Obama’s Blueprint for a Secure Energy Future

Last week, President Obama unveiled his Administration’s “Blueprint for a Secure Energy Future”.

Like most big-picture strategic summaries of complex subjects, a whole lot of content gets reduced to a few simple phrases that have become almost devoid of meaning.  In this case, the Obama Energy Blueprint distills into three priorities:

  1. Develop and secure America’s energy supplies
  2. Provide customers with choices to reduce costs and save energy
  3. Innovate our way to a clean energy future

How can anyone object to these motherhood and apple-pie themes?

At the next level of detail, the Obama Energy Blueprint  proposes a long list of individual recommendations, such as incentives for more domestic oil/gas development, programs to facilitate the transition of the vehicle fleet away from petroleum fuels, tighter energy efficiency requirements, and a national clean energy standard.

One by one, most of the listed initiatives have merit.  Unfortunately, some are probably pretty ineffectual, each has its own set of unintended consequences, and there is considerable potential for interference among programs in such a voluminous mixed bag of policy items.

Alas, this is what happens when government is forced to accept suboptimal solutions because the optimal approach is foreclosed due to political realities. 

At a fundamental level, with this Blueprint, the Obama Administration is seeking to simultaneously (1) end American reliance on foreign oil for transportation, (2) reduce U.S. greenhouse gas emissions caused by burning fossil fuels, (3) ensure that the U.S. profits from development and adoption of next-generation energy technologies, and (4) accomplish (1)-(3) without costing U.S. citizens more money on energy expenditures.

The challenge is that all four of these objectives cannot be achieved simultaneously, especially in the near-term. 

Actually, objectives (1), (2) and (3) can be achieved pretty quickly, say within a decade or so, if you’re willing to ignore the fourth objective about reducing energy costs to citizens.  But, alas, the fourth objective is really the only one that most Americans care about with any intensity, and if the U.S. is going to focus on the fourth objective, the first three are hard to tackle in any meaningful way.

To achieve the first three objectives, all that’s required is some fairly simple — if broad-reaching — policies:  namely, higher taxes on oil imports and a carbon tax.  With higher energy prices facing consumers, the millions of economic actors across the U.S. will make investment and consumption decisions that will spur the development and deployment of alternative energy approaches to displace oil and reduce emissions while fostering U.S. leadership in the clean energy industries of the future. 

But, of course, such taxes — for that mattter, any taxes — are anethema in Washington these days.  Having spent all of his political capital (and then some) over the past two years on health care reform and economic stimulus, Obama does not have the strength to propose a straightforward energy policy to achieve the goals that implicitly underlie his Blueprint. 

Frankly, I think the energy policy imperative is a great opportunity for a politically bold leader to take on the issue of restructuring U.S. taxes so as to boost economic output.  Maybe I’m naive, but I don’t see why increased taxes on energy cannot be enacted as part of a quid pro quo for reduced taxes on income and capital gains — which would be unquestionably a tonic for the economy. 

I know that a common rationale for opposing such a change is that a shift in taxation of this kind would be regressive (i.e., fall disproportionately highly on lower-income citizens), but it shouldn’t be all that difficult to come up with some mechanism for providing rebates on increased energy tax burdens borne by the poor.  In other words, there should be an answer that reconciles higher energy taxes among the populists on both the left and the right of the political spectrum.

Actually, I think the real reason that higher energy taxes don’t get any traction in D.C. is that the major incumbent energy companies would be unambiguous losers, and they simply won’t allow that to happen.

As a result, President Obama must resort to issuing documents like the one released last week:  a blueprint that looks like a building designed by a hundred architects each working on a different room.

The Role of Government in Advancing the Green Economy

by Richard T. Stuebi

as posted to Huffington Post

Last week, I wrote a sizable check to the IRS. I wasn’t exactly happy about it, but I was happy for the fact that it stemmed from a nice payday in 2008 from one of my investments. Ah, the joys of capitalism, and the obligations of responsible citizenship.

This particular investment is advancing the cause of clean energy, as it involved the sale of interests in a pre-development windfarm to another firm that will (hopefully) take the project to fruition.

Clearly, the public sector played some factor in the fundamentals of my investment. States have imposed renewable portfolio standards driving the market for new windfarms to be developed, and the Federal production tax credit represents a significant portion of the financial value of an operating windfarm to its owner.

But, by and large, it was the forces of the marketplace – entrepreneurs, suppliers, landowners, financiers, customers – that drove the underlying business opportunity, the transaction, and its associated value-creation.

I hope that those days aren’t long gone.

Over the past year, there has unquestionably been a shift towards more government intervention in virtually all markets. It’s far beyond the scope of one blog post to delve into all of the causes and effects and all of the pros and cons of this shift.

In the cleantech realm, the tendency for increased intervention has been especially aggressive. The chatter in political circles is the notion of pushing forcefully towards the new energy economy – to achieve the admirable environmental benefits, but more for the prospect of creating some arbitrarily-large number of so-called “green jobs”.

Though I admire visionaries like Van Jones who newly brought the green job notion to the forefront of the public discourse just a few years ago, I’ve decried the excessive hype and the weak analytics behind the claimed magnitudes of green jobs that may or will emerge. I don’t doubt that many new green jobs will emerge, and I think they will be great for this country. It’s just that I don’t put any validity on any of the estimates of job creation, and I also acknowledge that there will be some job losses in other sectors that also need to be considered (but often aren’t).

I also lament the way in which many public sector leaders talk about “creating” green jobs, as if the job positions can somehow be invented by the government itself through the stroke of a pen or the wave of a wand.

Unless we want to move to a command-and-control economy where the government dictates the majority of all economic activity (remember the Soviet Union?), large-scale job creation is a private-sector phenomenon. In turn, the private sector (i.e., investors) must spot an opportunity to earn favorable returns, to generate attractive profits, in order for them to incur the costs of hiring people to perform work. In other words, value-creation (or at least the promise thereof) must precede job creation.

If a government throws money at inventing jobs that the market won’t somehow sustain after they’re created, this can’t be legitimately called job creation; it’s “make-work”. (And, never forget: the government doesn’t have any money of its own; it’s actually your money that the government is spending.)

In my humble opinion, the role of government is not to try to create jobs. Rather, governments should establish the playing field in such a way that the private sector will operate in its ruthlessly efficient manner to exploit – and, in so doing, hire a lot of people.

Governments can never match the intensity and the innovation of millions of properly-motivated private sector actors. Instead, governments should focus on aligning and harnessing these interests in ways that drive the system towards outcomes that are good for the public.

To be sure, the government has a key role – indeed, a responsibility – for setting policies that serve, advance and protect the public’s interests in transitioning towards an energy system that is more sustainable from both a supply and environmental standpoint. But, in the name of green jobs, the case is sometimes being stretched too far. An article in the April 4 edition of The Economist is particularly illuminating.

Spain is often touted as a model for how the public sector can exert leadership in setting a whole host of progressive policies (mainly generous subsidies) for rapidly pushing a move to green energy and creating many jobs while doing so. Yet, according to a recent study by a professor at King Juan Carlos University in Madrid, this way of building an industry is more than twice as costly on a per-job basis than if the private sector were to act on its own. Put another way, the study finds that, for every green job created by public sector prodding in Spain, more than two run-of-the-mill jobs were destroyed in the private sector. Ouch.

There’s a lot of talk in Washington about industrial policy these days. I’m a skeptic. I see Japan, and while it’s true that the Japanese industrial sector was the world’s envy in the 1980’s due to its strong government intervention, I also see nearly 20 years of uninterrupted economic stagnation now.

In sum, I just don’t think the public sector can actually build an industry better than the private sector can. In my ideal world, I would like to see the government intervene in the energy markets, for environmental and supply security, in one (and only one) simple way: high taxes on fossil fuel burn, to account for the social costs of climate change and dino-resource depletion.

High fuel taxes! The horror! The horror!

It’s lonely for me to write this, but the biggest problem facing the U.S. energy system is the enduring insistence of a “low price at any cost” energy policy, and the customer entitlement that bestows.

I see public service announcements (PSAs) about the little things that a viewer can do to become green, like changing from incandescent to fluorescent light bulbs, or using a reusable canvas shopping bag instead of use-and-chuck plastic bags. I understand that the average American needs to get engaged and feel like they can do something, even if it’s something simple and small, to contribute to the solution, but…. Please. Really. Enough feel-good talk about these piddling things.

I’d like to see some frank PSAs that confront the big issue head-on: higher energy prices, get used to it.

Obviously, a move to higher energy taxes will be unpopular, so we need some set of respected or well-liked voices in the public starting to lay the groundwork for its actual desirability, if not inevitability. In the grand scheme of things, shifting the U.S. mindset on the topic of energy taxes is much more important than urging people to put a recycling bin in the garage.

With energy prices that are predictably much higher, via a big jump in fossil fuel taxes, the private sector can go to work, busily eliminating wasteful energy consumption and developing new technologies that reduce fossil fuel requirements.

The twist is that the revenues collected from higher energy taxes can be offset by dramatic reductions in income and capital gains taxes. The way I figure it: we shouldn’t be heavily taxing things that are supposed to be good – such as income and savings – while undertaxing things that are supposed to be bad – like burning non-repletable fossil fuels that damage the atmosphere.

In the future, I want to get more good-sized checks from my cleantech investments, and I want all of you to get some checks from cleantech investments too. I also don’t want to send as big a chunk of those checks to the IRS. In return, I am willing to spend a lot more at the gas pump and in my utility bills.

Besides, I use my credit card when I buy those things, so higher energy prices means accumulating more points. In the move to the green economy, it’s important to always looking for the silver lining in every cloud encountered.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become a Managing Director of Early Stage Partners.