Will Energy Efficiency Stimulus Distract America from the Real Task at Hand?

An efficiency stimulus plan seems at first glance to be an unadulterated good: it puts Americans to work, saves energy and money, and cuts greenhouse gas emissions, all with investments that should pay for themselves. But there are reasons to be nervous about the overwhelming focus on energy efficiency by green leaders and Obama’s top energy and climate advisors. This narrow focus threatens to distract from the critical work ahead: overcoming the technology gap that exists between the current state (and cost) of today’s clean energy technologies and fossil fuels.

An efficiency program will not create the new industries that the American economy needs to increase employment and productivity in the long term. An efficiency program will not create new exports that will bring global capital in to the American economy. And, equally as important as short term stimulus, America needs to have a plan to achieve those objectives as quickly as possible as well.

Obama’s primary focus must be on making clean energy cheap — what Google calls RE<C, renewable energy cheaper than coal — not on reducing energy consumption.

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How to Really Spur Innovation (Or Why You Shouldn’t Listen to Venture Capitalists)

By Victor W. Hwang
Managing Director, T2 Venture Capital

Cross-posted as part of our Breakthrough Special Innovation Issue

There is much talk today about the need to invest in innovation. Saying this will not make me many friends, but I’ll say it anyway: you really shouldn’t listen to venture capitalists. Asking a typical venture capitalist to tell you how to enhance innovation is like asking a football player how to manufacture modern athletic footwear. The truth is that most venture capitalists don’t really know why the American innovation system works the way it does; they just think they’re really smart.

Smart government policy generally tries to smooth out inefficiencies, but venture capitalists like inefficient markets. Inefficiency means there is imbalance in a system, which means someone can make a profit by “arbitraging” that inefficiency (in simple terms, “buying low and selling high”). Thus, when you hear most venture capitalists opining about how to stimulate innovation, their ideas generally emphasize subsidies for existing market leaders: tax credits for R&D or infrastructure development or investing, government as a major customer, government risk-sharing for private capital, etc. What is not being discussed, however, is more important: what policies will create a level playing field for all innovators, not just help the large players win bigger? The stereotype of innovation in America, after all, is about the little “garage startup” that competes with and ultimately brings down the entrenched old boys.

It is in vogue now to assume that simply spending more on scientific research into renewable resources — a so-called “Manhattan Project” for energy — should lead to increased innovation that will accelerate our nation towards energy independence. Such an assumption, however, would not be entirely correct.

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Going Green Means Going R&D

By Robert Atkinson
President, Information Technology and Innovation Foundation

Cross-posted as part of our Breakthrough Special Innovation Issue

Global warming may finally get the political attention and action it deserves. Indeed, it’s hard to go a single day without reading something about the crisis and what we should do about it. But if we are going to effectively respond it is critical that public policy focus on the right thing, which is spurring radical technological innovation.

Unfortunately, too many environmental groups are actively encouraging Americans to believe that this problem can be solved if we all just change our behavior a bit: if we just take the bus a bit more; or install compact fluorescents; or even have a green Christmas by giving fewer gifts and reusing wrapping paper. The Sierra Club, for example, states that “We can make simple decisions on national, state, local, and personal levels that will reduce global warming pollution. The Sierra Club’s network of activists and volunteers are dedicated to cleaning up our vehicles, buildings, and electricity grid to drastically cut carbon emissions and curb global warming.”

While these exhortations appeal to our desire as Americans to individually contribute to the solution, they are in many ways worse than saying nothing, for they perpetuate the illusion that the world can solve this crisis through personal action, and by doing so, they hinder the development of a real consensus for a national commitment to green R&D.

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NY Times Reports Failure of Cap & Trade

The New York Times ran a landmark article today, “Money and Lobbyists Hurt European Efforts to Curb Gases,” about the failure of cap and trade in Europe. It’s required reading for anyone concerned about climate change policy in the United States and abroad.  It opens with this:

The European Union started with a high-minded ecological goal: encouraging companies to cut their greenhouse gases by making them pay for each ton of carbon dioxide they emitted into the atmosphere.

But that plan unleashed a lobbying free-for-all that led politicians to dole out favors to various industries, undermining the environmental goals. Four years later, it is becoming clear that system has so far produced little noticeable benefit to the climate — but generated a multibillion-dollar windfall for some of the Continent’s biggest polluters.

As President-elect Barack Obama considers how to curb the gases that contribute to global warming, Europe’s struggle with the problem illustrates the momentous task ahead for the United States.

The piece comes after the GAO just released a highly critical study of the use of offsets in Europe’s Emissions Trading Scheme and amidst the chaotic climate negotiations at Poznan, where several European nations are balking at strict emissions caps.  It also comes only a few weeks after President-elect Barack Obama pledged his support for cap and trade at a major climate conference in California.

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Stop Stalling: Time to Hit the Reset Button on Detroit

Cross-posted from the Breakthrough Institute

Last night, the US House of Representatives approved $14 billion in emergency loans to keep GM and Chrysler on life support into the new year. Senate Republicans are in revolt though and may block passage without new amendments to allow more dramatic restructuring of the company’s debt.

“If we don’t have the forced restructuring plans in place, many of us don’t believe that American car companies will come out of this in a competitive position and the taxpayers’ money will be wasted,” Senator John Ensign told the Washington Post (R-Nev.).

I hate to say it, but I’m forced to agree with Republicans on this account: $14 billion to prop up GM and Chrysler until Obama takes office is an obvious half measure, a stall tactic that will merely punt the tough decisions down the line another couple months. While it may buy us a month or three, the proposed bailout will amount to nothing in the long term unless more dramatic actions to restructure and reinvent the American auto industry are taken.

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Beyond efficiency

Last weekend, President-elect Obama made a historic announcement that his economic stimulus program would include the largest infrastructure investment since the creation of the Interstate Highway System under President Eisenhower:

“The key for us is making sure that we jump-start that economy in a way that doesn’t just deal with the short term, doesn’t just create jobs immediately, but also puts us on a glide path for long-term, sustainable economic growth. And that’s why I spoke in my radio address on Saturday about the importance of investing in the largest infrastructure program–in roads and bridges and, and other traditional infrastructure–since the building of the federal highway system in the 1950s…”

Obama is getting increasingly bold, and he understands the importance of making long-term public investments as opposed to simply distributing another round of rebate checks. But as David Brooks pointed out yesterday, Obama’s current stimulus plan lacks creativity and doesn’t create new growth areas:

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The Financing Revolution for a Low-Carbon Economy

By Daniel M. Kammen

Cross-posted from our Breakthrough Special Innovation Issue

The scientifically established need to adopt and accelerate a low-carbon, more sustainable future has finally been put squarely in the center of U. S. policy. President Elect Obama has taken the courageous and necessary step to announce that not only will this become a federal priority, but the U. S. will also take an active international leadership role in developing a workable and global approach to this issue. At Schwarzenegger’s climate conference last month, these words brought a bi-partisan crowd of lawmakers to their feet for a standing ovation.

To accomplish these goals, the New Administration will need a diverse set of tools to address global warming. Despite years of under-investment [1], thankfully a diverse and growing set of science and engineering tools do already exist, as do a number of public policy and pollution market mechanisms that can be brought to bear to reward efficient and clean energy development, and to monetize pollution.

Beyond these efforts, however, additional tools are needed, namely those that mobilize novel financing opportunities to bring capital into the clean energy arena. There are many barriers to reducing energy consumption and increasing the use of renewable energy. One major barrier is high first cost (“upfront cost”), which is both a psychological and financial barrier for many people, institutions, and industries. How many of us would have cell phones, if we had to pay for 20 years of minutes up front?

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Innovating the Way to Economic Recovery

By Fred L. Block

Cross-posted from our Breakthrough Special Innovation Issue

It’s hard to find a silver lining in the historic financial crisis we now face. But the crisis offers a unique opportunity for President-elect Obama to rebuild the foundation of the economy by revitalizing one of our greatest assets – our ability to innovate by mobilizing science and technology for production.

We desperately need a massive economic stimulus package to put people back to work and provide relief to those hardest hit. But an opportunity would be lost if the package simply restored things as they were. Instead, we should work to build a stronger, more sustainable economy by developing and deploying key technological innovations, such as wind and solar power, into widespread use quickly. This is not just a matter of spending money. We also have to create new institutions and new ways of doing business. We need not just stimulus, but “stim-novation,” a combination of stimulus and innovation, and government must play a major leadership role in promoting that.

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