Reed Hundt and Blair Levin: Grow the economy, save the climate

Today’s guest column comes from Reed Hundt and Blair Levin, authors of a new ebook called The Politics of Abundance:  How Technology Can Fix the Budget, Revive the American Dream, and Establish Obama’s Legacy, available at www.politicsofabundance.com and via Amazon and iTunes. Reed Hundt was chair of the Federal Communications Commission and Blair Levin was his chief of staff from 1993 through 1997, when the government’s telecom policies helped spur the Internet boom; they see similar opportunities now in broadband and energy. Hundt is now the CEO of the Coalition for Green Capital, a non-profit that designs financing support for energy projects. Blair (who is a friend) is CEO of Gig U, a non-profit engaged in broadband projects. They’ve got some good and (relatively) simple ideas for spurring the green economy.

Based on existing trends in global warming and life expectancy, every American at or under age 65 is likely to live long enough to see the world devastated by floods, droughts, storms, starvation, extinction of species, and other iterations of the apocalypse.

Despite occasional eruptions of denial in some quarters, most business and government leaders in the United States and virtually all in other nations agree that greenhouse gases, spewing from smokestacks and exhaust pipes, are warming the planet to the point where these apocalyptic outcomes are probable.

The great news is that in the first term of the Obama Administration federal and state governments showed clearly how any country can halt these murderous emissions, and at the same time stimulate sustainable economic growth.

By insisting that ARRA, the recovery spending act passed in February 2009, provide tax credits used for building a new energy system, President Obama helped the wind and solar electricity generation industry double their share of the market in less than four years.

Then the Administration re-organized and increased research and funding of sustainable energy technologies. As a result, innovators are delivering Moore’s Law (price-performance doubling every couple of years) results in batteries, grid efficiency, and other areas.

California has put into place laws that cap emissions, require rapid market share shift to renewables, and encourage investment in distributed rooftop solar. So far the economic impact is good and popular opinion supportive.

Connecticut created a state green bank that can provide low-cost capital for renewables and efficiency investment. As a result, clean electricity can be provided to consumers at below the current and projected prices for non-sustainable electricity generation, and the money contributed by the state green ban to jumpstart private projects will be paid back over time.

Most states have passed laws requiring a shift of major market share to renewable generation sources. These renewable standards permit utilities to phase out dangerous emissions-intense generation rapidly, while bringing new investment into local economies.

Reed Hundt

Technological breakthroughs have led to the discovery of vast resources of natural gas deep inside American soil. The electricity generation industry can switch from using coal to natural gas and deliver electricity cheaper, with much reduced emissions. Within the second term of the Obama Administration natural gas generation can increase its already large share of the market by fifty percent – without any new government funding.

For all these reasons, the potential to move rapidly to a new platform of power creation and use reminds US of 1994 – when breakthroughs in digital mobile communications, fiber optics, microprocessors, and information digitization all combined to make possible the Internet-driven boom. In the glorious salad days of the Internet, 1995 to 2000, GDP growth averaged 4 percent a year. Every income quintile saw increased wages. The debt-to-GDP ratio fell dramatically and the annual budget went from chronic deficit to huge surplus.

These changes stemmed primarily from private investment. About a trillion dollars rebuilt the communications platforms on which all American economic and social activity is now conducted. But in those years the government needed to – and did – adopt regulatory and tax policies that encouraged investment in these new networks.

Similarly, if Congress right away will adopt a handful of key regulatory and tax policies, at least another trillion dollars of private investment will rebuild the power platform of the United States, just in time to give America a large-scale sustainable platform for long term economic growth. That move in turn would permit American firms to export sustainable technologies to a waiting world. The World Bank could increase to the level of hundreds of billions of dollars its financing of sustainable electricity generation in the developing world. Advances in electric vehicles can permit automobiles to increase the standard of living in poor countries without increasing their emissions. A global trade deal can be fashioned around a common market of sustainable energy solutions.

Congress can open the doors to massive investment in a new power platform, producing abundance for everyone, if it passes three laws:

Blair Levin

First, it should pass a modest tax on carbon-intensive emissions from power plants. Utilities should not be able to pass the tax on to consumers. Instead, to avoid it, they should move more rapidly to renewable generation and natural gas generation.

Second, as it did with communications in a 1996 law, Congress should pass a law requiring all state regulatory commissions to increase the opportunity and incentive for electric utilities to invest in energy efficiency, renewable generation, and electric transportation.

Third, Congress should charter a national “electromagnetic wave bank” that provides long-term financing at low rates for investments in renewable power, energy efficiency, and electric transportation. That bank should borrow at long term, preternaturally low rates now available to the Department of Treasury and pass the funds to state green banks, such as Connecticut’s, to use under certain pre-set models that guarantee pay-back.

These steps are no longer experimental. Examples of their efficacy abound. They would reduce the federal deficit. They would create new jobs. There is, however, not a moment to lose.

Comments

  1. “First, it should pass a modest tax on carbon-intensive emissions from power plants. Utilities should not be able to pass the tax on to consumers. Instead, to avoid it, they should move more rapidly to renewable generation and natural gas generation.”

    Two points:

    A tax is a cost of doing business. It becomes a portion of the cost of producing a product or service. I seriously doubt that any attempt to keep such a tax from being treated as a cost of doing business and thus included in the price of power provided by a utility provided would survive a court challenge.

    Second, an electric utility could not “avoid” a carbon tax by switching to natural gas as a generation fuel, since natural gas combustion also produces CO2.

    A fundamental question, not addressed here, is whether a complete switch from coal to natural gas generation would produce sufficient reductions in CO2 emissions to meet the long term reduction requirements. The “Hansen Faction” does not believe it would; but, rather, that all CO2 emissions must be eliminated.

  2. Just for giggles, let’s apply the carbon tax at the source, rather than at the power plant stack. This has one key administrative advantage, in that the coal is already weighed at the mine prior to shipping. According to EIA, the current price of coal at the mine ranges from ~$10-68 per ton, depending on the source. (http://www.eia.gov/coal/news_markets/).

    A “modest” carbon tax of ~$20 per ton, which was not permitted by law to be recovered from customers, would exceed the current price of Powder River Basin coal by a factor of ~2, causing producers to immediately cease operations. Operators in the basins with the highest cost per ton would have to be earning net profits of ~30% (a ridiculously high percentage in the industry) to remain even marginally profitable. Therefore, a “modest”, non-recoverable carbon tax, applied at the source, would effectively cause US coal production for consumption in the US to cease.

    Therefore, once utilities had exhausted their on-site coal piles, approximately 50% of US generating capacity, the current source of ~43% of US electricity production, would be rendered inoperable. Some of these plants could be converted to burn natural gas in the existing boilers rather rapidly, though only at approximately the same efficiency as with coal. Replacement with natural gas combined-cycle generators or renewable capacity would take far longer.

    • Surely, a government so concerned about an impending climate catastrophe would not permit US coal operators to continue producing for shipment to Europe and Asia. However, a government concerned about incremental tax revenue might.

  3. Gee, did he miss the news that the full process of exploring and producing natural gas from the shale formations generating so much excitement generates more CO2 emissions than getting the energy by burning coal?

    Counting on technological advancement to allow us to continue our binge without cooking the kids is just a hope. History is littered with the unintended consequences of so many of our technological breakthroughs. Technology can definitely be good, but it’s a long shot to bet our future on it making our culture of growth and excess sustainable.

    Dave Gardner
    Director of the documentary
    GrowthBusters: Hooked on Growth

  4. Technology growth is inevitable. We humans are relentlessly productive, creative and innovative and it’s hard wired into our DNA. Yes, there are unintended consequences. They get outweighed and eventually corrected by intent. I share the technology optimism of the authors. I believe the same productivity, creativity and ingenuity that got us into this mess will lead to our planet’s salvation – and just in the nick of time. I see a blue wave of new advanced material technologies on the horizon that will help reverse the disastrous consequences of burning fossil fuels and lead us back to blue skies and blue waters. The only change I would add to the policy prescription above is to add “pollution mitigation” to the support worthy trinity of energy efficiency, renewable generation, and electric transportation. The support of new material technologies that eliminate GHGs and VOCs at point of reception – such as CO2 sucking concrete, NOx reducing coatings, methane eating chemistries and vertical farming – would complement the gains created by renewal technologies and accelerate our return to blue skies and blue water.

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