Reflections on Energy Policy

by Richard T. Stuebi

At the beginning of my career in the mid-1980’s, I participated in numerous economic analyses pertaining to the “acid rain” debates that were then raging in DC. This work ultimately culminated in the implementation of Title IV of the 1990 Clean Air Act Amendments, which included a cap-and-trade program on sulfur dioxide emissions. This program was among the first environmental policies to employ a market-based (rather than command-and-control) approach, and its widely-appreciated success has set the stage for the cap-and-trade programs now being considered for greenhouse gas emissions.

It was rewarding to know that I was part of an effort that had real impact in creating effective policy, but it was also incredibly draining and tiring — an emotional roller-coaster of optimism, disappointment and frustration. Correspondingly, I stepped out of the policy fray entirely, focusing the next 15 years of my career squarely on the private sector in an effort to achieve positive impact (and perhaps make a little money too) in the energy industry through the forces of thoughtful capitalism. I had had enough of the political arena.

Alas, flash forward to the mid-2000’s, and now I’m working again in energy policy, this time at the state (Ohio) level. The challenge today is to secure the adoption of a renewable portfolio standard (RPS) in Ohio, and it looks like the pro-RPS forces are making decent progress.

In late August, Governor Strickland released a comprehensive energy plan that includes an RPS, along with his proposed approach for cleaning up the messes created by Ohio’s flawed “deregulation” initiative back in 1999. Opponents of an RPS — primarily manufacturing/industrial concerns and (of course) electric utilities — have argued that RPS policy is “social crap”, which can be put off to another day so that everyone can focus on the electricity restructuring issues. The Strickland Administration forcefully insists that the two issues cannot be separated and must be dealt with holistically. This is fortunate, and wise, because bundling the two issues creates better negotiating leverage with the utilities and ensures more prompt attention to RPS.

Several RPS bills are in the pipeline. One was introduced last week by Representative Skindell (HB 313), another is in the works by Representative McGregor, and other bills will be released soon in both the Senate and the House to reflect the Governor’s proposal. Over the summer, I have spent considerable time with lawmakers and thought-leaders in Columbus to educate them on the RPS issue, and its importance in attracting/building an advanced energy industry in Ohio to create jobs and revitalize our struggling economy.

Anti-RPS parties argue that an RPS will raise electricity prices, that Ohio doesn’t have enough renewables to supply an RPS, and that renewables will make the grid more unreliable. A recently released study commissioned by The Cleveland Foundation found that an RPS in Ohio like the one next-door in Pennsylvania would have minimal impact on electricity prices — virtually no impact if Federal carbon legislation is implemented sometime in the next several years anyway. The other two concerns about an RPS are also refutable.

But, many opponents of an RPS are hard-headed, and some fall back on the weakest of threads: ideology. To them, it is abhorrent to contemplate the addition of mandates to the energy supply mix.

A conversation I had last week with an Ohio Representative was illuminating. This person, who I’ll leave anonymous, felt that renewables would come into the market once that their economics were competitive with conventional energy, which would be coming without government intervention sometime in the next 10 years anyway, so why force it?

To this legislator, the “free market” was paramount — never mind that we don’t have a free market for energy today — and he was only secure in the cozy bed of his pre-set beliefs. The legislator didn’t seem to understand (actually, didn’t want to listen) that many of the basic precepts for perfect competition weren’t in place: all participants in the market don’t have perfect information, and there are players in the market that do have market power. Either the Representative was satisifed with unregulated monopolistic behavior, or didn’t realize that it wasn’t just the private sector that needed to be competitive but the public sector as well.

You see, 25 (or 26 or 27, I can’t keep track) other states already have an RPS. The renewable industry is amassing in these states, largely bypassing Ohio. And, indeed, it’s not just competition between the states, but between countries. Ontario across Lake Erie has compelling renewable energy policy, and of course European countries far lead the list. Ohio is behind in capturing the renewable energy industry opportunity. If Ohio doesn’t want to capture that opportunity, we’re doing a good job.

I’ve come to conclude that, more than energy policy or environmental policy, RPS is industrial policy — and the U.S. just doesn’t do industrial policy very well. We’ve never needed to. We’re America: we have the most natural resources, the most talent, the biggest/free-est markets. Our country has always been ascendant. Well, I’m not so sure anymore.

In the 1950’s, the U.S. dominated the world scene in every respect. But in the past few decades, communism fell, Europe has rebounded from WWII, and the Asian economies have become tigers. While American entrepreneurs focused on high-tech opportunities, the U.S. let the industrial manufacturing sector largely slip away elsewhere. The rank-and-file has become an economy of Wal-Mart greeters: low wage employees selling low price products to customers who can’t afford high price products because of their low wage jobs.

I also see a significant difference between the mid-2000’s and the mid-1980’s in regards to policy: the rise of ideology and demonisation of the “other side”. It used to be that the pros and cons, the costs and benefits, of alternative policies were evaluated by both Democrats and Republicans with at least a modicum of objectivity. Now, dogma rules the day. Issues are labelled as “D” or “R”, not to be entertained (much less endorsed) by the other side.

As citizens, we must hold our politicians accountable to work together, to not be so closed-minded, to advance the true public interests (not to special interests of just a few wealthy constituencies). The urgency of the energy issues demands no less.

Lastly, I stand chagrined at the difference between Ohio and a state like California. Last year in California, the billionaire titans of the high-tech 21st Century economy went to their Governor (Schwartzenegger) to argue that the passage of climate legislation (what became AB32) was essential for their state to capture a significant share of the economic opportunity afforded by the cleantech sector, the biggest industry to arise in the next 50 years. This year in Ohio, the big corporates of the low-tech mid-20th Century — steel companies, industrial manufacturers, et al — are going to their Governor (Strickland) to argue that the passage of a measly RPS will kill our economy.

I am reminded by a quote about Ohio attributed to Mark Twain: “When the end of the world comes, I want to be in Cincinnati because it’s always twenty years behind the times.” It’s not just Cincinnati — Columbus may be there too.

Richard T. Stuebi is BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

1 reply
  1. Terra Rossa
    Terra Rossa says:

    For more on Cap and Trade, check out the new video just released on Terra Rossa. “Cap. Trade. Grow." features Retired four star general, Charles Wald; President George H.W. Bush's EPA director; and a successful venture capitalist speaking on the importance of free-market solutions for energy independence.It runs for about 10 minutes, but is definitely worth watching.Terra Rossa is a blog where conservatives consider a new energy future.

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