcement might mean to the industry’s image and their individual brands. “It’s not just the substance of the issue you need to consider. You also need to think about the symbolism of the decision. Putting SUVs into the PNGV project would change the public’s perception of where you are going in the future.”  When Pestillo attempted to return to his original arguments, he was overridden on the spot.  GM said, “If you will include lean burn technology (for diesel SUV’s) into the project that might work.” Gore responded, “Let’s work on this as a package.”

Recognizing the breakthrough they had just achieved, the participants began to think about what the future might look like if they formed a true partnership -- not too dissimilar from what is being contemplated now under the terms of the automotive industry loan. Gore said he would put his personal reputation behind such an agreement, which the press would think of as a “Nixon goes to China” event, garnering the auto industry a great deal of positive press. 

But when it came time for the true test of their commitment to this new partnership, the autos blinked. The Vice President suggested they sign off on a press release, conveniently drawn up before the meeting started, announcing the inclusion of SUVs in an expanded PNGV project. The CEOs argued for a less definitive announcement stating that they would address the issue of highly fuel efficient SUVs within the context of the PNGV partnership, but not commit to any specific goals for their production. This less-than-definitive agreement barely made it to page B4 of the Wall Street Journal the next day and was generally ignored by the public the participants were hoping to impress.

Unfortunately for America, General Motors then decided to go in almost the opposite direction. Rick Wagoner, who became General Motors' CEO in June 2000, chose to pursue an SUV-centered strategy that won big profits for a brief period. Since then, however, GM stock has plunged 95%, from $60 per share to just under $4 today. General Motors, which has lost $70 billion since 2005, has seen its market share cut in half.  Seven years after the fateful auto summit with Al Gore, when asked what decision he most regretted, Wagoner told Motor Trend magazine, “ending the EV1 electric car program and not putting the right resources into PNGV. It didn’t affect profitability but it did affect image.” [emphasis added].

His lack of commitment to the type of automobile industry that PNGV envisioned ultimately led to his downfall with the Obama Administration now demanding his resignation as part their plan to save GM.

The importance of a company’s public image or brand value has never been greater than in this new civic era, where the lines between democratic decision-making and private sector planning are becoming increasingly blurred. The organizing cry of Boomer feminists was “the personal is political.”

The paragraph from above bears repeating: 

But when the government becomes a major stockholder in private enterprises, the brand becomes political. And as General Motors learned to its regret, when a company’s brand is as damaged as badly as the Republican Party’s is now, the chances of it prevailing in any debate about the automotive industry’s future is greatly diminished. Very aware of the public tsunami of anger over AIG bonuses, Wall Street excesses and public perception of corruption and lack of accountability, President Obama is not in a forgiving mood. He has made clear the domestic automobile industry has to be seen as a contributor in ending America’s dependence on foreign oil and improving our environment to secure his support. Almost exactly ten years since the debate at the Detroit airport, as a price for its financial support, the federal government will in fact be telling at least General Motors which vehicles to produce for its customers.  Given that arrangement, both parties to this newest partnership need to find “win-win” solutions for the industry’s future that match the optimism and civic spirit of the Millennial generation who will have to pay for the results of their decisions.

Sustainable Funding for Sustainable Infrastructure

New York City -- This past Friday, Princeton University's PRIOR Center and the NYU's Rudin Center convened a conference on what's next in transportation. The speakers, who included Mort Downey, former Deputy Secretary of Transportation and leader of the Obama transition team for transportation, Tony Shorris, former head of the New York and New Jersey Port Authority,  current PA chairman Anthony Coscia, and others agreed that we are at a crossroads in transportation policy. 

On the one hand, there has never been more enthusiasm for new modes of transportation such as high-speed rail and new approaches such as vehicle mileage tolling and congestion pricing. Billions in the stimulus bill and the Obama budget for rail have set off a frenzy of excitement about building high-speed rail in the United States. At the same time, however, the old system of funding infrastructure, the Highway Trust Fund, fed by gas taxes, has never been under greater stress. With a new transportation authorization bill likely to move this year, we stand at a key juncture in U.S. transportation policy.

Transportation reform is vital to building a clean economy. Not surprisingly, therefore, much of the discussion at Princeton focused on the irony of trying to fund the reinvention of transportation out of a five-cents-per gallon gas tax -- at a time when reducing gas consumption has emerged as a national security, economic and environmental priority.

Currently, the Highway Trust Fund, built on nickel-a-gallon gas tax accounts for the lion's share of infrastructure funding in the United States -- not only for roads, but for mass transit as well. But the fund essentially depleted (having required a bailout last fall to stay solvent).  Additionally, with construction prices higher but gas usage falling, the gas tax now provides only about half the purchasing power needed to sustain our current system, let alone make improvements.

As a result, many people have been talking about switching to a Vehicle Mileage Tax or VMT as an alternative to the gas tax. A VMT would toll mileage, not gas, enabling the country to reduce gas consumption without starving its infrastructure. However, the "t word," as Mort Downey has described it, whether that refers to taxes or tolls, is highly controversial and recently White House Press Secretary Robert Gibbs struck down a suggestion by new Transportation Secretary Ray LaHood that switching to a VMT is on the table.

One alternative that would sustain historic levels of funding but would not provide funds for much new investment would be a dime-a-gallon tax. That would be the easiest -- if least imaginative -- fix.

A bolder idea is to create a national infrastructure bank as proposed by U.S. Sens. Chris Dodd and Chuck Hagel to tap private money for infrastructure investment, an idea endorsed by NDN. Indeed, the Obama budget would fund such a bank. However, in the current environment, private money is not as available as it was.

Last week, U.S. Rep. Earl Blumenauer, who spoke at NDN's clean infrastructure event in January, introduced Clean Tea legislation to tap 10 percent of revenues from a cap-and-trade system of the type contemplated by the Administration's budget for transportation. Given the key role of transportation in emissions and cleaner transportation in reducing emissions, this makes a great deal of sense. 

Everyone recognizes that the old system of a nickel-a-gallon tax combined with earmarks isn't working. There is a great appetite to reform the basis for funding infrastructure and this year, a real opportunity.

Obama's Weekly Address Focuses on the Budget

President Obama's Weekly YouTube address today focuses on the budget outline he released earlier this week. In breaking down the various elements of his budget, Obama explains how the specifics correspond to commitment to change he made on the campaign trail.

The most memorable line comes after he discusses the changes from the Washington status quo that his budget represents:

I know these steps won’t sit well with the special interests and lobbyists who are invested in the old way of doing business, and I know they’re gearing up for a fight as we speak.  My message to them is this:

So am I.

Take a look at the whole address:

This very much feels like the President is governing with the large mandate he won on election day, and rightly so. It's amazing to think how much there is to do, after so much of this - energy, infrastructure, healthcare - has gone undone for the last 8 years or longer.

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