The good people at the Truman National Security Project are out with a new study today on the costs to American security of reliance on oil. Truman COO and Iraq veteran Jon Powers' op-ed on Huffington Post previews the study and includes a telling quote from former CIA Director James Woolsey:
Except for our own Civil War, this [the war on terror] is the only war that we have fought where we are paying for both sides. We pay Saudi Arabia $160 billion for its oil, and $3 or $4 billion of that goes to the Wahhabis, who teach children to hate. We are paying for these terrorists with our SUVs.
From an economic perspective, the reliance on oil is also tremendously costly. This graph (via calculatedrisk) illustrates that more than half of America's trade deficit now consists of imported oil:
This morning, readers of the San Francisco Chronicle opened to page A-10 and saw this op-ed from NDN Green Project Director Michael Moynihan:
To get clean energy, upgrade to Electricity 2.0
While clean energy has captured the imagination of everyone from Silicon Valley venture capitalists to President Obama, it has yet to fulfill its job-creation promise. Non-hydro renewable power accounts for just 3.5 percent of electricity in the United States, compared with 28 percent in Denmark, a leader in the transition to renewable energy. In a study released today, I examine why progress has been so slow in the electricity industry - the network at the center of the wider energy network. The answer turns out to be that our highly regulated system, uniquely complex by global standards, is blocking progress.
Put simply, only by upgrading from Electricity 1.0 - the closed, highly regulated network created a century ago - to Electricity 2.0 - an open, distributed network - can America unlock the potential of clean technology and experience a renewable energy revolution.
It is often said that an inadequate electric grid is slowing the rollout of clean renewable energy. But why is the grid inadequate? Because the regulatory regime of Electricity 1.0 guarantees the current state of affairs. While the industry research consortium, Electric Power Research Institute, has done an outstanding job in improving the reliability of the network, utilities do virtually no research and development. Laws bar them from trying new business models, innovating and taking risks. This bias against innovation prevents utilities from purchasing technologies developed by others. Thus, entrepreneurs find the gates of the network closed. It should not be surprising that a highly regulated industry cannot lead a revolution.
So, how can America upgrade to Electricity 2.0? As with telecom reform, Electricity 2.0 will require nothing less than a Big Bang that includes federal legislation as well as close cooperation with the states to harmonize rules of the road. Partial reform, such as has taken place in Texas and California, is a start, but it is not enough. What's needed is an entirely new plug-and-play architecture that opens the grid to everyone, making connection the norm not the exception.
For more on Moynihan's compelling vision for Electricity 2.0, join NDN at 12pm today for a presentation of the paper. Copies of the paper, entitled "Electricity 2.0: Unlocking the Power of the Open Energy Network," will be available for distribution.
Electricity 2.0: Unlocking the Power of the Open Energy Network Thursday, February 4, 12 p.m. NDN: 729 15th St. NW, 1st Floor RSVP
If you are unable to join us in person, alive webcast will begin at 12:15 p.m. ET.
Clean energy has captured the imagination of people from Silicon Valley, who invested $5.4 billion in the sector last year, to President Obama, who highlighted it in his State of the Union Address. However, it has yet to fulfill its economic promise and displace legacy fuels in America’s electricity sector, especially when compared with the significant progress made in other countries. Today, non-hydro renewables account for just 3.5% of electricity in the US.
This Thursday, NDN and New Policy Institute Green Project Director Michael Moynihan will release a study examining the electricity industry – the network at the center of the wider energy system – to understand why progress has been so slow. He argues that the answer lies in the outdated and complex structure of Electricity 1.0, a closed, highly regulated network created a century ago, fundamentally incompatible with clean technology and renewable power.
Moynihan will argue that America must upgrade to Electricity 2.0, an open, distributed network, or there will be no clean energy revolution, no explosion of wealth, and no creation of millions of jobs. But if we do make this shift, America can unlock the potential of clean technology and experience a renewable revolution.
On Thursday at 12pm, Moynihan, a former Senior Advisor on E-Commerce to Treasury Secretaries Summers and Rubin, will describe the transformative power of Electricity 2.0 and will outline the steps America needs to take to achieve this vision. Copies of the paper will be available for distribution, and lunch will be served. If you are unable to join us in person, the event will be live webcast beginning at 12:15pm, and copies of the paper will be posted on the NDN and New Policy Institute websites later in the afternoon.
Electricity 2.0: Unlocking the Power of the Open Energy Network Thursday, February 4, 12 p.m. NDN: 729 15th St. NW, 1st Floor A live webcast will begin at 12:15 p.m. ET RSVP : Watch Webcast
I look forward to seeing you on Thursday for this important presentation.
NDN and the New Policy Institute are pleased to announce the release of a major new paper on clean technology and the nation’s electricity system by NDN Green Project Director Michael Moynihan. A former Senior Advisor on Electronic Commerce to Treasury Secretaries Rubin and Summers, Moynihan will lay out a compelling vision on breaking down barriers to a low-carbon economy.
An op-ed by Moynihan on this subject in today's San Francisco Chronicle is available here.
The paper release will occur at 12pm on Thursday, February 4 at NDN.
This event will be live webcast. The webcast will begin at 12:15 pm. Watch the webcast here.
Join NDN and the New Policy Institute on Thursday at 12pm for the release of a major new paper by NDN Green Project Director Michael Moynihan.
The Copenhagen climate conference ended on Saturday without unanimous agreement as the world’s biggest economies backed a limited accord that leaders said would form the basis for a future deal to tackle global warming.
Ban Ki-moon, UN secretary-general, acknowledged that the outcome was “not everything we hoped for” but described it as an “essential beginning” as he brought a close to two weeks of fractious negotiations in the Danish capital.
Talks had continued through Friday night into Saturday morning in a bid to reach consensus on a tentative agreement struck between the US, China and other big emerging economies on cuts in greenhouse gas emissions and financing to help developing countries cope with climate change.
But several developing countries, led by Venezuela and Bolivia, refused to endorse the deal, ensuring that the conference would end without an official agreement. Instead, all 193 countries agreed to “take note of the Copenhagen Accord” without committing to accept it.
It is unquestionably the case that the Accord represents the best agreement that could be achieved in Copenhagen, given the political forces at play. Indeed, were it not for the spirited – and as I suggested above, quite remarkable – direct intervention by President Obama, together with the other key national leaders, there would have been no real outcome from the Copenhagen negotiations.
The Copenhagen Accord, agreed to on Saturday, is neither earth-shattering nor a failure. It avoids an international political mess that appeared likely as late as Friday afternoon. It falls short of expectations mainly because expectations had been ratcheted up far beyond what was realistic. It is a meaningful step forward, but its ultimate value remains to be determined.
Attention should now turn to elaborating the transparency measures contained in the text, and to implementing ambitious and intelligent domestic emissions-cutting efforts in the major emitting countries. It would be unwise to place significant hopes on converting the deal into a legally-binding pact soon.
The most interesting point to me, though, is what the process in Copenhagen means for Europe. Europe, unquestionably the leading region of the world in addressing climate change, was rendered virtually diplomatically irrelevant by the United States and a group of emerging economies:
Mr. Reinfeldt said President Barack Obama had been “very constructive” at the talks, creating a basis for the accord by smoothing over the dispute with China over an international monitoring system for emissions.
Still, the Swedish leader hinted that the Europeans had been caught badly off guard.
Mr. Reinfeldt said he had gotten his first signals that a deal had been struck while still engrossed in meetings.
“We had very tough negotiations two and a half hours after I read on my mobile telephone that we were already done,” he said.
Beyond the public’s view, major players in the climate change debate are reassessing their options. In fact, as the prospects of Congress approving a cap-and-trade system fade, discussion is shifting to “Plan B.”
One reason is that the version of cap-and-trade which just barely passed the House of Representatives a few months ago, the Waxman-Markey bill, made so many concessions to polluting interests that its support among environmentalists has eroded badly. Here’s one indicator of just how weak the bill is: When it passed the House, bond ratings for coal companies improved – a remarkable development given that coal-generated electricity is the single largest source of greenhouse gas (GHG) emissions. In the Senate, progressives are said to be determined to oppose any legislation that ends up as weak as Waxman-Markey. And the moderates and conservatives who make up a majority of the Senate remain wary of climate-change engineering in a cap-and-trade form, since it would both raise energy prices for average Americans and make those prices more volatile for business. The upshot is that the prospects of corralling 60 votes for the Kerry-Boxer cap-and-trade bill in the Senate have faded to nearly zero.
In truth, the support for a cap-and-trade system always has been limited largely to a handful of sources. There are two large environmental groups – the Natural Resources Defense Council (NRDC) and the Environmental Defense Fund (EDF) – wedded to the notion of dressing up a regulatory cap on emissions with market-based trading in the emissions permits, and the Wall Street institutions eager to get a piece of all that trading and the speculation and derivatives it would throw off. In addition, a few large energy companies with major business lines in trading energy futures have been active supporters, as have some other companies confident they can exact the kinds of special exemptions for themselves that ultimately hobbled Waxman-Markey. Even that limited base has been shrinking: Wall Street support has become a big negative in the current political context, and there are reports that in the wake of Waxman-Markey, NRDC is now internally divided over the basic strategy.
With the fate of cap-and-trade in the Senate pretty much sealed – in effect, cap-and-trade’s third successive rejection by the Senate -- the debate behind the scenes is moving to the alternatives. The two leading options are direct EPA regulation of GHG emissions or a revenue-neutral carbon tax. The courts recently held that EPA already has the authority to regulate GHG emissions, and the eclipse of cap-and-trade will shine a new spotlight on this approach. The alternative is one which a good share of the environmental community, most economists, and climate-change leaders like Al Gore have all supported: Apply a tax to energy based on its carbon content, and recycle the revenues as cuts in payroll or other taxes. Given how economically costly direct regulation can be – and the uncertainties about what such regulation would look like under the next conservative president, compared to our present liberal one -- its prospect could quickly expand support for a carbon tax program. That approach also has the virtue of a successful record: While Europe’s cap-and-trade system has yet to reduce European GHG emissions, Sweden’s 15-year experiment with carbon-based taxes cut the country’s emissions sharply even as its economy grew 50 percent larger.
For its supporters, a carbon tax is simple, transparent, and produces a steady price for carbon which businesses can use to plan large investments in developing and adopting more climate-friendly fuels and technologies. To its opponents, it’s just another tax. That objection should be at least partly neutralized by recycling the revenues through other tax cuts – if the debate remains reasonable. In the end, environmental and business leaders, and ultimately the White House, will have to defend a carbon-based tax against the forces of politics as usual, which in this time seem dominated by the power of entrenched interests and the partisan politics of just-say-no-to-everything. If we can’t manage that, we may well lose the best chance in a generation to take serious action to defend he climate our children and grandchildren will inherit.
Over the weekend, Senators John Kerry and Lindsey Graham penned a joint op-ed in the New York Times that has made those of us who care about action on climate change pretty happy. The prospects of Republican support extending beyond the Snow-Collins duo to John McCain's best friend in the Senate this early in the process is exciting, to say the least. And the compromise that Graham wants isn't too far-fetched.
There is, however, one piece of the op-ed that has made many who understand that combating climate change is a multilateral challenge nervous:
Fourth, we cannot sacrifice another job to competitors overseas. China and India are among the many countries investing heavily in clean-energy technologies that will produce millions of jobs. There is no reason we should surrender our marketplace to countries that do not accept environmental standards. For this reason, we should consider a border tax on items produced in countries that avoid these standards. This is consistent with our obligations under the World Trade Organization and creates strong incentives for other countries to adopt tough environmental protections.
I agree that we can't sacrifice jobs to overseas competitors. Competitiveness is one of the best reasons to pass climate legislation that spurs innovation and deployment of a whole generation of low-carbon technologies domestically. That said, climate change is a pressing global challenge that inherently requires unprecedented levels of global cooperation, but the proposed punitive trade policies are expressly unilateral mechanisms. This is a policy mismatch that will not help us solve this challenge.
If we want the developing world – from which the vast majority of emissions growth is expected in the coming decades – to be on board with creating a solution to climate change and to buy our climate-friendly goods, slapping a tariff on them right away is not the way to make friends and influence people. And it's not as if the United States has been leading on climate issues – Imagine the American response if Europeans had imposed these tariffs. I don't want to begin to imagine the retaliation that other nations may decide upon; what do we do if China and India – who already have high barriers to climate friendly technologies – decide that they're not quite high enough, especially for American goods?
Additionally, it's crucial to note that climate legislation already allots (as opposed to auctions) permits to energy intensive industries. Tariffs amount to a double correction. Here's leading international economist Jagdish Bhagwati at a recent NDN-New Policy Institute event speaking about the tariffs and the WTO compliance of a cap and trade regime:
Some important people are wary of or opposed to these tariffs: The head Intergovernmental Panel on Climate Change, Rajendra Pachauri, thinks they're a bad idea:
"This is a dangerous thing, and I think people in Congress must understand this," said Pachauri, who spoke with the AP after he addressed the National Press Club. "Please don't use this weapon. I'm afraid that those that have been pushing these provisions probably don’t realize that all of this can cause a major negative reaction," Pachauri added. "The United States has always stood for a free market system. … Legislation to move away from that principle is clearly counterproductive."
At a time when the economy worldwide is still deep in recession and we've seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals out there. There were a number of provisions that were already in place, prior to this last provision you talked about, to provide transitional assistance to heavy manufacturers. A lot of the offsets were outdated to those industries. I think we're going to have to do a careful analysis to determine whether the prospects of tariffs are necessary, given all the other stuff that was done and had been negotiated on behalf of energy-intensive industries.
So certainly it is a legitimate concern on the part of American businesses that they are not disadvantaged vis-a-vis their global competitors. Now, keep in mind, European industries are looking at an even more ambitious approach than we are. And they obviously have confidence that they can compete internationally under a regime that controls carbons. I think the Chinese are starting to move in the direction of recognizing that the future requires them to take a clean energy approach. In fact, in some ways they're already ahead of us -- on fuel efficiency standards, for example, they've moved beyond where we've moved on this.
There are going to be a series of negotiations around this and I am very mindful of wanting to make sure that there's a level playing field internationally. I think there may be other ways of doing it than with a tariff approach.
I'm excited that the chances for getting climate change legislation through the Senate have grown, I just don't want to see them destroy the chances for multilateral climate action. Both are important for American competitiveness, jobs, and the creation of a low-carbon economy.
Yesterday, NDN hosted three experts in the automobile industry to discuss the future of clean transportation. NDN Green Project Director Michael Moynihan moderated this wide-ranging and well attended discussion, the video of which can be found below.
Kim Hill, the Associate Director of Research at the Center for Automotive Research and the Director of the Sustainable Transportation and Communities Group, spoke about a recent study he conducted on the economic impact ATT’s shift to a more efficient vehicle fleet. The short version: the conversion to CNG and hybrid vehicles saved fuel and money and created jobs. The detailed study can be found here.
Mike Granoff, the Head of Oil Independence Policies for Better Place, the first service provider for electric cars, building infrastructure, software and the user interfaces to make electric cars available for mass adoption, spoke about the Better Place vision and business model and updated us on Better Place's progress. During the session, he mentioned the video of the battery swap station at work, which can be found here on the Better Place website.
Finally, Dr. Kathryn Clay, the Director of Research for the Alliance of Automobile Manufacturers spoke about the industry's efforts to innovate to cut greenhouse gas emissions and the regulatory environment around those efforts. More on the Auto Alliance can be found here.
With Friday's revelation from the Director of the White House Office of Energy and Climate Policy Carol Browner that President Obama's signature finding its way onto a climate bill was "not going to happen" prior to Copenhagen, it's time to go to Plan B to get the most out of the international conference. Although the US may not be leading on what many consider the most important piece of limiting climate harming emissions, there are still other areas in which we can show leadership.
One place to start is by building on something the G-20 did: a global agreement on the phase-out of fossil fuel subsidies. Taking the agreement from that smaller group and getting buy-in from additional nations (most of whom were obviously not at the G-20), would be helpful. Additional teeth should be put into such an agreement, such as an actual timeline – the current one is a somewhat laughable “medium term.” American can lead by acknowledging that our subsidies to fossil fuel industries easily outpace those given to clean technology, and commit to changing that.
For many developing countries, fuel subsidies are something of a prisoner’s dilemma and policy trap. Governments artificially lower prices via subsidy thereby increasing demand – when, if nation’s acted in concert to eliminate these subsidies – markets would see to diminished demand and a lower world price. (Of course subsidies for low-income and vulnerable populations would remain appropriate.) Copenhagen is the perfect place to agree to such an outcome.
There are other important ideas, some of which we'll be writing about and advocating in the coming months before Copenhagen. Domestically, a Renewable Electricity Standard and strong clean technology incentives are an achievable necessity. A robust agenda for reforming our electricity markets and slow-moving utilities is also a conversation we can begin.
Internationally, a Global Environmental Organization that adequately represents rising powers and developing nations and that builds and guards the structure and rules for the complicated climate regime, as Ed Gresser advocated in the latest Democracy Journal, is another good idea. And, as you'll be hearing about more in the near future, an agreement to remove the significant barriers to the global deployment of clean technology and environmental services is crucial.
President Obama will be in a difficult position – he is in the right place on the issue, but the Senate is bogged down with healthcare, and getting to 60 on climate is not a forgone conclusion anyway. His team will therefore have to prepare a robust agenda of demonstrable accomplishments that showcases American leadership and gets the most out of this important conference.
For more on preparing for Copenhagen, check out the Washington Post, where NDN Globalization Initiative Chair Dr. Robert Shapiro continues his advocacy for a carbon tax.
Writing in the Financial Times about the four things that stood out to him about the G-20 Summit, Philip Stephens points first to "China’s, albeit reluctant, embrace of multilateralism:"
Beijing is at last owning up to the fact that it is a leading actor on the global stage. A year or so ago, China was still clinging on to an essentially passive role in international affairs. Western injunctions for it to act as a responsible stakeholder in the multilateral system were met with protestations that such demands were premature: China was still a developing country, and it prized non-interference above western concepts of mutual dependence.
The global economic crisis upended that strategy by showing that Beijing cannot detach its domestic from its international interests. True, China has had a good crisis, demonstrating that it can continue to grow while the west is in recession. But the collapse of its exports has served as a potent reminder of the inextricable ties woven by globalisation.
This interdependence is taken for granted in western capitals. For Beijing it carries the uncomfortable implication that states have a legitimate interest in the framing of others' domestic policies.
This interdependence led to, as Stephens points out, China's headline grabbing climate change announcement, an important marker on the road to Copenhagen. Frankly though, that work by China, in the interplay between domestic and international politics, was a fairly easy calculation. China has already made a strategic decision to develop a home-grown renewable energy industry, this was a logical move.
Rather, the heavy lift for China will come in the commitment to balanced growth from the G-20. China’s consumers are notoriously reticent to, well, consume. And it's virtually entirely due to policy. As Michael Pettis, a professor at Peking University, writes in the New York Times:
The Chinese save such a high fraction of their income largely because of long-standing policies aimed at promoting and subsidizing domestic investment and manufacturing.
These policies inevitably require households to foot the bill, primarily through sluggish wage growth, low interest rates on their bank deposits, an undervalued currency and a weak social safety net. Since total savings is just the difference between what is produced and what is consumed, subsidizing producers at the expense of household consumers necessarily causes savings to rise.
Since, as NDN's Rob Shapiro writes, there is little chance of the U.S. bailing the world out of the great recession, there is, as Pettis says, a scary possible outcome to rebalancing:
As the U.S. rebalances its economy toward higher savings rates, China has no choice but to rebalance toward higher consumption rates. This can happen either because of a sharp pick-up in consumption growth or, more likely, a sharp slowdown in GDP growth. I worry that China will find it difficult to generate the kind of consumption growth that will take up some of the American slack, and we may be locked into a period during which the world adjusts by growing more slowly.
This G-20 seems to have been more successful than many would have thought, but the real crux of the global economic recovery may lie in getting the world's rising powers to connect their people to the global marketplace. As China adjusts to the responsibilities that come with others having a stake in their domestic economic policies, it will inevitably do what everyone else does: balance that responsibility with domestic politics. (Perhaps Chinese leadership will see fit to develop a social safety net in the form of universal healthcare; all the socialists are doing it these days.)
Rich countries will agree to give up 5 per cent of the total voting shares to be distributed to under-represented countries, including rapidly growing emerging economies such as China. The aim is to increase the legitimacy of these institutions. The leaders have agreed to put aside disagreements over the representation in the governing bodies of these institutions.
Developing countries—many of the same ones that are demanding that rich countries underwrite their transition to a clean-energy economy—spent $310 billion in 2007 to subsidize fossil-fuel consumption, the International Energy Agency says.
Stop spending so much to keep gasoline, diesel, and electricity artificially cheap, in other words, and you’ll have the cash to promote clean energy at home.
Clean energy has captured the imagination of people from Silicon Valley, who invested $5.4 billion in the sector last year, to President Obama, who highlighted it in his State of the Union Address. However, it has yet to fulfill its economic promise and displace legacy fuels in America’s electricity sector, especially when compared with the significant progress made in other countries. Today, non-hydro renewables account for just 3.5% of electricity in the US.
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