Can energy independence help solve the economic crisis?
Monday, November 24, 2008 at 10:22 am
These are just some of the promises made by President-elect Barack Obama during the long presidential campaign. He is now focused sharply on the nation’s economic woes, saying that solving the grave economic crisis is his top priority. But Obama made many other promises in the name of “change” — expanding health-care coverage, improving education, devising an exit strategy for Iraq, shutting down Guantanamo Bay. Everyone wants to know which of these goals Obama will focus on when he takes office Jan. 20.
So far, the president-elect has hinted that making the U.S. more energy independent is his No. 2 priority, after the economy. But that need not be incompatible with restarting economic growth. For example, developing alternative energies like wind and solar could lead to more green jobs.
Still, delivering on these energy promises won’t be easy. In the short term, reviving the economy could mean greater demand for oil, because U.S. manufacturers are largely powered by fossil fuels.
But, for the long term, many energy experts have recommendations about how to mesh energy and economic goals. They have pointed suggestions about what could be Obama’s most realistic targets in fulfilling his green promises.
Greener economic pastures
On the campaign trail, Obama said he would create 5 million green jobs by investing $150 billion in clean energy over 10 years. That translates into 500,000 jobs a year.
Brooks Yeager, executive vice president of Clean Air-Cool Planet, a non-partisan group, said that such a goal is not unrealistic. “There’s a lot of potential for growth in [green] jobs, but it depends on the mix of investments and policies.” One job-producing policy favored by Clean Air-Cool Planet would have the federal government invest in projects to retrofit existing buildings, to make them more energy efficient. This could create much engineering and construction work.
Yeager doesn’t believe that shifting to a renewable-energy-based economy would cause employment havoc in fossil-fuel industries. “In most economic models of how [this] system would work,” he said, “you don’t lose many jobs in these traditional … industries; you reduce their rate of growth.” Meanwhile, the rate of job growth in clean energy would increase, which would help offset job losses in traditional industries.
Not everyone agrees. The Institute for Energy Research, a think tank promoting free-market-based energy policies, is skeptical about any increase in green-job creation if the economy tries to kick its addiction to oil. “We’ve done some analysis with the green-jobs stuff,” said Dan Kish, senior vice president for policy, “and we don’t quite get it. … Nobody really knows where these green jobs are.”
Kish says that all the talk about an explosion in green jobs is speculative because the development of renewable-energy industries is so dependent on government subsidies.
“We’re never against tax incentives for [new industries] — that’s probably the least damaging way you can go about things,” he said. But he worried that such incentives would be paired with regulations requiring states to generate a portion of electricity from renewable sources. That, Kish contends, could artificially hike utility bills for consumers.
“Take somebody on a fixed income,” Kish said, “whose rent is going up and [cost of] food is going up. If his electric bill starts going up, too, because the government says [utilities] have to use a certain type of electricity, all he knows is that he’ll be paying more for utilities.”
The largest industrial trade union, the United Steelworkers in North America sees an upside in such regulations. Requiring that a portion of electricity be generated from renewable sources would mean more investment in existing and new green technologies, which, in turn, would create jobs, contends Roxanne Brown, assistant legislative director for the union.
“A part of the reason [clean energy] industries haven’t taken off as much as they have in other countries,” Brown said, “is because the investment is not there to help these industries grow. [Regulatory] policies would drive that investment.”
Brown contends that the jobs now being lost in construction and manufacturing are comparable to those that would be created if more solar- and wind-power plants were built, and additional buildings and infrastructure projects were made to comply with more energy-efficient standards.
Obama has said that reducing U.S. dependence on foreign oil will be a priority of his administration. One proposal he’s made about this involves putting one million new plug-in hybrid cars on the road. But now that oil prices have fallen below $60 a barrel, this goal seems further out of reach.
With the average price of gasoline at around $2.20 a gallon, consumers could very well return to old, gas-guzzling habits, says David Pumphrey, director of the energy and national security program at the Center for Strategic and International Studies. This could make hybrid electric cars less attractive to the average consumer. Pumphrey told The Washington Independent last month, for example, that he expects to see a rise in SUV sales if gas prices remain low.
He conceded, though, that given the “uncharted territory” that gas prices have seen this year, it’s hard to predict what will happen. Gas prices have trampolined up and down more drastically than ever, reaching an all-time high of $4 a gallon over the summer and then plummeting to half that. What’s really unpredictable is what will happen to the oil industry as it struggles with a growing economic crisis.
The economic downturn, though, could be just what the doctor ordered when it comes to reducing dependence on foreign oil. As the economy worsens, demand for oil drops. Less productivity means less fuel consumption. This is why oil prices dropped so quickly.
The volatility of oil prices, says Yeager of Clean Air-Cool Planet, may also contribute to a decrease in oil consumption, because businesses may seek fuels that are more economically sustainable over time. “Ultimately, it’s important to get a steady price signal — one that incorporates the real cost of using or overusing [oil],” Yeager said.
On the campaign trail, Obama said he was committed to reducing U.S. CO2 emissions by 80 percent, to meet recommendations set by the United Nations. To achieve this goal, Obama has talked about launching a carbon cap-and-trade system, which would first enforce a cap on the annual amount of CO2 released by industry and then allow companies to trade or bid on permits to emit CO2. Cap-and-trade would reward companies that innovate their way out of emitting CO2 and punish companies that don’t.
Clean Air-Cool Planet offers recommendations to the Obama administration on what a cap-and-trade system should look like. The organization suggests holding CO2 auctions in which companies can bid for the right to pollute; the revenue from the auctions would be “recycled” back to taxpayers in the form of income-tax reductions. Using the revenue to cut income taxes would offset any additional costs consumers might face, Clean Air-Cool Planet contends. For instance, if a utility company uses new technologies to decrease emissions, it may have to charge consumers extra; but with revenue recycling, consumers could actually make money off of the deal.
“We think this mechanism is essential to a larger economic revitalization strategy” to pull the country out of recession, said Yeager.
Groups like the Institute for Energy Research think tank, however, contend that a cap-and-trade program is not a free-market solution. Cap-and-trade, writes Institute economist Robert Murphy,” relies on a political scheme to increase costs, and can therefore be justly viewed as a tax, stealthy or otherwise, on energy — the lifeblood of our economy.”
But there are other ways to reduce carbon dioxide emissions that free-market thinkers should embrace, contends John Topping, president of the Climate Institute, a large nonprofit working to raise awareness about climate change. He says that one of the first things Obama should do after Jan. 20 is lift restrictions on energy recycling. The U.S. generates about 6.5 percent of its energy from recycling the waste-heat that comes off industrial smokestacks. In most states, only utilities are allowed to harvest this waste-heat, which is produced by oil refineries, steel mills and other factories.
Opening this energy source to the free market could not only drastically reduce carbon dioxide emissions, Topping says, it could result in huge savings for the country’s economy. “Reasonable estimates say that you could save somewhere between $70 billion and $80 billion annually and cut overall CO2 emissions by 20 percent,” said Topping.
One would think energy recycling would be a favorite of environmentalists and free-market advocates. But green activists argue that energy recycling would be tough to market, Topping speculates, because images of pollution don’t immediately convey environmentally friendly practices. For everyone else, there’s a fear that large utilities would have to pay more for access to waste-heat and then pass the higher cost on to customers.
The double-green bottom line
Regardless of the mechanism, greater energy efficiency is the one goal that analysts across the ideological spectrum can agree on as a worthwhile. Policies and market forces that promote energy conservation can produce economic and environmental savings.
If measures to improve energy efficiency were adopted in transportation, lighting, construction, infrastructure and fossil fuel sectors, says Climate Institute president Topping, we could kill a lot of birds with just one stone.
“You can make a really huge difference,” Topping said, “without sticking it to the American taxpayer or to the consumer.”