One Hundred Billion to Help America, the Core, and the Gap

Calculated Risk has an interesting post titled “The Oil Cushion.” The article describes how a $1.50/gal drop in the price of gas (say, from $4.00 to $2.50/gal) amounts to a $900 check to every American. This is essentially a large stimulus package, that takes money that would have flowed out to petrostates (Russia, Venezuela, Iran, Saudi Arabia, etc) and puts it in Americans’ politics.

Low prices for hydrocarbons (oil and natural gas) help our country by not exporting wealth to gap states that can’t handle it, help the Gap by warping their governments into resource-extraction corporations, and helps the Core by preventing bad Gap governments (Russia, Venezuela, Iran, Saudi Arabia, etc) from having undo influence.

Progress in this direction can be had by creating a geogreen stimulus package, as Thomas Friedman has recommended. Here are some details of how it might work:

The Democrats, with the blessing of Federal Reserve Board Chairman Ben Bernanke, are suggesting a stimulus package of about $200 billion. We should use at least half of that to move America away from our dependence on petroleum and reduce our carbon footprint on the planet.

Green Jobs for America Campaign, a coalition of environmental and labor groups, is calling for a $100 billion green stimulus program that would include a combination of tax credits, loan guarantees and public investment in environmental technology that it says will create roughly 2 million jobs over two years.

The program, outlined in a report written by the Political Economy Research Institute at the University of Massachusetts-Amherst and the Center for American Progress, calls for investing in new power sources, including wind, solar power and “next-generation biofuels.” It also recommends “expanding mass transit and freight rail,” “retrofitting buildings to improve energy efficiency” and “constructing ‘smart’ electrical grid transmission systems.”

If we are going to get “transformational leadership,” this would be a good place to start:

The public infrastructure portion of the program — upgrades to public buildings, public transportation and the electrical grid — could be enacted quickly, according to the report. But to do so would take a commitment to public works spending that the Congress and the executive branch have not demonstrated in more than a generation.

A geogreen stimulus is all the more important because the financial crisis have weakened the investment infrastructure that alternative energy research firms (focused on ethanol, solar, and wind power) use to grow. From CNET and CBS News:

Now some of the pillars underpinning green technologies are wobbling. Oil prices have plummeted more than 50 percent since the summer, making traditional energy sources look a lot more affordable than they did six months ago for businesses and consumers alike. And the global credit crisis that has sucked the wind out of the economy has done damage to the funding of alternative energy projects as well.

The hardest hit by a freeze or reluctant lending are renewable energies which are already commercial, or on the cusp of getting there. These aren’t cheap little startups we’re talking about: Constructing a biofuels plant costs upwards of a $100 million while connecting a solar power plant, capable of powering tens of thousands of homes, is in the range of $500 million and $800 million, depending on the size. In the current credit market, it’s tough to come up with that money.

But don’t write off clean tech as another casualty of the souring economy quite yet. Today’s clean energy field is a lot more resilient than in the days of the 1970s oil price shock for one simple reason – society’s priorities have changed since then. Climate change and energy security are front-page issues that still command the attention of consumers, businesses, and politicians, regardless of the economy.

This is a place for federal intervention:

More immediately, the world leaders’ reaction to the financial crisis could determine whether and how quickly clean energy technologies will make an impact on the energy business.

Governments may treat the economic crisis as a reason to backpedal on emissions reduction targets. Another school of thought is to make energy and environment an important part of government stimulus spending to upgrade infrastructure.

Many technologies – solar, wind, geothermal, cellulosic ethanol – can be scaled up today. Others, such as storing carbon underground at coal plants, need more active government involvement to make economically feasible, said Fulton of Deutsche Bank.

“We do indeed have many technologies that are in commercialization, or close to it, that can have significant impacts on the whole energy and electricity mix,” Fulton said. “But there are still some looming that need public and private capital to keep pushing them down the cost curve.”

If hope both Barack Obama and John McCain quickly endorse a geogreen stimulus.

4 thoughts on “One Hundred Billion to Help America, the Core, and the Gap”

  1. I wonder what the total costs and effects would be if we took current subsidies to various industries (agriculture comes to mind) and replaced them with assistance in minimizing their pollution, energy and water consumption? Would it be cheaper or more expensive in the short run? Would it save the industries in question enough money in the long run to reduce or eliminate the perceived need for those subsidies?

  2. Michael,

    One result would be that we would no longer be helping the other social goods we are trying to maximize. For instance, replacing all technology R&D tax credits with exclusive use of energy-minization would help us minimize energy us, while harming overall R&D.

    Likewise, as energy use has almost consistently increased with economic growth, looking to reduce energy use may be largely besides the point. Better & more energy production in the short-term — and in the very long term better heat dissipation into space — are perhaps wiser places in which to focus.

  3. Fair enough–I was mostly thinking of subsidies which operate on the principle of “we’ll pay you X amount of money to stay in business”. Subsidies which are already better targeted may not need adjusted.

    Your 2nd paragraph: Avory Lovins’ made a comment to the effect that increasing efficiency has the same effect as increasing supply. The less energy individuals use, the more that is available to the population as a whole, the less that needs imported from politically unreliable parts of the world, the sooner said parts will be forced to behave themselves.

    Two other things to remember. 1, Targeted subsidies like this may indirectly reach American companies that make the needed equipment. Assuming they’re able to compete with their foreign rivals, they’re given the extra business needed to grow, do more research and hire more workers. 2, Equipment to lower costs will pay the owners back in reduced overhead long after the Government’s stopped paying them.

  4. Michael,

    Your 2nd paragraph: Avory Lovins’ made a comment to the effect that increasing efficiency has the same effect as increasing supply. The less energy individuals use, the more that is available to the population as a whole, the less that needs imported from politically unreliable parts of the world, the sooner said parts will be forced to behave themselves.

    Certainly this is true.

    However, IIRC since industrialization there has been only one event where an increasing GDP occured with declining energy use (which occurred when Japan began offshoring its aluminum industry in the 1960s and 1970s).

    Certainly ‘efficiency’ can help here and there, but increasing energy requirements seem as likely as economic growth.

    More generally, the Return on Investment in energy means that as long as there is a functioning financial system, industry at any given time probably is already taking all economically sensible steps to reduce energy consumption.

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