Here comes the sun….not

Germany, once the world’s leading market for solar power, is pulling back its subsidies.

Q Cells, once the world’s largest solar company, just went bankrupt.

This isn’t happy news. If the country that birthed the Green Party cannot sustain its support for solar, what does that tell the rest of us?

It should tell us that it’s time (actually way past time) to get serious about energy and climate policy.

This week, as I followed the news from Germany, I talked with a couple of energy-policy experts who I respect–Jesse Jenkins of the Breakthrough Institute and Gernot Wagner of the Environmental Defense Fund. I also watched an interview (below) with Bill Gates from the Wall Street Journal’s Eco-nomics conference. They disagree about some specifics, but they all agree that the US needs to get a lot smarter about how to drive a transition to low-carbon energy. So let’s try to see what we can learn from Germany, and the rest of Europe.

Perhaps the most obvious takeaway is that we should not place expensive bets on any one solution. That’s what the Germans did, with generous subsidies in the form of a feed-in tariff for solar. Even though the costs of solar have dropped dramatically, the subsidies were not sustainable. Remember when people said nuclear was too cheap to meter. Solar PV is too costly to subsidize on a scale that matters. [click to continue…]

Why I love Twitter, and random thoughts on social media and sustainability

Any day now, I’ll attract my 10,000th follower on Twitter. Whoever you are, thanks. Not coincidentally, Twitter has become my favorite social-media platform. So this seems like a good moment to reflect on social media, sustainability and journalism.

Like most of you, I imagine, I’m spending more time lately with social media — Twitter, Facebook, LinkedIn, Google + and blogs (obviously) — and less with newspapers, magazines, television, radio and books.  While there’s obviously overlap between digital and traditional media, I’m finding social media to be an increasingly  efficient and effective way for me to gather and absorb information, which is what I do.

This post is not about how social media is transforming corporate sustainability–although clearly it is. Business has fewer secrets. Corporate communication has become a two-way process. Corporate shaming campaigns are more powerful than ever. Greenpeace targeted Kit Kat and Nestle very effectively last year on Facebook and YouTube, gay activists at All Out brought pressure on PayPal to drop its business relationship with hate groups and a petition on change.org helped spark a national conversation about shopping on Thanksgiving. This is powerful stuff.

Today, though, I want to talk about my own experience with social media. These platforms can be immensely valuable but they can also be a time suck. Here’s my thinking, as of now:

Why I love Twitter: I was on a conference call on August 23 when my home office started to shake. My first reaction was that a car or truck had hit the house. Then I checked Twitter, and found a bunch of posts about the earthquake that was making its way up the east coast. (Within a minute, according to Twitter, there were 40,000 earthquake-related Tweets.) Friends in New York read about the quake on Twitter and felt it moments later.

The point is, Twitter is a super-fast way of keeping up with the news. More important, it’s the best way I know of to stay abreast of the news that I need to know — about business, sustainability, energy, climate and corporate social responsibility. That’s because I’ve found people I trust on Twitter who share what they are reading and thinking about. By spending 15 to 30 minutes a day on Twitter (not counting the time reading links), I can stay on top of news and commentary that matters to me. [click to continue…]

Webinar: Nuclear power, after Fukushima

I hate to paraphrase a terrible sexist joke but when it comes to nuclear power, I sometimes feel like we can’t live with it and we can’t live without it.

There are lots of reasons to worry about nuclear power. No. 1 may be cost. As I noted last weeka recent report from the Union of Concerned Scientists tallied up the costs of government support for nuclear power from uranium mining to waste disposal, and it concluded that “subsidies to the nuclear fuel cycle have often exceeded the value of the power produced. This means that buying power on the open market and giving it away for free would have been less costly than subsidizing the construction and opera­tion of nuclear power plants.” Those costs, if anything, will only get higher because of the added scrutiny that the nuclear accident in Japan has brought to the industry.

And yet…without preserving and expanding nuclear power as an energy source, it’s extremely hard for me to see any path towards the low-carbon future that we need. As Robert Bryce, the author of Power Hungry: The Myths of ‘Green’ Energy and the Real Ruels of the Future, once put it, “If you are anti-carbon dioxide and anti-nuclear, you are pro-blackout.”

These issues, and more, will be the topic of a live webcast on Wednesday June 29, 3 PM ET / 12 PM PT, presented by The Energy Collective, a website about energy and climate. I’ll be moderating. Registration is free and available here.

We’ll be talking about the following issues: [click to continue…]

Green China: Friend or foe?

Barely a week goes by without new evidence of the greening of China. This is great news for the planet—but some people say it’s bad for the U.S.

Are they right to worry?

What got me thinking about this was a phone conversation the other day with Bill Gross, the brilliant and tireless entrepreneur who is the chief executive of eSolar and a founder of electric-car startup Aptera.

Bill was calling with great news for eSolar, a Pasadena, Ca-based firm that makes software and equipment for utility-scale solar thermal power plants. This weekend in Beijing, eSolar announced a deal with a Chinese electrical-power manufacturer to build at least 2 gigawatts (2,000 megawatts) of solar thermal power plants over the next 10 years, beginning with a 92-megawatt plant that will break ground this year.

ESolar power plant

ESolar power plant

“China is really moving fast to implement as many green technologies as they can, to become experts at them and to scale them up,” Bill told me. “It’s a statement that China is thinking about clean energy for the long term.”

I’m hearing this more and more. Tulsi Tanti, who runs a big Indian wind power company called Suzlon, told me last month in Copenhagen that China is his biggest market. My blogging colleague Jesse Jenkins (at The Energy Collective) has written about a report from the Breakthrough Institute, where he works, called Rising Tigers, Sleeping Giant (available here as a PDF) that argues, among other things, that:

Asia’s rising “clean technology tigers” – China, Japan, and South Korea – have already passed the United States in the production of virtually all clean energy technologies, and over the next five years, the government’s of these nations will out-invest the United States three-to-one in these sectors.

[click to continue…]

Let’s have a grown-up debate about climate change

If, like me, you have been confused, frustrated, dispirited or all of the above by the health care debate in Congress, get ready for more as the U.S. Senate prepares to take up climate-change legislation. The stakes are high. The debate will not be high-minded.

Expect opponents of mandatory carbon regulation to distort the science and economics of global warming, predicting an economic catastrophe if the bill passes, even as environmentalists promise a green-jobs nirvana and warn of an environmental catastrophe if it doesn’t. The fact is, any meaningful effort to regulate carbon will carry real but not catastrophic costs for businesses and consumers  – that’s part of the point, to raise the price of burning fossil fuels – and that the transition to a clean-energy economy will be disruptive, under the best of circumstances. Solar-power manufacturers in China will gain at the expense of coal miners in West Virginia. That makes the politics of the bill a challenge, but so be it.

images-1But if we acknowledge that passing a climate bill will create costs, we also need to recognize the costs of inaction will likely to be far greater. If you doubt it, read Global Climate Change Impacts in the United States, an excellent report, written in plain English, about the likely impacts of climate change. Catastrophe is probably not too strong a word to describe the environmental impact of business as usual.

While the congressional debate will focus on science, economics and politics, the climate-change issue is fundamentally about our legacy. Are we willing to make sacrifices now — maybe even painful sacrifices — to better the world for future generations?

If you want to learn more about the upcoming congressional debate, I invite you to join in a webinar on Wednesday, September 30, at 1 p.m. ET, called Climate Legislation in the U.S. Senate. It’s organized by The Energy Collective, a website about energy and climate that brings together some of the smartest ideas and opinions on the Internet.

Panelists at the webinar will be Manik “Nikki” Roy of the Pew Center on Climate Change, a politically-savvy Washington insider who’s been tracking the climate issue for years; Michael Zimmer, an attorney and energy policy expert with Thompson Hine, also in Washington; and Jesse Jenkins, director of energy and climate policy at the Breakthrough Institute. I’ll be moderating. [click to continue…]

Kites, Coal and Waxman-Markey

If nothing else, the Waxman-Markey climate change bill is keeping the think tanks and Washington lobbyists busy. I’ve been surveying analyses and comment from critics including The Heritage Foundation (“a massive energy tax in disguise that promises job losses, income cuts, and a sharp left turn toward big government”), former Lotus CEO Jim Manzi in The National Review (“a terrible deal for American taxpayers”), the U.S. Chamber of Commerce (“expensive, complicated, regulation-heavy, domestic-only legislation”), The Breakthrough Institute (“may allow American emissions to continue to rise for up to twenty years”) as well as Greenpeace (“not strong enough to stop global warming”) and Friends of the Earth (“we have serious concerns and misgivings that prevent us from offering our support”). Now we are getting analyses of the analyses, such as the NRDC’s Laurie Johnson’s persuasive takedown of Heritage’s work. Lest you think that the climate-change bill lacks supporters, supporters last week released a list of backers that includes a broad swath of corporate America (GE, GM, PG&E, Exelon, Duke Energy, Shell, Starbucks and Nike), labor (the UAW, United Mineworkers, SEIU) and nonprofits (NRDC, Sierra Club, World Wildlife Fund, League of Women Voters, Consumers Union, National Wildlife Federation, etc.)

Inevitably, these analyses depend upon making numerous assumptions, stretching many years into the future, about trends and events that are inherently unpredictable:  GDP growth, energy supply, energy prices, geopolitical forces, the efficacy of domestic and international offsets and especially technology breakthroughs. What if Toyota, Ford or the Chinese company BYD quickly figure out how to build cheap electric cars? What if jatropha turns out to be an ideal biofuel? What if tidal  power or geothermal energy or something truly far-fetched — “clean coal,” maybe – turns out to be an affordable source of clean energy?

Or consider kites. Just the other day, I watched this mind-stretching TED talk by Saul Griffith of start-up Makani Power about the energy-generating power of high-altitude super-sized kites. Makani’s backers include Google, and the company is hard at work on Maui making kites that generate enough electricity to power several homes. (No word on whether Makani’s Hawaii office  is hiring.) “This is the dawn of a new age of kites,” Griffith says.  “This is a story about the audacious plans of young people with these dreams…I think we need to support all of the dreams of the kids out there doing these crazy things.”

makani_kite
What does Waxman-Markey have to say about kites? Nothing, it turns out. (No, I haven’t read the 932-page bill, but I did a search for the word kites) That’s actually a good thing. By contrast, the bill has at least 40 references to coal, as best as I can tell. According to this summary of the bill by House staffers provided by the tireless blogger and climate expert Joe Romm, the bill provides an estimated $60 billion in investments in carbon capture and sequestration technology and it uses a mix of “regulatory requirements and financial incentives” to ensure that new coal-fired power plants will operate with carbon capture and sequestration (CCS) technology. For example, Waxman-Markey decrees that…

Coal plants permitted between 2009 and 2015 lose eligibility for federal financial assistance if they do not retrofit CCS within five years after commencing operations; if they do not retrofit CCS by this date, they must retrofit CCS by no later than 2025 without federal financial assistance. The 2025 retrofit deadline is accelerated if four gigawatts of electricity generation is deployed with CCS before 2025; it may also be extended by EPA by up to 18 months on a case-by-case basis.

This is the kind of thing that worries me about Waxman-Markey in particular and about the willingness of the Obama administration more generally to manage so much of the economy—energy, autos, financial services. It’s hard, nay, impossible to know if CCS is a smart, workable and affordable technology or when, if ever, it should be deployed. Maybe kites are a better idea. Maybe not. But should the government decide?

It’s not just clean coal. As I wrote last week, Obama & Co. are ready to place bets on which companies and regions are likely to develop battery technology for electric cars. (See Uh-Oh: Obama’s battery gold rush).

Here’s another example of questionable industrial policy. This is the headline from an Energy Department press release that landed in my mailbox last week:

Secretary Chu Announces Nearly $50 Million of Recovery Act Funding to Accelerate Deployment of Geothermal Heat Pumps

Then there was this news from a company called Hearth and Home Technologies, a manufacture of wood stoves, pellet stoves and fireplaces which reported, approvingly, that

Under the 2009 Economic Stimulus legislation, U.S. homeowners who purchase a 75-percent efficient biomass (wood or pellet) burning stove, fireplace or fireplace insert and place it into service in their home during 2009 or 2010 can receive a 30-percent tax credit for costs incurred, up to $1,500.

Do you see the problem here? Just to be clear, I don’t have a position on biomass stoves and geothermal heat pumps. I just don’t think the government should have a position either.

To be sure, we need an energy revolution. Nothing less than the transformation of our fossil fuel-based economy into one that is cleaner and greener will solve the global warming crisis. Most important, we need to do whatever we can to spread that energy revolution to India, China and the rest of the developing world, because if we go green and they don’t, well, we’re still cooked. But how do we get from here to there? With clean coal? Electric-car batteries? Heat pumps? Wood stoves? Kites?

The unfortunate answer is no one knows. Not the president, not Congress, not Nobel laureate and energy secretary Chu, not venture capitalists or energy company CEOS or Fred Krupp or Jeff Immelt or Joe Romm. Our energy and climate problems are knowledge problems, too. And the best way to solve knowledge problems – which is to say the best way to spur technology change – is to create conditions that get lots of scientists and engineers to work on them, invite lots of investors to place their bets on which ones will work and then test those ideas in the marketplace. By aggregating thousands of decisions, markets will help us figure out which of today’s technologies or which ones yet to be invented get us closer to the clean energy economy we need.

Mind you, I’m not arguing here that markets alone will do the job. Forceful government action is needed to reshape markets and drive the clean-energy evolution. As my blogging colleague Jesse Jenkins has argued (as part of a friendly debate we’re having at The Energy Collective and elsewhere over energy policy), federal actions laid the groundwork for numerous technologies, including as microchips, commercial aviation, personal computing, the Internet, nuclear power and the railroads.

The real question is, just what form should the government action take? I’m all in favor of government funding for basic research, like the defense-oriented communications research that eventually made possible the creation of the Internet. I’m not opposed to the government using its considerable purchasing power to stimulate markets for electric cars or renewable energy, as it did when it installed a big solar power plant at Nellis Air Force Base in Nevada. But when it comes to energy and climate, I’d prefer to see a policy that is strong, simple, transparent, flexible and neutral when it comes to making technology choices. Outcome-based, if you will. A policy that uses a light but firm touch to unleash the power of markets to drive change.

This is what cap-and-trade, the centerpiece of Waxman-Markey, was supposed to do. Cap-and-trade puts a price on carbon, which is a jargon-y way of saying that it corrects a market failure, namely, the fact that people who burn fossil fuels (i.e., all of us) are not currently paying the costs of emitting global warming pollutants into the earth’s atmosphere. Cap-and-trade is an appealing policy because it addresses the fundamental problem—the global warming pollutants that cause climate change—but it is scrupulously neutral about the solutions. A carbon tax is an alternative way to accomplish the same thing.

Now I understand that the carbon price that would be created by Waxman-Markey’s cap-and-trade scheme is unlikely to climb high enough quickly enough to reshape energy markets and spur new technology. The EPA estimates that the carbon price—that is, the amount that polluters will have to pay to emit a ton of carbon—will be $11 to $15 in 2012, $13 to $17 in 2015, $17 to $22 in 2020, and $22 to $28 in 2025. That’s only pennies (or dimes or quarters) at the gas pump, the experts say, not enough to start a revolution. This is why there is so much more loaded into Waxman-Markey, including renewable portfolio standards, efficiency standards, more than $190 billion (through 2025) in clean energy and efficiency investments, and so forth.

But if the carbon price created by cap-and-trade under Waxman-Markey is insufficient, why not, then, raise the price or find another market-friendly way to promote clean energy, such as with a revenue-neutral $50-a-ton carbon tax or a hefty revenue-neutral gasoline tax, with all the proceeds being returned to American taxpayers in the form of lower payroll taxes (or rebates for poor or elderly people who don’t pay taxes.) That would reward consumers who live in smaller homes, use mass transit or drive drive smaller cars, and penalize those who choose to consume a lot of energy. The right price signals will do wonders to change people’s habits, as they did when gasoline prices spiked last year in the U.S. and as they have in Europe where gas taxes are high. Price signals are, quite simply, a more efficient way to promote change that prescriptive regulations: For example, ven under the Obama administration’s new CAFÉ standards for cars, U.S. cars in 2016 will be only about as efficient as European cars are now, Bryan Walsh reports in Time. That’s the power of markets.

Having said all that, Waxman-Markey may, unfortunately, be the best we can do in the current context. The environmental movement is politically weak. Coal-state politicians need to be won over. Neither the president nor Congress seem ready to begin a serious conversation with Americans about taxes, even those that are revenue neutral. Although some green groups say the bill won’t do nearly enough to address global warming, I was heartened last week to see that the World Resources Institute, a widely-respected NGO, released its own study arguing that the bill, as it now stands, would reduce GHG emissions by 28 percent below 2005 levels by 2020 and 75 percent below 2005 levels by 2050. See the chart below.

But I can’t help but feel that there’s going to be an enormous amount of waste and inefficiency along the way.

larsen_chartpreview

Watthead: In defense of big government

I’m on vacation this week, making my first trip to Israel where I’m visiting my aunt, a pioneer of the Kibbutzim movement. But I can’t shake off my Internet addiction, alas, and so I came across this response from Jesse Jenkins, AKA Watthead, to one of my blogposts last week bemoaning the Obama’s administration’s ever-increasing intervention in the economy. (See Uh-Oh: Obama’s Battery Gold Rush. Jesse responded at The Energy Collective, where the two of us blog.) Jesse, who works for the Breakthough Institute (and not the Breakthrough Collaborative as I said last week), believes that significantly more R&D spending from the government will be required to speed up the clean energy revolution. He’s thought a lot about this, and he’s also looked carefully at  the Waxman-Markey climate legislation now making its way through Congress, so I thought I would post his response here, with some minor edits. It’s well worth a look, and for those of you who care about energy policy, be sure to check out the links provided by Jesse.

I’ve spent the past two weeks digging deep into the Waxman-Markey ACES climate bill, peering beneath rocks and shining my flashlight into its dark recess to figure out what it will and will not do.  You can find that analysis at the Breakthrough Institute site here, and I highly recommend you take a look so you can get an accurate picture of what this “light touch-high impact” carbon pricing policy will actually accomplish.

The short answer: not very much at all.

The carbon price the bill will implement is likely to be between $12-20 per ton for the first decade-plus, according to the EPA analysis of the bill.  That’s about 12 to 20 cents per gallon of gasoline, which on the low end is about as much difference as you can find between different gas stations on two sides side of town, and on the high end is lost in the noise of seasonal variation in gas prices.  If you have little faith in the power of government, then I challenge you to explain how that kind of meager price signal is going to shift private investment and dramatically transform the $1.5 trillion combined U.S. energy and transportation markets.  Please, tell me a convincing story about how that might work, because after spending two weeks reading the Waxman-Markey bill, I could use some more uplifting news.

The reason the CO2 price will remain so low is because the bill allows up to 2 billion tons of offsets (up to 1.5 billion which may be sources from overseas) to be used in lieu of cutting emissions here in supposedly ‘capped’ sectors.  That’s enough to legally permit U.S. emissions to continue to grow at business as usual rates through 2030. So Waxman-Markey gives us no real “cap” on carbon and no significant price on carbon.  Forgive me for looking for other ways to directly spur the transformative clean energy innovation we need — ways you may consider unfortunate degrees of “government intervention.”  Given what’s at stake after all…

Also, as a kind of test to consider: many European nations have had gas taxes for decades that implement an effective carbon price in the hundreds of dollars a ton range ($2-5/gallon tax = roughly $200-500 per ton of CO2 equivalent carbon price!).  So with such a powerful signal for private investors to develop alternative fuel vehicles, why haven’t firms in Europe invented and commercialized electric cars?  Why isn’t everyone in Denmark driving EVs, one might ask?

The answer is because that’s not really how innovation works.  Price signals alone do not spur adequate innovation.  There’s a multitude of market failures at work, especially in the energy innovation sphere.  I have a paper coming out in about two weeks which I’ll share with my readers and the The Energy Collective community that spells out a lot of these market failures (prelude: knowledge spillovers, very high capital barriers and non-differentiated commodities are three big barriers to sufficient private sector innovation investments).  These are the kinds of market failures, which when combined with clear public imperatives for change, simply demand more active government engagement with innovation and industry than we all may find ideal.

For now, I’ll again challenge the typical assertions that private entrepreneurialism and investment (and the proper price signals) are all that’s required to spur transformative innovation by pointing you to my publication, “Case Studies in American Innovation: A New Look at Government Involvement in Technological Innovation” [PDF] for examples of how active federal government engagement and investment paved the way for so many of the technologies we now take for granted, including microchips, personal computing, the Internet, commerical aviation and jet engines, gas combustion turbines, nuclear power, wind power, solar power, etc.  Take a look and see why I’m not as skeptical of the role of government as you are.

Finally, as a (mostly) side note, since you cite Tesla Motors targeting luxury car markets with their electric Roadster as a reason they should not receive federal incentives: the reason Tesla is starting with a $100k electric luxury car is because new technologies are routinely more expensive at their launch.  If there isn’t a market for early adopters, the technology will never reach the economies of scale and spur the learning by doing (and continued innovation) that drops the price and improves the performance of the technology over time.  Think flat screen TVs or cell phones: the first ones are far more expensive than most can afford.  But now these technologies have reached economies of scale that drove dramatic price reductions and the technologies are affordable and (because of that) ubiquitous.

Tesla is looking to use luxury buyers – who routinely pay more for the cool new thing – to drive those initial economies of scale. They plan to produce the Roadster on a scale of 1,000s and at a cost of $100k.  Their next model will use the same (and now cheaper) components and batteries at a larger scale and will be a luxury sedan selling for around $60k and at a scale of 10s of thousands.  They then plan to produce a $35-40k sedan at a scale of 100ks per year, if all goes well.  That’s just smart.  Please don’t use that as a reason not to incentivize their technology’s development with public investment.  If the government were willing to directly purchase batteries and serve as the early adopter themselves — as we did for microchips, radios, radar, lasers, early computers, and jet engines — we could bring this emerging technology to scale and down in price much more rapidly and pave the way for the kind of dramatic private sector innovation that occurred AFTER the government purchasing (and loss-leading) dropped these technologies in price.  In short: we should be seeing far more direct public investment in the technologies to enable electrified transportation, not less.

Marc, I challenge you to wrestle with the history of innovation in a real honest way, and look for the role of government engagement in these technologies.  The energy innovation imperative is simply too critical to leave to well-established (but quite inaccurate) myths about the infallibility of private sector innovation and the supposed ineptitude of any government engagement in the market.  If the financial crisis taught us anything, I’d hope it was that we should revisit those myths with a pretty damned critical eye, eh my friend?

Uh-oh: Obama’s “battery gold rush”

A lot of smart people—Warren Buffett, Andrew Grove, Nissan’s Carlos Ghosn—believe that electric cars will be a big answer to our climate and energy problems. GM and Ford have apparently come around to that view as well, and even Chrysler recently released a cool little neighborhood vehicle called the Peapod. (See below.) I’m impressed by BYD, the Chinese battery and electric car company, and by Better Place, Shai Agassi’s bold electric-car startup aimed at transforming the global automobile industry. Batteries are the key to making electric cars affordable. So why did this Wall Street Journal headline make me cringe?

Obama Administration Sparks Battery Gold Rush

Companies, States Vie for $2.4 Billion in Funding Aimed at Turning U.S. Into Top Maker of Fuel Cells for Electric Cars

The story went on to say that the Department of Energy has received 165 applications from companies seeking some of that $2.4 billion. which is “aimed at turning the U.S. into a battery-manufacturing powerhouse.” The Journal’s William M. Bulkeley reports:

Companies vying for the federal money include General Motors Corp., Dow Chemical Co., Johnson Controls Inc. and A123 Systems, a closely held battery maker backed by General Electric Co. and others. States including Michigan, Kentucky and Massachusetts are also weighing in with applications, usually in alliance with their favored battery makers.

When the winners are decided, as soon as the end of July, the Energy Department may anoint Livonia, Mich., or Indianapolis or Glendale, Ky., as the future U.S. hub of car batteries.

Reading carefully, it’s clear that The Journal (“free people, free markets”) is not happy about this news. Note the use of the word “anoint,” hinting that the government is assuming divine powers. The article characterizes the DOE grants as “one of the government’s biggest efforts at shaping industrial policy”—fighting words in Journal-speak.

They’ve got a point, though, don’t they? One unhappy result of all the bank bailouts of the fall is that $2.4 billion doesn’t seem like much—hey, Citi alone has collected north of $45 billion, last time I checked—but a billion here, a billion there, and you’re starting to talk real money. And if electric cars are going to be as big a business as a lot of people think, then why government investment should be needed at all? Particularly since we have a climate change bill making its way through Congress that will, at long last, if all goes well, put a price on carbon emissions—thereby giving low-carbon energy sources what they desperately need, which is a fighting chance to compete with fossil fuels on something resembling a level playing field. I thought the whole idea behind cap-and-trade (which I strongly favor) is  to capture the externalized cost of global warming pollutants, and then let the market figure out how best to reduce greenhouse gas emissions: regulation that would have a light touch but a profound impact.

But no—with Waxman-Markey, CAFE standards, biofuels mandates, subsidies for “green jobs” and the like—the administration is giving us a belt and a couple of pairs of suspenders, too. Much as I admire Steven Chu, the energy secretary, do we really want to entrust him and his staff to decide which battery technologies are likely to succeed and which companies can most wisely spend that $2.4 billion? What’s more, since the states and their legislatures are competing as well, you can be sure that the likes of John Murtha and Robert Byrd will weigh in on these investment decisions. Indeed, the states themselves are already competing to subsidize battery makers, as The Journal notes:

“If you’re the place where the batteries are made, there’s an opportunity to spin it into other things as well,” said D. Gregory Main, president of the Michigan Economic Development Corp., a state agency that has committed up to $400 million in incentives for battery manufacturers.

Kentucky is promising $110 million in aid and a 1,550-acre site, in Glendale, that it assembled in an unsuccessful effort to land a Hyundai plant several years ago.

Some of these batteries, by the way, could well find their way into cars like the Tesla (sticker price:$109,000) and those made by Fisker Automotive, a California firm that plans to sell $88,000 luxury-hybrids next year. So tax dollars collected from working people and the middle class go to subsidize rich boys and their toys.

Please don’t get me wrong. I think electric cars are a great idea. The faster they arrive, the better. But judgments about which battery-makers to finance should best be left to venture capitalists, investors like Buffett (who bought 10% of BYD), big investment banks and the like. They may be no smarter than the people at the DOE but at least they are putting their own (or their investors’) money on the line. If they’re wrong, they’ll be held accountable, or at least they should be. You can be sure that some of them will be wrong, and that’s fine.

This is why I respectfully take issue with Jesse “Watthead” Jenkins of The Breakthrough Collaborative, who with me is a lead blogger at The Energy Collective, a website that aggregates blogs about energy and the environment. Jesse’s a smart guy and a good guy, but he has more faith in government than I do and so he favors substantially more federal investment in clean energy research and development. If we’re talking basic research, that’s fine, I suppose—the private sector can’t be asked to underwritethat, because the potential payoffs are so uncertain and long-term.

But this battery program is explicitly about picking winners and losers in one industry sector, which may or may not turn out to be a real business. It reflects, I’m sorry to say, the Obama administration’s faith that the best and the brightest Ivy-educated government executives can figure out what needs to be done, and just how to do it. I have no doubt that the people around Obama are smart, well-intentioned and hard-working. I dearly hope that they can, in fact, figure out just what needs to be done. But if we learned anything from Bush II, it is to worry about people in Washington who think they have all the answers.

images17

Climate policy and The Black Swan

How we do we live in a world we don’t understand? That question has been on my mind lately because I’m again under the sway of Nassim Nicholas Taleb, author of The Black Swan. Taleb did a podcast recently with the free-market (or, if you prefer) the Smith-Hayekian) economist Russell Roberts, available here at EconTalk and highly recommended.

They didn’t discuss climate policy but their conversation got me wondering what Taleb would say about the threat of climate change, particularly since I’ve been thinking about how to respond to a thoughtful commentary on climate and energy by Jesse Jenkins of The Breakthrough Institute, who blogs as Watthead, Jesse and I serve on the blogger board for The Energy Collective, a website that attracts people who are interested in the nitty-gritty of energy and climate policy. It’s a good place to keep up with people like Joe Romm and Robert Stavins.

In his post, Jesse argues in his post that a cap-and-trade policy or carbon tax designed to “put a price on carbon” – that is, to raise the cost of burning fossil fuels – won’t do nearly enough by itself to reduce greenhouse gas emissions and respond meaningfully to the threat of climate change. That’s because any policy that drives prices high enough to discourage people from burning coal and oil will, by definition, be politically unpopular. Jesse writes:

The ultimate effectiveness of a strategy premised centrally on an effort to make dirty energy more expensive will always be limited by this fundamental reality of the political economy of energy — which we at the Breakthrough Institute have dubbed “Global Warming’s Gordian Knot.” If the price of carbon must rise too high to drive emissions reductions, various cost containment mechanisms or public backlash will kick in — either of which effectively abrogates the emissions cap. Yet if we constrain the price of carbon, it will have very little impact on emissions absent a steady supply of low-cost emissions reductions opportunities.

Instead of trying to make dirty energy expensive, Jesse argues, we need to make clean energy cheap. This requires what he calls “a coordinated, well-funded and effective strategy to accelerate clean energy innovation and drive major improvements in the price and performance of clean energy technologies.” Yep, that means lots of government spending, perhaps $50 billion a year.

What does this have to do with Taleb? I’m wary of trying to summarize his worldview but Taleb essentially argues that we know a lot less than we think we know. “My major hobby,” he writes on his website, “is teasing people who take themselves & the quality of their knowledge too seriously & those who don’t have the courage to sometimes say: I don’t know….”  In essence, Taleb says we are not very good at understanding the past or present – his first book was called Fooled by Randomness–and that we are downright horrible at predicting the future. (Although he sort of predicted the global financial meltdown.)

I don’t know what Taleb thinks about climate policy or, for that matter, climate science, but I suspect that he would not have much enthusiasm for a federal government effort to spend $50 billion a year to research and commercialize technology to make clean energy cheap. None of us know  how to make clean energy cheap, and the government has a pretty poor track record of picking marketplace winners.

Here are several examples. In 1980, President Carter signed legislation to establish the U.S. Synthetic Fuels Corp., to find ways to create alternatives to petroleum and promote energy independence. It flopped, of course, and one reason why is that it got caught up in pork-barrel politics. “Fuel-cell projects under the SFC, for example, were allotted to each of the 50 states, regardless of economic viability,” according to a book called “The Government Role in Civilian Technology,” by the National Academies of Science and Engineering and the Institute of Medicine.

Not long ago, Congress gave us FutureGen, the “public-private partnership to design, build, and operate the world’s first coal-fueled, near-zero emissions power plant, at an estimated net project cost of US $1.5 billion.” Well, good luck with that. An environmentalist pal of mine likes to refer to FutureGen as NeverGen.

More recently, we had the biofuels mandate in the 2007 energy bill, which was a boon to Midwest farmers and the corn ethanol industry, at least until oil prices dropped last year and big ethanol refiners went bankrupt. The politics of biofuels are incredibly complicated – the mandate was opposed by environmental groups like Friends of the Earth and by oil-state Republicans – but figuring out which biofuels make economic and environmental sense and which do not is no job for Washington.

Only markets will do that.

Now let me be clear. I am not arguing that venture capitalists or energy startups or academics or big oil companies are any smarter or more capable than U.S. Senators or DOE researchers. What I am saying is more voices (i.e., the market) are better than a few (politicians and civil servants). The way to make clean energy cheap is to create a market that promotes as much tinkering and experimentation by as many people are possible (crowdsourcing, if you like) and not by giving the government $50 billion a year to spend. Nobody knows today how to make clean energy cheap. Together we may be able to figure it out.

Best as I can tell, the best way to unleash that experimentation is with cap-and-trade or a carbon tax, by making dirty energy expensive. Ideally, by making it very expensive. This is logical and just. So long as we allow the fossil fuel industry to dump global warming pollutants into the air at no cost, that’s what the industry will do, and future generations will pay a terrible price. Better to pay more for electricity and gasoline today, right?

The question remains, how can environmentalists and their political allies persuade people to pay more for fossil fuel energy in the short run? Americans haven’t been very good lately at making sacrifices today for the sake of future generations. But with the right leadership, that can change.

One way to begin is to get our metaphors right, as Steven Chu, the new energy secretary, has argued.

Some people have said the clean energy revolution will require a national effort like the Manhattan Project or the Apollo project to send a man to the moon. Wrong—those were government-funded efforts, involving small numbers of people, aimed at a very specific goals.

Here we have a much broader goal—cheap clean energy—but no clear path to get there. Will it be wind, solar, wave or geothermal power, or clean coal, or nuclear power, or all of the above? What we need—and all credit to Chu for this metaphor—is something more like the mobilization of the U.S. economy during World War II, which involved everything from Victory Gardens (local food!) to energy conservation (“Don’t Travel—Unless Your Trip Helps Win the War”).

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Put simple, the best way to untie the Breakthrough Institute’s Gordian Knot is with politics. We need to persuade people that it’s worth paying more for dirty energy today to save the planet for our kids and grandkids.