Last week, NDN released my paper on Electricity 2.0: Unlocking the Power of the Open Electricity Network and since then, talking about E2.0 with many in the electricity and energy world, producers, consumers and other leaders, I am move convinced more than ever of the need to upgrade our electricity architecture.
In a nutshell, the argument I make in the paper is that the US will not recognize the promise of clean energy without fundamental redesign of the network at the core of the energy system: the electricity network. The electricity network is the only portion of the wider energy network where energy moves at close to the speed of light as opposed to the speed of a tanker or truck. It translates energy from carbonized plants, falling water and the atom to usable form. It is the only part of the network able to let falling water in one time zone simultaneously light a city in another. But our antiquated architecture restricts its amazing qualities.
Many have commented on the antiquated physical state of America's grid. But the deeper question is why is the grid so underfunded, undersized and unintelligent? The answer is that America has the grid that the current system was designed to create. For many years, R&D in the highly regulated electricity sector outside of the industry consortium, EPRI, has been virtually nil. Our balkanized system operates under a patchwork of multi-tiered regulation. Since utilities realize no reward for risk and receive a guaranteed rate of return on capital, they have no incentive to innovate. The incentives all work against clean energy and new technology. Resistance to innovation, in turn, works its way back up the value chain, constraining purchase of new technology and clean energy developed by others, be they Fortune 500 companies or high tech start-ups. The clean energy promise has captivated everyone from President Obama to Silicon Valley--largely due to gap between what we have and what is possible. However, we won't achieve what is possible without an upgrade to Electricity 2.0.
Electricity 2.0 involves an upgrade at multiple levels.
It involves the upgrade of our physical wires--network modernization.
It requires the upgrade of the software and switches guiding the network--a smarter network.
However, far beyond that it requires, a new open, plug and play architecture to facilitate many-to-many connections, richer information exchange between consumer and producer, the blending of the consumer and producer distinction as more people trade with one another and the rollout of innovative new products and services across an electricity commerce platform that leverages the power of an open network.
To make all this happen, it requires the rearchitecting and modernization of the regulatory framework underlying the system to reward risk, create competition and create opportunity for incumbents and new players alike. Absent a new architecture, the system will remain frozen in time and investments in meters or new transmission will fail to achieve their goals.
To do these four things, while making the network more reliable and secure, we need nothing less than a Big Bang at the federal and state and local level to consist of federal and state legislation and federal and state rulemaking to create a 21st Century platform for electricity delivery and exchange. As a starting point, we should look to the model that unleashed innovation and unlocked wealth in the highly regulated telecom world at the start of the Internet era, the 1996 Telecommunications Act.
Ultimately, we cannot expect regulated utilities to lead a revolution. In the case of the telecom revolution, people designing websites, configuring cellphones and writing code late at night made the revolution. The American people have the energy, drive and desire to lead a clean energy revolution as well, but we must give them the tools they need to do so.
The stakes are huge. If we succeed, we will realize the opportunity of clean energy and launch a renewable revolution. We can lower electricity costs, freeing up purchasing power in household budgets and make American industry competitive in the coming century.
If we fail, and continue with the current system, we will not see clean energy come online at scale, we will see few innovative energy products and the competitiveness of our industry will erode.
Electricity 1.0 served the country well in its day. But that day is past. It is time to upgrade our century-old architecture to Electricity 2.0 if America is to stay competitive in the 21st Century.
In coming months, NDN will be working with stakeholders to develop a framework for America to upgrade to Electricity 2.0.
Well, it's over. The 2009 United Nations Climate Change Conference ended not with a bang, a whimper or a treaty but rather with something akin to a scream from developing countries--some like Tuvalu that may one day end up under water--whose objections to a plan cobbled together at the last minute prevented the conference from reaching a formal agreement. Instead, the organizers "took note" of an accord forged by the US, China, India, South Africa and Brazil that now lacks even the mild imprimateur of formal endorsement by the UN conference.
And what of the Accord reached by those five countries that other countries may now sign onto? Given the fear and loathing that broke out earlier in the week between the developed and developing nations that with disastrous logistics threatened to make Copenhagen the Seattle of climate change negotiations, it was as good an outcome as could have been hoped for by the end. However, the deal struck--to commit to reduce emissions with transparent reporting--was far weaker than what appeared achievable earlier in the week let alone expectations for the conference. It keeps the idea of a global climate change accord alive but just barely.
In retrospect, the idea of forging an international agreement requiring the acceptance of every country on earth during the greatest global financial crisis since the Depression to deal with a crisis whose greatest effects may not be felt for decades, may have been overly ambitious. The promise of a global agreement on climate change that began in Rio made sense for many reasons. The atmosphere moves across the face of the globe so that gases emitted anywhere impact global weather. However, the bar for concerted action--a global treaty with billions of zero sum dollars at stake--is clearly high. It can take the US years to negotiate a tax treaty with a single county. With the Accord a guide to a more formal agreement, countries will work over the coming year toward a binding agreement in Mexico. But in the wake of Copenhagen, action appears no closer than before and perhaps further. The Accord does give President Obama something to show Congress to encourage action on climate change. But what form should the action take? The centerpiece of the House bill is, of course, a US cap and trade system. Cap and trade has proved effective in lowering NOX emissions . However, it is a mistake to view action on climate change and cap and trade as synonymous. Europe has had cap and trade in place for several years and has not succeeded, for the most part in actually reducing emissions. A cap and trade system like a carbon tax provides an incentive to adopt new technologies or change behavior to produce less carbon. But it is only a means, not the end.
What is the end? The end is new low or no carbon technologies that are the necessary and sufficient condition to lower greenhouse gas emissions. Emissions will go down when electric cars powered by renewable electricity replace gasoline cars and industry, homes and business run not on carbon-intensive fuels but on clean, renewable energy. While a cap and trade system or carbon tax would make high carbon technologies more expensive, the real long term goal is to lower the price of clean alternatives. That means breakthrough technologies and disruptive innovation.
Fortunately, breakthrough innovation and transformative technologies are their own reward and do not depend--in the long term--on making carbon more expensive. There are other ways to accelerate innovation. In the context of electricity, a key task is to break down barriers blocking the uptake of clean technology. One such barrier that will remain whatever happens to the price of carbon is the cumbersome process by which utilities, heavily regulated and incented to do the wrong thing, not the right, currently source--or don't source--clean technology and renewable power.
The good news is we still control our destiny since if the US can pioneer new technologies, not only will we reduce our own emissions, we will harvest the economic benefits of selling this technology to others. Whatever happens in Congress with cap and trade and with international climate negotiations, it is vital that we move forward on accelerating clean innovation now and tear down barriers blocking the free flow of clean technologies and energy to market.
The New York Times"Wheels" blog delivers some interesting news on the Nissan “Leaf” (not sure about that name), the company’s new electric vehicle that is being introduced in Los Angeles today.
The Leaf, an all-electric five-door hatchback, will have a 100-mile range, Nissan said.
Mr. Ghosn said last month, in introducing the Leaf at the Tokyo Motor Show, that the vehicle would be priced “competitively” compared with other cars its size. This has been estimated at $25,000 to $33,000. But the price won’t include the lithium-ion battery packs; those will be available for lease separately. The spent battery packs will be recycled by Nissan and reused.
The Times writes those last two sentences (emphasis added) as if leasing the battery packs is some kind of "catch" in the pricing. It's not. Rather, the battery pack and the electricity to charge it are analogs to gasoline in conventional vehicles, which is never sold with the car.
For this reason, Nissan is on to something with the battery leasing. Like Better Place, which is building infrastructure for electric vehicles (and is teamed up with Renault-Nissan), Nissan knows that the key is not to build a car with a battery for the same price as a conventional gasoline car. Rather, the key is building a battery-less car for the same price as a conventional car. And once that happens, because electricity is far cheaper than gasoline, all one has to do to beat conventional cars is make the lease cost of a battery plus the electricity costs competitive with the cost of gasoline over the same period (which is already a reality in many countries). Incorporating the battery and its cost into the vehicle is likely not the right way to go for so many reasons, but on the financing side the cost of actually making a car go is always an addition to the purchase cost.
Fully electric cars have some way to go – charging infrastructure needs to be built out and standardized, battery costs still have to come down, and capacity should go up – but getting the cost structure right is crucial in creating this piece of the low-carbon economy. Electric vehicles will ultimately offer tremendous benefits to consumers, from price stability to never having to go to the gas station, and to the electricity system, as the aggregate storage capacity in batteries will provide a demand response capability. And while I might prefer a name that connotes a bit more strength, the Leaf is a nice step forward.
New York City - With President Obama's speech today before the UN meeting on climate change, convened by UN Secretary General Ban Ki-Moon, the release of excerpts from an IEA report on the climate Sunday and climate on the agenda at the G-20 meeting in Pittsburgh, this week has shaped up as a remarkable one in climate discussions. On Sunday, the IEA released sections from its forth coming Energy Outlook that are remarkably optimistic about the climate. Today, President Obama gave a forceful--if thematic--speech to the UN--notable more than anything else for the reversal of US policy on the climate that his presidency brings relative to his predecessor. And later in the week, the G-20 will take up the issue anew after failing to make major progress in London. All of this is happening with Copenhagen now just around the corner. At this point, it is worth taking stock of where the world is on what Sir David King has dubbed the hot topic.
First, the IEA report in its suprisingly positive findings shows above all, that action on climate change is within our reach. The IEA found that the EU effort on climate has succeded more than previously thought. It also praises China for its efforts and the US for improving fuel economy Most notable, however, is the huge decline in emissions that has evidently accompanied the current recession. The sharp dropoff in emissions shows that the word can cut emissions dramatically over a period of months and still survive. In effect, it sets a boundary. Obviousy, we don't want to see unemployment at 10% in the US in order to lower emissions. But it shows that a lower emissions world is attainable. In fact, we are living it right now.
The President's speech, though criticized by some environmentalists for lacking specifics, in my mind hit the right notes and reverses one of the troubling elements of much of the discussion before. While noting that the developed world needs to do more, the President also called the developing world to account. This strikes a slightly different note than many dicussions up to now that have reprised the poverty debate with the developing world asking for aid and the developed world expressing guilt over previous sins. Climate change discussions--though they touch on issues of development--are not about equity between North and South but rather the survival of the planet. Progress on saving the climate cannot be about apologizing for the last century of industrialization. That was a necessary phase of economic development that although it raised living standards first in the developed world, in effect, paved the way for industrialization everywhere. Nor was industrialization in the west a free ride for the workers who toiled in factories or even those who enjoyed its fruit as the high mortality of the indsutrial wage and bloody 20th Century attest. The developing world although slower to industrialize in many ways inherits the technology, transportation network and markets created by the developed world's industrialization. And developing countries have an even greater stake in addressing climate change because they stand to suffer disproportionately from rising sea levels, disruption of food supplies, extreme weather and other potential consequences of a hotter planet. The President was right to call on the developing countries to be as serious as the developed ones about facing this issue.
The discussions underway at the UN and those that will be part of the G20 process, however, are not moving at the pace that anyone would like. Although President Obama took pains to mention the passage of climate change legislation in the House, he could not point to a unifed American position as our basis for international negotiation. The simple fact is that there is a very real possibility that a comprehensive global agreement on global greenhouse gas emissions will not be ready by Copenhagen.
If that is the case, however, as the IEA repot makes clear, that does not mean all is lost. Rather, the US like China and, indeed, all countries needs to move forward on the many other fronts available to address the problem of greenhouse gas emissions. Since the recent interruption of growth was, we all hope, temporary, as I have written before the answer ultimately must be technology. In order to incent the private sector to accelerate the rollout of low carbon technologies, government needs to put the right policies in place. That means improving fuel economy, building more efficient buildings and creating a new, smarter, more open electricity network to spur a renewable revolution.
Regardless of what happens this week in New York and Pittsburgh, or what happens in Copenhagen the problem of climate change will not be solved in a day a month or a year, but only through the consistent application of private industry and government in all their actions to introducing that technology. That is the real imperative underlying this week's focus on climate change. And it must be the real goal of a wide range of policy efforts going forward whether the world secures a comprehensive agreement or not.
As the New York Times reports today in an editorial, the decision of Senators Kerry and Boxer to put off introduction of their climate bill until the end of the month is likely to push Congressional action on climate change that much further into the future. With the fate of health care legislation in doubt, there is little appetite for moving climate change legislation to the floor. However, as the Times also points out, that does not mean all is lost. The EPA is moving forward on rules to regulate carbon dioxide as a greenhouse gas. Perhaps even more importantly, however, the Senate has already passed legislation to create a renewable electricity standard. Indeed both the Senate and House have passed numerous provisions--that while not as dramatic as putting a price on carbon--attack the climate problem in important ways.
The current situation highlights the fact that while putting a price on carbon through a cap and trade system or carbon tax--as France just announced it will do next year--has achieved symbolic status as a litmus test for seriously addressing climate problem, it is only one policy tool. Indeed, as the EU's experience with cap and trade (and carbon taxes in Finland, Sweden and Denmark) shows, there is no silver bullet for reducing emissions. There are policies. And all of these policies ultimately must accomplish the same thing: accelerate the development and use of new, cleaner technologies.
Assuming continuing growth of human civilization, only new low emissions technologies that replace carbon intensive ones can sustain growth without warming the planet. Conservation--getting by with less--is helpful in the short term. So is reforestation. Over the long term, however, as population grows and living standards rise, forests will be cut and emmissions rise, leaving new technologies as the only long term answer.
The appeal of putting a price on carbon is that by internalizing the social costs of emissions, it lets the market select the best way to reduce them. The difficulty, as the EU has discovered, is that allocating the right to pollute or even crafting a fair and harmonized carbon tax is an inherently political process that provides a golden opportunity to free ride on the reductions of others. Since climate change is something taking place over decades, governments have an even greater opportunity than usual to postpone pain. To date, Europe's success in reducing emissions through cap and trade has been real but modest and its efforts offset by exploding emissions from India and China.
This does not mean that cap and trade is not a good idea: only that is just one tool in the shed. Which brings us to alternative approaches.
Europe has had success with a feed in tarriff to encourage deployment of renewable energy. The US equivalent of tax credits has been useful though less transformative. A renewable electricity standard such as that in the EU and those already passed in separate bills in the House and Senate will also help replace carbon intensive energy with renewable energy.
However, there is an additional problem. While building is going green--most new large commercial buildings are seeking Leeds certification, power generation is changing far more slowly. The reason is its regulated status. While the telecom industry is now turning over its entire network infrastructure every five years at a cost of billions and consumer businesses must continually invest in new products and technologies to stay in place, heavily regulated power utilities face no real competition and, instead, major barriers to innovation.
True, regulated utilities normally earn a guaranteed rate of return on investment which, all things being equal, should incent them to make new investments. However, they also require the approval of regulators whose mission, above all, is to contain costs to consumers. A consumer preference for renewable energy rarely expresses itself in the market since consumers don't get to choose their source of power. In short, the structure of the utility industry is currently blocking the renewable revolution.
I support prompt action on cap and trade as one tool to address the climate problem. However, as valuable as it is, it is one tool of many. Regardless of how quickly this tool becomes available, it is important to take all of the other steps available to accelerate investments in clean technologies.
Clean technology clearly holds great promise for future economic growth. However, as development of new clean technologies accelerate in the United States, it remains an open question whether US firms and workers will capture the economic activity or whether the bulk of the benefits will flow elsewhere. The issue cropped up in the recent passage of the cash for clunkers law which will reward consumers for trading in clunkers for newer fuel efficient cars. The law will benefit American consumers and carmakers but also benefit carmakers and overseas suppliers selling into the US market. And, indeed, it shadows the entire issue of clean technology driven growth. While the transformation to a clean economy will pay important environmental and security dividends no matter what, how the economic promise of clean technology ultimately gets divided will vary by country.
Call it Competitiveness 2.0. It is the subject of a penetrating article in the current Harvard Business Review by two Harvard professors, Gary Pisano and Willy Shih entitled "Restoring American Competitiveness: Why America Can't Make a Kindle". The professors examine a wide range of technologies from computer equipment to software to clean technology and find America at a growing competitive disadvantage. Both the data they cite and the case studies they include should serve as a wakeup call to anyone thinking about clean technology and the future of the US economy.
While innovative ideas continue to flourish in the United States -- think Twitter, Ning and Facebook--the US has become a technology laggard among the OECD countries in critical measures. The US trade deficit is old news but the authors point out since 2002, the US has been running a deficit even in high tech goods and services. The main export of the US is capital. And there are precious few bright spots in the technology firmament.
In the case of the Amazon's Kindle reader, which the authors examine in detail, though engineers in California designed the product, there is simply no US capacity to make the components. (If the US lacks the capacity to make a Kindle could it make a military computer in a pinch?) In aircraft, Boeing continues to lead the world but it now relies on a network of global suppliers and has cut its American workforce. Managing this complex supply chain led the company to delay delivery of its Dreamliner. All but the highest end computers are now made abroad. And even complex software tasks, from writing software to using it for engineering, are moving overseas.
In clean technology, leadership in battery technology lies abroad. GM's Volt, scheduled for introduction next year, for example, will source batteries from South Korea. While a few companies such as Tesla are developing advanced auto technologies, the US lags Asian and European companies in hybrid and other technology. With most growth in the world's auto sales likely to take place in China, India and the developing world, companies like Tata and Chery (originally a Chinese knockoff of Chevy) will have a homefield advantage. Chinese, Japanese and Korean companies dominate all PV production of solar cells except in thin films -- the most advanced and promising technology where US firms still lead the way. In smart grid technologies, US companies face roadblocks in the form of an excessively complex and highly regulated utility industry. Installing new smart grid meters and retrofitting old buildings only gets you so far in terms of new jobs and new businesses. All told, while the US has the potential, thanks to our still- unmatched system for financing innnovation, to develop the technologies of tomorrow we are, all too often, behind in the technologies of today.
What are the sources of our competitiveness problem? America continues to lag in primary and secondary education. Our universities may be the best in the world, but most of the spots in top PhD programs now go to more motivated students from overseas. (Community colleges are a US strength that can be scaled as Rob Shapiro has argued and the President recognized today in calling for their expansion.) The relentless search for low wages continues to send capital out of the US. American firms still can receive tax breaks for moving jobs overseas. Short term thinking, driven by the next quarterly results dominates corporate strategy.
On the macroeconomic level, the US continues to stress consumption over production. This bias, which derives from a strong dollar that keeps imports cheap as long as others lend us the money to buy them, encourages overseas instead of domestic production. A weaker dollar and shift toward a producer and investment-led economy would temporarily lower standards of living, but may be what is required to create the foundation for long term growth. Recently, former NEC head, Laura Tyson, proposed just such a shift in national priorities. While these are complex questions, a real debate over our priorities -- toward consumption--or production is in order.
In the 1990s, the US made major strides in reversing its competititiveness deficit so that by decade's end it was leading the global economy. However, as Pisano and Shih make clear, those strides were temporary and the problem has returned. The competitiveness issue, the authors show, is far more problematic today than at any time in American history. And if this issue is not satisfactorily addressed, the US will not see wages, standards of living or other metrics of welfare rise. As NDN has long argued and as the HBR authors note as well, stagnant wages combined with rising expectations led to the absurd borrowing that precipitated the latest financial crisis.
In short, if the US is to reap the economic rewards of a clean technology revolution, we need to seriously examine our competitiveness posture and take the steps needed to put us back on track to leading, not lagging the global economy.
New York City--This past weekend, Vice President Biden made news when he said that the economy was probably in worse shape at the beginning of the year than anyone thought. Although he told George Stephanopoulos that it is premature to speak of a second stimulus, the implication of his remarks is that more economic aid may be needed. Indeed, Democratic-leaning economists such as Paul Krugman and Laura Tyson have floated the idea of a second stimulus. Meanwhile on the other side of the aisle, Republicans are already campaigning against a second stimulus. What is driving the talk of a second stimulus is the poor jobs number last month that suggested the green shoots are turning brown. This, therefore, may be an appropriate moment to look at what has happened to the first stimulus. Is it working? If not, is another one needed? Is anything impeding the flow of funds. Alternatively, should policymakers be looking elsewhere for more economic fuel.
During the initial debate over the stimulus, I argued on behalf of a board--an idea first suggested by Dick Ravitch, former head of the New York MTA--to accelerate infrastructure spending. We did get a board but its focus is to track the stimulus not carry it out and a website, Recovery.org that President Obama said would provide unprecedented transparency regarding the stimulus. Here is my take on the stimulus so far.
First, the website and accounting surrounding the recovery package really does provide unprecedented transparency for a large government initiative, even allowing readers to comment on and discuss recovery projects. The good news is this allows us to debate the stimulus on the basis of thorough data. The bad news, however, is that six months into the Administration, the data show that only about $65 billion worth of projects have been started, or about 8% of the total two year budget. A far smaller amount of money has probably been actually dispensed. As I anticipated, the strategy of moving the money through the normal bureaucratic channels as opposed to an emergency board has slowed its disbursement and therefore moderated its stimulative effect. On the other hand, using existing channels provides a degree of oversight. In the inevitable tradeoff between speed and oversight, implementation of the the recovery package has erred on the side of oversight.
In many ways the most interesting portion of the stimulus--the part I first proposed last year--was that directed to clean energy. The success of these funds in stimulating clean energy innovation is important to America's future, but for the most part, it is too early to measure their effect. DOE recently announced procedures for giving out the approximately $4 billion in smart grid funds. However, companies have been hampered in applying pending agreement on smart grid standards. The Administration is doing everything right in this respect, spearheading a drive to accelerate the development of open standards. However, this money, therefore, has yet to be spent.
As another indicator of the development of renewable energy, the price of photovoltaic panels has dropped this year. The rate of decline about 1% per month, however, cannot be attributed with certainty to any one factor and probably is more related to Spanish policy than what we have done in the United States.
Around the country, work is beginning on numerous infrastructure projects. However, the normal delay in government contracting--even for "shovel ready" projects means that the bulk of stimulus funds remain to be spent. In contrast, as the New York Timesreports today, the French have been much more successful in rapidly deploying stimulus funds. However, they are able to do this, in part, due to their more centralized governmental structure.
In its first months in power, the Administration framed its policy response to the economic crisis as consisting of three key initiatives: first, pass a recovery package to stimulate demand, second stabilize financial markets to leverage financial activity around that demand and finally, address the mortgage crisis. This framing was in my view correct.
So how are we doing on each? The first policy response, the recovery package to spur demand and create a multiplier effect is underway but money is entering the economy slowly so that we won't really feel it until the end of the year. There is a silver lining to this timing. It will hit at about the time that some are afraid we may be approaching a double dip. However, the slow pace will keep us on tenterhooks well into the fall. The rescue package for the banks has been reworked a number of times, but the fact that the large banks have been making profits and that some have repaid their loans from the TARP indicates progress has been made on this front--most due to the effect of reversing the mark-to-market rules that were forcing massive market-roiling markdowns of illiquid securities--and the high tailwinds for the industry provided by low cost money from the Fed. Finally, the mortgage industry remains largely as it was in February with the combination of initiatives suggested by an interagency taskforce yet to really take effect. People are still losing their homes to foreclosure.
So does this mean we need a second stimulus? On the contrary, it means that as of now the stimulus funds have yet to really hit the economy and talk of a second stimulus is, as the Vice President stated, premature. What would be more useful is to try to accelerate the spending of the funds already allocated. Much progress has been made on banking. More should be done to reduce the cost of mortgages and keep people in their homes.
While retrofitting buildings is leading to some new green jobs, clean energy which I believe must be an important driver of future growth has yet to impact the economy in a major way. To fulfill the President's goals, it is time to think seriously about roadblocks to the development and uptake of new technologies in the energy sector as well as the deployment of renewable energy. The American Clean Energy and Security Act recently passed by the House and now slated for consideration in the Senate provides some incentives to modernize our electricity grid. Key to the process is opening up the close-knit industry to innovation. One of the subjects we are researching most aggressively at NDN is how to remove roadblocks in the energy industry that block innovation, open markets to new players and technologies and unlock the full economic potential of the energy network.
In short, as I argued last year, how recovery money is spent and how quickly it is spent--not whether we do a "second" stimulus--will ultimately determine the speed of recovery.
Last week the Department of Energy released part of the $25 billion in loans provided for through the Advanced Technology Vehicles Manufacturing Loan Program, included in Section 136 of the Energy Independence and Security Act of 2007. The delay in releasing these funds had been one of the longest running scandals in clean tech policy. Upon taking office, the Obama Administration vowed to expedite their release and Secretary Steven Chu had made finalizing rules needed to administer the program a key priority. In the first installment of the loans, Tesla, the VC-backed California maker of an all-electric sports car, founded by Ebay veterans, will receive $465 million to make its compact, all-electric Model S sedan. Ford will receive $5.9 billion to retool 11 factories across five states to improve the overall fuel efficiency of its fleet. Finally, Nissan will receive $1.6 billion to retool a factory in Smyrna, Tennessee, to make an electric vehicle that is being developed and initially manufactured in Japan. The remainder of the money will be released next year.
DOE's announcement comes on the heels of the release of its formal $3.9 billion smart grid funding solicitation last week. The Funding Opportunity Announcement spells out the conditions and terms for those seeking funding for smart grid investments under the American Recovery and Reinvestment Act, the offical title of the stimulus bill signed into law earlier this year. These two developments, coming one after the other, are evidence that the DOE is moving rapidly on the President's goal not only of getting money out into the economy to create jobs and drive demand, but also of making investments critical to a clean energy future.
In the case of the auto loans, they could not be more timely. Autos are a capital intensive business and with credit markets still impaired, it would have been very expensive or impossible for Tesla, for example, to borrow this money on its own. However, that does not mean that the loan is not good business for the government and Tesla. CEO Elon Musk indicated he thinks that Tesla may be able to repay the loan ahead of schedule. Tesla, despite some speed bumps in its early phase, is now profitable on a unit basis, meaning the approximately $120,000 price of its sleek sports car -- which has a long waiting list -- exceeds the cost of components. Having also recently sold a stake to Daimler Benz, the company is now reasonably well capitalized. Recently, investor Steve Wesley indicated that Tesla's sales are on track to pass $100 million, a common bar for conducting an IPO. If Tesla continues on its current track, it may be the first home run of the clean transportation industry. In any case, the DOE funding puts it on track to move from the sports car niche to the mainstream where it hopes to leverage the glamour associated with the roadster. While Ford and Nissan have greater access to the capital markets, these loans -- provided for in the 2007 energy legislation in exchange for a commitment to higher fuel efficiency -- will help achieve that goal.
In the case of the smart grid, the major barrier to moving forward has been undeveloped standards. Normally, standards evolve slowly as industry players forge alliances and choose standards that already enjoy market adoption. In this case, the desire to stimulate the economy has accelerated this process. Secretary Chu and Commerce Secretary Gary Locke are overseeing an effort led by NIST to fast track standards for the grid to facilitate adoption. The disbursements made by DOE will indeed help establish standards insofar as the money spent will validate standards and increase adoption.
It is important that standards be as open and uniform as possible to create the broadest and fairest playing field for innovators to enter the smart grid technology market. Because a smart grid is necessary to get clean energy online and also to drive the creation of new energy products and services, this is an area I believe is absolutely critical to determining whether clean technology can live up to its promise.
While it remains to be seen how the smart grid will develop, these two announcements from DOE show that the Administration is on the case. These developments should be encouraging to anyone concerned about America's clean energy future.
A new wave of pessimism seems to be washing over the economy. Its source is hard to pinpoint but there is no shortage of candidates: rising unemployment (if a declining rate of rise), second thoughts about the recovery of the stock market and even the Administration's rhetoric which in recent days has shifted away from a relentless focus on jobs. I would like to suggest another potential cause, however. So far there is little evidence of an igniting factor in the economy, in other words, a new engine of economic growth. Replacing the tens of thousands of jobs lost in auto manufacturing, finance and construction to this recession will require more than a modest uptick in consumer spending. It will require new innovation and new industries. One such igniting factor might be clean technology and infrastructure. However, green jobs have yet to materialize in substantial numbers so much so that Democratic pollster Stan Greenberg recently called on Democrats to stop talking about green jobs to lower expectations.
I do not share Greenberg's pessism about green jobs. However, I do believe that to realize their full potential as a job creating machine, enough to power a new wave of prosperity, clean energy and clean technology will require important policy changes, changes that have yet to occur.
Why? The energy industry, in particular, electricity, at the center of the clean technology promise, remains perhaps the most regulated industry in America. Its very potential as a catalyst for economic growth is a function of its slow rate of adoption of new technology for decades. Over the last thirty years, a series of industries underwent regulation, including transportation, telecommunications and financial services and all became engines of economic growth. Energy, in particular electricity, however, remains frozen in a largely transitional state of deregulation that came to an abrupt halt in the 1990s. Before clean energy can realize its full potential, it is likely to require a new regulatory framework to unlock its economic potential.
One policy reform that many believe can help accelerate adoption of clean, renewable energy and clean technology is putting a price on carbon. Legislation to do just that in the form of the American Clean Energy and Security Act (ACESA) is now working its way through Congress, however, its impact will not be felt for a number of years.
Another type of policy reform likely to be equally critical is revisiting the state of our electricity network. Currently, the grid whose very name reflects its creaky status is too often outdated, undersized for today's energy needs and dumb, making inadequte use of information technology. Legislation to improve security, expand transmission capacity and upgrade the grid's information capability is also making its way through Congress and many provisions are part of the ACESA bill. However, measures as seemingly straightforward yet critical to creating clean technology jobs as creating a common interface for solar hookups remain controversial. Congress has yet to pass a national Renewable Electricity standard.
The problem with our highly regulated electricity network is that it leaves the decision to deploy new clean technologies to a small group of buyers, utilities who may in their area be the only customer in town. Trade in electricity, meanwhile, is hindered by lack of transportation capacity. While electricity can cross the country in about 1/60th of a second--the same speed as computer bits at the speed of light--it is impossible, currently to buy electricity outside one's immediate area, due to capacity constraints. Compare that with the global growth unleashed by being able to purchase everything from softballs to software globally.
To be sure policy changes must be well considered. The examples of Enron and the banking crisis on Wall Street show that not every regulatory change is good. On the other hand, to hold to the past is no answer if it impedes innovation and job creation.
In short, to ignite not only the immediate economy but also the economy of the next ten years, the Administration and Congress need to move forcefully to remove barriers to the clean economy. Truly green shoots may be the key to truly robust recovery.
Later today, the Senate is likely to consider legislation, already passed by the House to provide about $1 billion to encourage people to trade in old cars for new ones. If Senator Judd Gregg (R NH) does not prevent its passage, the so-called cash for clunkers bill--at this level of funding, down from the initial request--would take about 250,000 jalopies off the road and replace them with new cars. Though a 250,000 increase in new car sales will have only a small impact on overall US car sales which have virtually halved from about 18 million cars to under 10 million cars this year, the bill will bring people into showrooms. In addition, if passed, the bill will improve overall gas mileage and reduce overall emissions. The cash for clunkers idea is a good one that NDN has long supported.
However, coming on the heels of the bankruptcies of GM and Chrysler and unprecedented government intervention in the auto sector it also serves to underscore the challenges and uncertainty that surround the auto business. Have Americans stopped buying cars because of the financial crisis? Or does the decline reflect uncertainty following last year's gas spike? Why are Toyota and AUdi gaining market share from US companies despite higher wages in Japan and Germany? Are all electric, hybrid or batural gas cars the answer to the challenges of climate change and energy security? What will the American and global auto industries look like in the future? In the last six months, the US government and Wall Street have focused unprecedented attention on the auto industry. Yet for the most part, no one has answered or even asked these questions.
With the US auto industry likely to employ about half the people at the end of this year as at the end of last, there are plenty of reasons to be a pessimist. But, no crisis occurs without opportunity. When we consider that companies like Apple, Microsoft and Google went from nothing to billion dollar companies employing tens of thousands of people in a decade or less, it is not unreasonable to think that smart people could potentially reinvent the transportation industry in more sustainable form. Indeed, some innovative companies are working to do just that.
One such company with a potentially transformative vision of the future is Better Place, a Palo Alto startup founded by Shai Agassi, formerly the chief operating officer of the software giant, SAP. Better Place is not only working with car makers to develop all electric cars, it is also developing the infrastructure to easily charge them and create new leasing models that leverage the ability of car batteries to store power for the grid. Better Place is one of a number of innovative companies working at the intersection of transportation, smart grid technology and the reinvention of the world's electricity infrastructure. And it is doing this not only in the United States but around the world in Israel, Denmark, Australia and Japan.
Just how America and the world address the challenge of the auto industry will be critical not only in determining our economic future but also in how we meet the challenges of climate change and energy security.
To advance discussion of this vital topic, tommorrow, I will have the pleasure of hosting Better Place CEO Shai Agassi at NDN in Washington for a conversation on the future of the global auto industry. I invite you to attend this special event.
Envisioning the Future of the Global Auto Industry with Shai Agassi Thursday, June 18, 9:45 a.m. NDN: 729 15th St. NW, First Floor A live webcast will begin at 10 a.m. ET
