Green Project

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

To register for this event, click here.

If you are not in Washington, the event will also be webcast.

Please join me for this important and exciting discussion.

Yesterday, the Obama Administration released a long awaited, definitive government report on the impact of climate change on the United States by region, economic sector and social outcome.  In what might be called an American version of the Stern report, prepared by 13 government agencies, it confirms the large existing body of scientific work on the reality of climate change and then specifically charts the impact on the United States today and far into the future.

Significantly, it argues that climate change has already impacted the US through heavy downpours, rising temperatures and sea levels, thawing permafrost, earlier snowmelt and alterations in river flows.  And change will accelerate in years to come.  Indeed, the report underscores that much of the impact of climate change will be via water.  In some areas, increased precipitation will stress water management resources, leading to flooding.  In others, it will lead to drought.  Changing water paterns will impact agriculture, coastal regions and public health.

If this report cannot drive home the point that the cost of climate change is far greater than the cost of a cap and market regime to address it, nothing may.  The real threat of climate change is that its mechanism for wreaking havoc is so broad: rain, rising rivers, drought and other changes in our overall habitat can seem too diffuse to pin on one cause.  This report shows that there is a cause, however, and it is greenhouse gases.

As the House prepares to debate the American Clean Energy and Security Act (ACES) next week it would do well recognize that the problems of climate change do indeed transcend regional or parochial boundaries and only the political courage to see the big picture, will enable America and the world to take the steps needed to solve this complex problem.

Last week I attended a conference at the University of Michigan for college and graduate students from a variety of backgrounds to address energy sustainability through field trips, lectures, and debates.  The take-home message was that accelerating world population and living standards is creating enormous pressure on the global energy system, which exacerbates climate change, international conflict, and economic strain.  The only clear long-run solution is a transformational shift in energy use and technology.

Despite some of the fascinating technologies of the future that I saw throughout the conference - including a car powered by fuel cells, a solar cell lab, and cutting-edge green architecture - I was most impressed by my visit to a facility dating back to 1928:  The Ford Motor Company's River Rouge plant outside Detroit.  One might wonder why I, as someone deeply concerned with energy sustainability, was captivated by this colossal factory which contributes towards the million gas-guzzling Ford F150 pickup trucks sold each year.

Seeing the River Rouge factory brought the industrial concept of "efficiency" to life almost a century after Henry Ford invented the modern assembly line.  Doors and truck beds floated by on mechanical tracks along the ceiling, while trains of moving platforms carried truck cabs along the floor so that workers could easily hop on and off to install sunroofs, floor boards, and the like.  My guide pointed to the number "243" on a large screen: "See that?  That is how many trucks have been manufactured since 6 AM."  Looking at my watch, that was approaching one truck every minute.

I see Ford's state-of-the-art industrial processes as an opportunity.  Create similar plants for wind turbines and solar cells, and the price of renewables will become competitive.  Do the same for electric cars and meters for the Smart Grid, and we're talking about an energy revolution.  The key is to drive consumer behavior.  People demand Ford trucks (many of them, in fact), and decades of engineering breakthroughs have allowed Ford to provide these trucks at high quality and low price.  Change consumer behavior by creating a price on carbon, and Ford will respond.

There is an important distinction.  While regulating producer behavior has more limited effects (e.g. CAFE standards narrowly promote fuel efficiency), stimulating shifts in consumer behavior spurs comprehensive and outside-the-box changes by producers.  How might Ford react to consumers demanding low-carbon products?  Providing more hybrids is an obvious option, but imagine if Ford identified more profitable uses for its high-efficiency factories given rising demand for renewable energy.  By converting its plants, Ford could mass-produce the Model T of wind turbines.  Additionally, a carbon cost would have a considerable impact on Ford's energy-intensive industrial processes, leading Ford engineers to come up with new breakthroughs, this time in energy efficiency.

Ford is already responding to changing consumer behavior.  In my tour, Ford marketing people showed off the major renovation of the River Rouge factory to improve its environmental impact, which includes one of the largest green roofs in the world and fuel cells that use toxic paint emissions to create electricity.  A PR move?  Definitely.  But, if consumers care, Ford will do it - and at River Rouge, it's to the tune of $2 billion.

With all the political debate surrounding the climate change bill, it's easy to forget the simplicity of the underlying problem:  While no one pays to emit carbon, everybody will suffer the consequences.  Whether through a tax or a cap, put a price on carbon because consumers will react, and no force compares to the speed and power of American-style consumerism.  Industry, technology, and a complete transformation of the energy system will follow the money - just ask Henry Ford.

As the U.S. auto industry undergoes dramatic restructuring and the global auto sector retools for the future, new technologies, players, and energy challenges are remaking one of the key drivers of the global economy. Just how the industry reinvents itself and what role the United States will play in the auto industry of the future remain unknown, yet the consequences of this change may greatly determine future economic growth.
 
NDN is pleased to announce that on Thursday, June 18, Shai Agassi, Founder and CEO of Better Place, a Palo Alto based electric car start-up, will lead a discussion at NDN on the future of the global auto industry. He will discuss Better Place's business, the potential of electric vehicles, and the future of the global auto industry.

Better Place's vision of what may be possible for automobiles is transformative, offering an electric car with unprecedented new services, including the ability of consumers to trade electricity with the electricity grid. He has been featured on the cover of Wired magazine (right), Rolling Stone magazine recently named Agassi one of the 100 People Changing America, and his company is active in Israel, Australia, Denmark, the United States, Canada, and Japan. Agassi last spoke to NDN at the Moment of Transformation conference, held in March 2008.

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
RSVP  :  Watch webcast

Note: Today, I am going to take a break from my usual topic of clean technology and the environment to comment on the anniversary of two significant events in the history of freedom and democracy.

New York City -- Twenty years ago today, Poland held the first free elections in Eastern Europe since before World War II. Solidarity, led by former electrician Lech Walesa, crushed its main opposition, the Communist Party to win close to 100% of the vote. Walesa went on to become Poland's president, and Poland has since joined the European Union and NATO and emerged as a significant player in Europe with an economy larger than that of Sweden or Belgium. Led today by Donald Tusk, it is emblematic of the democracies that emerged in Europe in 1989 and 1990 following the withdrawal of the Soviet Union and the great leap forward for Democracy that has occurred more broady since then in much of the world.

Twenty years ago today, however, something quite different happened across the globe in China. The same day that Poles were voting for freedom, on the other side of the globe at Tiannamen Square, the Chinese government decided to quash a several-weeks rebellion that had brought China to a standstill.  The bloody action that followed involved troops firing successive volleys into the crowd in a manner reminiscent of the famous Indian massacre at Jallianwala Bagh that some say marked the end of British moral authority in India. China has since gone on to stage an economic miracle so that by some economic and social indicators it rivals the United States.  While per capital GDP is still a fraction of ours, China today churns out more PhDs, olympic gold medalists and pollution than the United States. The Chinese miracle is indeed more dramatic than that of Japan or any other country in modern history, but it has not led -- contrary to great Western hopes and wishes -- to democracy. Just this week, for example, China censored Twitter, Flickr and Hotmail.

The Polish example -- like that of the Czech Republic and similar states -- is reassuring to those of us in the West. It suggests that without coercion, left to their own devices, people choose democracy and democracy leads to prosperity. You can't have one without the other. Indeed one of the reasons that Gorbachev, Russia and its satellites turned away from Communism in the 1980s toward the American way was that our way seemed not only more enjoyable but so much better at delivering material well-being.

The Chinese example is not so reassuring. While we don't know what would happen without the continuing power of the Communist authorities, the Chinese example suggests that wealth can multiply in the absence of freedom and democracy. Indeed, it suggests that material wealth may act as a substitute instead of a complement to democracy and freedom of expression. 

This is troubling because in the United States we have gotten used to the idea that economic leadership and freedom go hand and hand. Certainly, we have used our economic and military strength to promote -- if imperfectly -- the cause of freedom. Our standard of living, moreover, has been not only an advertisement for our way of life but the draw for many who have chosen democracy.

There is much to validate our point of view in history. With some notable exceptions, free places have been economically and culturally dynamic ones. Ancient writers marveled at Athens' emergence from obscurity in only a matter of years after it embraced democracy and attributed the marvel, including the ferocity with which its people fought -- to their love of freedom. Rome and Carthage, the two most free republics of their day dominated, trade and commerce in the Mediterannean. Venice, a republic dominated trade in the high middle ages, prompting imitation. The Dutch Republic during the 17th century led the world in trade And England during its long sojourn as the world's leading economy was far more democratic than most. All this paved the way for America's experiment with freedom -- the world's greatest -- that has led to unprecdented wealth and prosperity for an unprecedented number as well as unprecedented freedom.

However, there are plenty of civilizations and empires in the world that were simultaneously rich and unfree, from the ancient Assyrian empire to the Incan and Aztec empires in the Americas to the Ottoman empire to the Chinese dynasties. These empires created less excitement and left less of a written record, generally, because they suppressed expression. However, they often generated substantial wealth in gold, decorative art and architecture.

It would be nice if wealth in China leads inexorably to Democracy.  However, we cannot take this for granted.  If China does not embrace the same ideals as the United States, our case will rest on our ability to continue to innovate -- so as to continue to lead economically--and also on our ability to convince the world that freedom has benefits beyond those that are purely economic. 

New York City -- The stock market's sigh of relief yesterday following GM's bankruptcy -- vastly improved at the last minute by a deal with bondholders to permit a pre-packaged filing -- provides yet another indication that the economy may finally be on the mend. Green shoots have been increasingly evident in the technology world with the successful IPO of OpenTable.com in the last week which experienced a pop reminiscent of the dot com boom, a $200 million round of financing for Facebook from a Russian mogul and the decision of Daimler Benz to take a 10% stake in Tesla, maker of the sleek, all-electric Tesla sports car.

Within the technology world, clean technology is now the third largest category of investment after life sciences and software, and according to some of the most savvy investors in Silicon Valley, the hottest category. It is the newest large sector and therefore, presumptively, the one with the greatest promise. The Obama Administration heeded this wisdom in including about $40 billion of money to modernize the grid in the ARRA bill as I and others have advocated. Improving the grid is not only vital to the deployment of renewables but also promises to reinvent the electricity industry itself. Given all the money flooding into smart grid investments and the grid generally, an interesting question at this juncture, therefore, is with the economy looking better, just how are utilities and technology companies in the clean energy sector faring?  The answer is mixed.
 
According to Marketwatch.com, which recently surveyed the sub-sector, utility shares are actually down 9.4% this year (in contrast to the broader market which is roughly even). Small and mid-cap firms have done better. But, it turns out that most of the government money slated for grid investments is still awaiting deployment. The reasons are varied but should not surprise anyone familiar with the pace of government and the regulated nature of the energy sector. Tesla, as one example, has been waiting for years to tap Department of Energy loan guarantees included in the 2007 Energy Act to build a cheaper, sedan version of its electric car. The DOE has yet to release any loans under the program due to back and forth between it and the Office of Management and Budget over rules. DOE Secretary Chu has made accelerating the availability of this money a key priority but even he has to wait for the wheels of government to turn.
 
The impact of the other key piece of the stimulus package, tax incentives, has yet to be felt on a large scale because rules and regs are still being developed and companies do not yet fully know how incentives relate to older rules on depreciation of assets. Smart grid projects, in particular a grant program at DOE for smart grid technology deployment, are at the center of the Administration's clean infrastructure policy. However, before most utilities are comfortable making large investments in the smart grid, they first need clarification on standards. The reason? Investing in the wrong standard can make an investment instantly obsolete.
 
Standards normally evolve gradually over a long time even in the computer world. To solve the standards issue, Secretaries Chu and Locke have begun a full court press to accelerate agreement among utilities, equipment makers and builders of software. At NDN, we have been making the case that smart grid standards should be as open as possible. Only by opening up the playing field to as many players as possible can we secure the maximum level of innovation. And innovation is what is needed to solve America and the world's energy and climate challenges.
 
Clean energy technologies clearly have the potential to be a huge engine of economic growth in coming years and decades. However, for clean technology to make good on that promise and justify the President's faith and commitments, we need to move at the speed of technology.
 
Two things can help America make good on the clean energy opportunity. First, standards that open up the grid to many players and allow people -- including producers of renewables and ancillary services -- to enter the market easily without having to wade through government red tape or regulation will go a long way to
accelerate innovation and the ensuing economic activity. In other words, set the standard and then let the parties innovate and compete. Open standards are particularly important in an industry as regulated and traditionally sleepy as that of electric power if we are to turn it into a field of innovation.
 
Second, it is time to re-examine the extraordinarily complex structure of electricity regulation itself.  Regulation should be as streamlined and efficient as is consistent with safety and security. Markets should be employed where practical to place everyone on an equal footing. The work of electricity reform begun in the 1990s remains unfinished.
 
These may seem like immense challenges. But ultimately, if we are to capture this economic opportunity, we need to create rules and systems to allow innovation to flourish. I am confident that America will.

With General Motors filing for bankruptcy this morning, and the federal government taking a 60 percent stake in the company, NDN offers some recent thinking on the American automobile industry.

• Fuel Economy in Context by Michael Moynihan, 5/19/2009 - Moynihan welcomes the Administration's steps on fuel economy, but points out that CAFE standards are imprecise tools that must be viewed as part of a larger series of complex policies.

• Here in the Real World They're Shutting Detroit Down by Morely Winograd and Mike Hais, 4/30/2009 - NDN Fellow Winograd and Hais pont out that GM's problems come at a time when the inherent tension between the investor class and the country's manufacturing sector have never been greater.

• Should We Try to Save the Damaged Brands? by Simon Rosenberg, 4/30/2009 - Rosenberg asks if these mainstay, now troubled American brands - AIG, Chrysler, Citi, GM - can be saved by being propped up by the government or if their brands are permanently insolvent.

• The Administration Goes Out on a Limb for GM -- and the Rest of Us by Robert Shapiro, 4/29/2009 - Shapiro says that the Obama Administration's plans for General Motors are a dismal idea, except for all the alternatives.

• China, the World's Largest Car Market and the Future of the Electric Car by Michael Moynihan, 4/10/2009 - Moynihan argues that a robust American auto industry is crucial for the US to compete with China in the growing electric car market.

• Carbonomics by Michael Moynihan, 4/2/2009 - Moynihan looks at the connection between pricing carbon and the future of the American automobile industry.

• Cars, Banks and the Future of the Clean Economy by Michael Moynihan, 3/31/2009 - Moynihan argues that to rebuild the economy we need more engineering and less financial engineering.

• Lessons from Detroit: 10 Years Later, the Overhaul of the Domestic Auto Industry and Its Parallels with the Republicans' Problem by Morely Winograd and Mike Hais, 3/30/2009 - Winograd and Hais find the similarities between Detroit's failure to change and the Republican Party's woes.

• Sympathy for the Car Guys by Michael Moynihan, 12/5/2008 - Moynihan compares Capitol Hill's treatment of Wall Street CEOs to that of the automakers.

• If Detroit Goes Down, Will It Take the Economy -- and the GOP -- With It? by Robert Shapiro, 11/19/2008 - Shapiro argues that the Bush Administration's mismanagement of the economic crisis has driven the auto industry into an impossible situation.

Even as GM files for bankruptcy, the economy has faded to the background, with the nomination of Judge Sotomayor taking up most of the oxygen in the political media this week. That said, it is crucial that we continue our focus on the economy and the struggle of everyday people. We have lately seen, with the automakers, climate and energy legislation, and a variety of other economic initiatives, policy coming to what might be considered a bad solution - except for all the alternatives. As was recently said about everyday in the Treasury Department: it seems like there are no good choices right now, only less-bad ones. On top of the lack of good ideas, the Republican party has chosen to make itself irrelevant, opting for its failed race-based playbook and no new ideas.

• Conservative Republicans "Just Say No" Approach Shortchanges Critical Economic, Sotomayor Debates by Dr. Robert J. Shapiro, 5/28/2009 - Shapiro points out the the Republican approach to Sotomayor is the same as their approach to the economy - just saying no. The effects are the same as well: more political problems for a decimated party and a worse-off country.

• Fuel Economy in Context by Michael Moynihan, 5/19/2009 - Moynihan welcomes the Administration's steps on fuel economy, but points out that CAFE standards are imprecise tools that must be viewed as part of a larger series of complex policies.

• The Courage, Cunning and Shortcomings of the Administration's Health Care Plans by Dr. Robert J. Shapiro, 5/14/2009 - The Administration’s health care focus, goals and priorities are right in the ways that matter. Now they need to provide a more detailed blueprint of how they intend to reach those goals and achieve those priorities.

• Cap and Market This Year by Michael Moynihan, 5/14/2009 - Moynihan argues that those who care about enacting serious climate change legislation should embrace the compromise on permit allowances, as Waxman-Markey is the only bill with the chance of passing this year.

• The Economic Conversation Enters a New Phase: Putting Consumers Front and Center Now by Simon Rosenberg, Huffington Post, 5/14/09 - Rosenberg writes that the Administration's turn in the national economic conversation from the plight of big institutions and the financial system to what is perhaps the most important part of the story of the Great Recession still is not adequately understood - the weakened state of the American consumer prior to the recent recession and financial collapse.

• Should We Try to Save the Damaged Brands? by Simon Rosenberg, 4/30/2009 - Rosenberg asks if these mainstay, now troubled American brands - AIG, Chrysler, Citi, GM - can be saved by being propped up by the government or if their brands are permanently insolvent.
• Spend? Save? The debate continues by Simon Rosenberg, 2/11/2009 - Building on a previous post, Rosenberg follows the growing debate about whether American families should be focusing on saving.

• The Utter Bankruptcy of Today's Republican Party by Simon Rosenberg, 1/28/09 - Rosenberg argues that Republican opposition to the economic recovery package represents the ideological bankruptcy of the party.
• A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.

• Making the Struggle of Every Day People the Central Focus of the National Debate by Simon Rosenberg, 8/17/2008 - As the 2008 presidential campaign entered a crucial phase, Rosenberg argued that political leaders must focus on raising the wages and incomes of Americans.