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.
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.
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.
One of the most important pieces for the future of transportation, energy, and climate is how we power automobiles. An interesting piece from the Wall Street Journal's "Environmental Capital" blog discusses a new study on the future of global oil supplies:
Here's an intriguing thought: Global oil supplies are indeed set to peak within a few years, and no, that is not bullish for oil. Quite the contrary—it will spell the end of the "oil age."
That's the take from Deutsche Bank's new report, "The Peak Oil Market." In a nutshell: The oil industry chronically under invests in finding new supplies, exemplified both by Big Oil’s recent love of share buybacks and under-investment by big oil-producing nations. That spells a looming supply crunch.
That will send oil to $175 a barrel by 2016—and will simultaneously put the final nail in oil's coffin and send prices plummeting back to $70 by 2030. That’s because there's an even more important "peak" moment on the horizon: A global peak in oil demand. That has already begun in the world’s biggest oil-consuming nation, Deutsche Bank notes:
US demand is the key. It is the last market-priced, oil inefficient, major oil consumer. We believe Obama’s environmental agenda, the bankruptcy of the US auto industry, the war in Iraq, and global oil supply challenges have dovetailed to spell the end of the oil era.
The big driver? The coming-of-age of electric and hybrid vehicles, which promise massive fuel-economy gains for short-hop commuting but which so far have not been economic.
Peak Oil, which used to be dismissed by many as kind of wacky theory (even though the idea was originally formulated by an oil company geologist), seems to have arrived firmly in the mainstream with the likes of Deutsche Bank onboard. Some argue that the arrival of peak oil will generate a massive shock to civilization, but, true or not, it will certainly be a game-changer that necessitates and speeds the deployment of new technologies. So if the Peak Oil believers are right, it's incumbent on us to start investing in these technologies today: Oil prices spikes have generally been economically problematic – or worse – some have triggered recessions.
For more on the "coming-of-age of electric and hybrid vehicles" and the general future of clean transportation and automaking, join us at NDN at noon today for Insights into the future of Clean Transportation, which will showcase speakers from the Center for Automobile Research, the Auto Alliance, and Better Place. If you can't make it, watch the event live online.
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.
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.
New figures showing a decline in wholesale prices and a drop in new-home construction highlighted how weak the economy remains, even as some optimists declare the recession to be over.
Producer prices fell more than expected in July as the costs of food and energy slipped, the Labor Department reported on Tuesday. The 0.9 percent monthly decline came after three months of increases, and suggested that demand was weak up and down the ladder of production, from consumer goods to intermediate goods like chemicals and rubber to raw materials.
Producer prices declined a record 6.8 percent from last July, when crude oil prices soared above $145 a barrel and pushed the costs of fuels, food and other products sharply higher, before they fell back amid the global financial crisis. The decline in the last 12 months is the largest drop in 60 years, since the government starting keeping such records.
So-called core prices excluding food and energy costs fell 0.1 percent, their second monthly decline of the year.
...
Despite several glimmers of rising prices and increased activity in the housing market, the Commerce Department’s report on housing starts and building permits showed that the market for new homes remained weak with building loans tight and so many foreclosures on the market.
New-home construction fell a seasonally adjusted 1 percent in July from a month earlier, to an annual rate of 581,000, the government said, and building permits were down 1.8 percent from June. Housing completions also dropped, falling 0.9 percent for the month.
The housing piece is not particularly surprising, as that market remains weak overall. At a time when unemployment is so high and houses so diminished in value, now seems an unlikely time for people to sell their homes to move for a new job and therefore have a house built.
While the economy seems to be getting worse more slowly, it is still getting worse and remains incredibly unstable. The one element able to raise producer prices most quickly, a rise in energy prices, could be disastrous.
Tremendous excess capacity remains in the economy, and many of the pieces of the stimulus that have yet to come online, namely infrastructure spending, are needed in the coming months (despite what we may hear on conservative cable networks). These projects will be noticed and helpful, both to the economy and the politicians who made them happen.
This week the Center for Automotive Research in Detroit is holding its annual conference on the future of cars. Entitled “Today's Turmoil: a Foundation for Success”, the four day conference allows the global industry to hear the insights of people like Akio Toyoda, the new president of Toyota who is shaking up the company started by his grandfather and discuss subjects such as manufacturing and how to make sustainable cars. A new face this year: Ed Bloom of the US Auto Task Force in the role of the industry's new partner, government.
With global sales down almost 50% from their peak, it has, indeed, been a brutal year for the industry, especially so for the Big Three, now really One and a Half. From this new low base, however, the industry is certain to rebound. The question is whether it will rebound in America or whether the center of gravity of auto manufacturing will continue to shift away. After the decades-old decline of the Big Three's market share, all the management studies and manufacturing initiatiaves, capped by GM and Chysler’s bankruptcy filings, some would argue the US industry is past recovery. I disagree.
I believe US carmakers can be part of the global rebound. I also believe they must be if the US is to benefit from the clean economic revolution. However, recovery of the industry won't come easy. The US car industry needs to reinvent itself with help from policymakers and by listening to people outside the industry, especially the customer.. The good news it that auto manufacturing tends toward decentralization. The weight of cars, variations in standards by country and a healthy measure of politics combines to encourage localized production. There is no risk yet of a laptop-style shift of the entire industry to Asia. The challenges are best described as severe but surmountable. Here are six things the US auto industry needs to do to re-emerge in strong shape from the Great Recession of which government has a role in three:
First the industry needs to rediscover innovation. In its glory days, passionate engineers invented new tires, transmissions, solutions to the problem of knock, the octane system of gasoline, ball bearings and other breakthrough technologies of the day, the equivalent of Twitter or Facebook or in the auto industry, new battery technologies, electric drive trains, carbon fiber materials, computerization, and energy economy technologies today. One idea would be for US car companies to put venture capitalists from Silicon Valley or prominent scientists on their boards and move their R&D operations to Silicon Valley. VC-backed Tesla, for example, is making major strides from its Palo Alto base. Palo Alto-based Better Place is similarly working with Renault and Nissan to pioneer new charging technology for an all electric car. Cars are a technology product and it is time to remember this. They are also a lifestyle product. The Big Three should draw more design inspiration from places like New York and Los Angeles. In its early days, GM had its headquarters in New York and it would behoove the industry to reconnect with centers of excellence across the country.
Second, the US car industry needs to recapture its ability to anticipate changes in consumer taste. In My Years at General Motors, Alfred Sloan discussed how hard this always was, yet how essential: “Even though it takes years to develop a new product, it is our job to be ready with it when there is an effective demand”. He was describing a problem that bedeviled the industry even in1957: a sudden desire by Americans for small cars—something in which the rest of the world even then excelled due to smaller streets, high priced gas and shorter distances—that caused imports to leap. In that crisis, the Big Three responded with cars like the Corvair a year later to recapture the lower end of the market and bring imports from 10% back down to a negligible level. The Big Three were far less successful after the oil shocks of the 1970s when imports began building market share. They face an even sterner challenge in the wake of last year’s oil shock. Message: be ready with small cars when they are needed. And in the wake of climate change which is not going away: improve fuel efficiency.
Third, the US industry must try to reinvigorate its supplier base which has suffered even more than the OEMs in recent years. A focused effort by industry to source locally and government support to high tech companies making batteries and other parts can help fuel the substrate necessary to a sound industry going forward. Alan Mullaly at Ford is already shifting Ford toward greater outsourcing of parts. To insure long term sustainability, it is important to rebuild the North American infrastructure. As discussed below, this should be an element of negotiation with companies entering the US market.
Fourth, much has been made of the so-called cost disadvantage of the Big Three’s legacy costs which supposedly added $2,000 to the value of each car. In fact, the appropriate way to deal with liabilities was always on the balance sheet as a capital item not as an operating one. The GM and Chrysler bankruptcies put an end to much of this liability. However, properly accounted for and written down, these legacy costs should be a footnote on the balance sheet, not a drag on operating profit..
Fifth, much has similarly been made of the supposedly high wages paid by US carmakers relative to foreign companies that have set up shop in the South. While the gap is overstated, labor costs are lower in the South due to lower costs and the absence of unionization. Here the US needs to act carefully but act on labor rules that have created an unfair playing field. Due to our state system of regulation, the US has both right to work states and others where unionization is common. Taking advantage of US federalism, foreign manufacturers even if their own countries are 100% union have set up shop in the South. A notable exception to this stratifaction is the unionized Toyota NUMMI facility in Fremont, California, where GM was a partner however, there is talk of Toyota closing that plant in the wake of GM’s pullout.
The answer to this is not heavy handed change in our federalist system. However, as Bob Reich has argued, the US, as a whole, loses when states and even towns bid against one another for new factories. He proposed a body or at least baseline standards to negotiate on behalf of American manufacturing sites. It would not be unreasonable to require new factories to offer employees a chance to organize at some point after the plant is built, require some level of local sourcing of parts and at least try to negotiate for research and development investments. Until other countries relax their standards for foreign investment, we should not give away the store.
Sixth, and here government is the critical player, the industry needs a reasonable exchange rate. For about a quarter century, since the end of the 1982 recession, a high dollar has benefited our financial sector at the expense of manufacturing. Something similar happened in England’s transition from manufacturing to finance capitalism in the late 19th Century when it shifted from a trade surplus to deficit (driving a quest for colonies.). The dangers of over reliance on finance are clear. Recently, Laura Tyson floated the idea of retooling our economy more toward investment and manufacturing in lieu of finance, in part, by lowering the value of the dollar. Dollar policy is not something that is widely discussed or even understood yet it has an immense effect on the structure of our economy. Perhaps like war it is too important to be left to the generals and should be the subject of an open and intellectually rigorous academic and industry discussion.
In short, cars will continue to be built in the United States. The question is whether we will be leaders or followers, designing the breakthrough cars of the future, or building cars introduced somewhere else a few years earlier.
To this point, of the top 5 cars purchased under the Cash for Clunkers program, four bear Japanese nameplates. (The rankings are Toyota Corolla, Ford Focus, Honda Civic, Toyota Camry and Toyota Prius.) Of these, all but the Prius are largely made in the United States and Toyota will begin making the Prius in Mississippi next year. While Japanese, German and Korean investment in factories in the United States is a win win, creating jobs, economic activity and tax revenues, it does not amount to leadership.
In conclusion, the US auto industry faces huge challenges. But the bottom of a cycle creates opportunity and the decks are now clear for a rebound. It was not long ago that the US industries—after suffering through the 1980s--mounted a partial comeback, improving quality and inventing breakthrough products of the day such as the minivan and SUV—formats soon copied by others. US industry and policymakers should begin taking action now to lead recovery when it inevitably comes.
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.
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.
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