Andy Stevenson's Blog: Green Enterprise

Putting America First in the Clean Energy Jobs Race

2010-02-04T17:01:34Z

The United States Senate is considering policy that has the power to reinvigorate the economy, create millions of American jobs, increase our energy security and open up vast new exports markets for American-made products. That policy is comprehensive energy and climate legislation. We need the Senate to unite behind this legislation to put America first in the clean energy jobs race.

The Next Great Global Industry

The clean energy industry offers significant growth opportunities for American businesses. Under a global policy aimed at keeping carbon concentrations below 450ppm, clean energy investments are forecast to exceed $13 trillion over the next two decades. This represents an eighty-five fold increase in clean energy investment relative to today and five-fold increase over business as usual forecasts though 2030 - investments that pay for themselves in lower energy costs and are expected to directly benefit US manufacturers of cleaner cars, cleaner fuels, and cleaner power (see table below) and companies involved in improving industrial, power plant, and building efficiency.

The industries listed above represent enormous opportunities for energy investors in the twenty-first century. The U.S. has the technology edge in these markets if we act now.

For example, the increase in demand for cleaner cars offers a multi-trillion dollar opportunity for American auto manufacturers. Under policies aimed at cutting emissions for the global car fleet in half, US manufacturers of hybrids, plug-in hybrids, and electric cars are expected to see their markets grow substantially over the next two decades as global demand for these vehicles reaches nearly 800 million units. This is a far better outcome for domestic manufacturers than under business as usual where internal combustion engines remain dominant and production continues to flow to the lowest cost producer countries.

Jobs for Americans - But Time is of the Essence

We have an opportunity to create 1.9 million new clean energy jobs in America by 2020 under a comprehensive clean energy and climate bill, but only if we act now. According to Bloomberg New Energy Finance, China is currently ranked number one in clean energy asset investment and last year outspent the US nearly three to one on new build renewable energy projects (see graph below):

If we continue to delay our own commitment to the clean energy economy, U.S. will lose our competitive position in global markets for products that were originally developed here with U.S. research dollars. Instead of leading the clean energy market, we will be reduced to dependence on foreign alternative energy products.

Jobs that Enhance our Energy Security

Passing clean energy and climate legislation is not just smart business policy but smart energy security policy as well. For instance, under the House-passed climate bill, the US could cut its consumption of foreign oil by 30% over the next two decades causing trillions of dollars to be reinvested in the American economy that would otherwise be sent overseas to buy oil.

This would be accomplished by using incentives under the bill to 1) re-tool US facilities to build cleaner cars and 2) capture CO2 at power plants that can then be used to increase domestic production of stranded oil (using a well established recovery technique known as enhanced oil recovery with CO2). A combination of policies to both reduce domestic oil demand and increase domestic oil supply that is expected to lower our oil import bills by $1.8 trillion through 2030 (see graph below):

Furthermore, the increase in oil production is expected to generate over $300 billion in additional oil royalty revenues for states and the federal government over this time frame, more than enough to pay for these incentives.

An Energy Bill is Not Enough

Investing in energy efficiency and clean energy deployment, as well as requiring utilities to obtain a percentage of their electricity from renewable sources, are important policies for the Senate to adopt; however passing energy-only legislation is short-term thinking that will only deliver short-term results. The U.S. will not reap the full benefits of these policies unless they are complemented by a cap on carbon emissions. Only comprehensive clean energy and climate legislation can create both the sustained incentives and long-term price signal necessary to maximize energy efficiency and commercialize innovations in renewable technologies.

A Road to Recovery and Profitability

In sum, passing energy and climate legislation pays back with jobs, enhanced energy independence, and competitiveness gains that cannot be found in a business as usual scenario. We must commit to a new energy economy. We look to the Senate for leadership in crafting and passing a comprehensive climate and clean energy bill in the coming weeks. For the sake of our country’s economic future, we cannot wait.

The blog post was co-written by Nicole Lederer, Co-Founder, Environmental Entrepreneurs

Three Reasons for the President to Highlight Energy and Climate Legislation in the State of the Union Address

2010-01-20T06:01:57Z

Here are three reasons energy and climate should be a top legislative priority for President Obama and Congress this spring:

1. Jobs

Ask employers what’s going to convince them to hire more people and they will all tell you the same thing - we need more demand. Demand is what drives growth. Demand is what leads bankers and others to free up the capital employers need to invest in new technologies, new production facilities, and new workers.

An energy and climate bill that promotes energy efficiency and clean energy sources, cuts foreign oil dependence, and sets firm limits on carbon pollution will generate trillions of dollars of new demand for low carbon technologies and hundreds of billions of dollars in incentives to take advantage of these business opportunities. Opportunities that will help create 1.9 million new jobs by 2020 by; 1) improving the energy efficiency of homes and offices (employing electricians, plumbers, construction workers, and engineers), 2) finding and developing alternative sources of energy, 3) building cleaner cars, 4) repairing our crumbling infrastructure, 5) training and educating workers, and 6) transitioning our major polluting industries into low carbon providers of energy services. This means building carbon, capture and storage into coal plants and improving the efficiency rates of domestic oil production through enhanced oil recovery, both huge jobs creators in their own right.

This also means enhanced job security in sectors like automotive manufacturing where the bill provides access to nearly $50 billion in re-tooling incentives and government guarantees to produce cleaner cars. Cleaner cars that the American consumer wants to buy, built with technology that will keep our workers competitive.

2. National Security

Retired Generals and Admirals have recently argued that "America's current energy posture constitutes a serious and urgent threat to national security"- a fact made clear by two fairly shocking conclusions drawn from a recent International Energy Agency (IEA) report.

The first is that oil demand from China and India is expected to double over the next two decades. A rise in demand that is particularly unnerving when you consider that two-thirds of existing fields will have shut down production by this time (see graph below):

This combination of rising demand and the need to replace a significant amount of existing oil fields with new finds is expected to accelerate the resource grab we are starting to see take shape around the world.

The second shocking conclusion drawn from the report is that the winner inevitably will be neither the US nor China but the OPEC nations, which are expected to see their oil-export revenues increase five-fold to nearly $28 trillion over the two decades (see graph below):

The economic threat from this massive transfer of wealth, driven in large part by US import demand, adds to other so-called “threat multipliers” the US military must face under climate change - threats that the Military Advisory Board expects to directly challenge the effectiveness of our military, such as; 1) more extreme weather-related events, 2) greater demands on naval operations due to the opening of the Arctic Ocean, 3) threats to US naval bases due to rising seas levels, 4) more humanitarian relief challenges for US forces, and 5) heightened regional tensions due to a rising number of "failed" states.

Indeed, if we truly want to reduce our dependence on foreign oil, passing comprehensive energy and climate legislation is the way to get us there. Under the House-passed climate and energy bill, NRDC forecasts that the US could cut its oil dependence in half compared to business as usual. This would be accomplished by a combination of cleaner cars and incentives for using CO2 capture at coal plants to recover oil stranded in existing domestic oilfields, using a well-established technique known as enhanced oil recovery with CO2. This is a recipe for a double benefit that would dramatically reduce our demand for foreign oil (see graph below) and generate more than $800 billion in additional oil royalty revenues over the next four decades for states and the federal government through increased domestic production.

3. Competitiveness

As Thomas Friedman has noted, clean tech is “the next great global industry” and we can either decide to take the lead and “clean the world’s clock in clean-tech”, or fall behind and let others reap the benefits. Trillion dollar opportunities exist for American businesses focused on the global building efficiency, industrial efficiency, renewables, and advanced vehicle markets (see table below). Areas of investment which pay for themselves in lower energy costs and will help re-power the American economy over the long term.

In sum, passing energy and climate legislation pays back with jobs, enhanced energy independence, and competitiveness gains that are difficult to beat and while the Senate is expected to chart its own course and offer its own set of energy and climate solutions, it is imperative - for our economic health and security - that the President and our legislators roll up their sleeves and pass a bill through the Senate this spring and the full Congress this year.

Climate Bill to Help Unlock a $10trln Opportunity for American Businesses

2010-01-05T20:18:20Z

The best US investment in 2010 won’t be made on the floor of a stock exchange. It will be made on the floor of the US Senate with the passage of a bill to cap our carbon emissions. A bill that will help unlock a $10trln investment opportunity for American businesses and launch what Thomas Friedman describes as the world’s next great global industry.

The following is a list of five trillion dollar business opportunities created by both passing a climate bill in the US and adopting a global agreement that, together, would limit greenhouse gas concentrations to 450ppm. This list includes over $3trln of profitable domestic opportunities for American companies. Investments that will help dramatically lower of dependence on foreign oil, pay for themselves in fuel savings, and make our products more globally competitive. In addition, this list also includes over $8trln in new export market opportunities for America's leading manufacturers that will help re-power the American economy over the long-term by growing millions of new clean energy jobs.

1) Advanced Vehicles - Economic Opportunity $4.75trln

The IEA estimates that an additional $4.75trln needs to be invested in the development of advanced vehicles if we are to cut the CO2 intensity of the global car fleet by half over the next two decades. Roughly 70% of this investment ($3.35trln) needs to be made to build more efficient passenger cars, creating signficant growth opportunities for makers of electric vehicles, hybrids, and plug-in hybrids relative to business as usual (see graph below):

These investments should present solid business opportunities for domestic auto manufacturers, especially as the House-passed climate bill contains over $25bln for re-tooling and $25bln in low interest loans to develop these advanced vehicle technologies.

Another $1.35trln in incremental investment will also need to go into cleaner planes ($700bln) and heavy trucks ($650bln) during this time frame according to the IEA's analysis, areas where US companies already play a substantial role.

In total, these global investments in cleaner cars are also expected to pay for themselves in fuel savings, reduce global oil demand by 14% (cutting OPEC revenues by $4trln) and lower global oil prices by 22% over the next two decades. Energy and national security benefits which are both good for America and good for the planet.

2) Building Efficiency - Economic Opportunity $2.55trln

Reducing heating, lighting, and cooling costs in buildings and reducing the energy intensity of the building materials themselves is expected to require an additional $2.55trln in incremental investment under the IEA's 450ppm Scenario. $683bln of this amount is expected to go into renewable power investments (see graph below):

Retrofitting buildings to reduce energy consumption and developing more efficient appliances and office equipment are expected to make up the rest of the opportunity set in the buildings space. Efficiency investments that are expected to save global consumers $1.2trln on their fuel bills by 2030 and a total of $5trln over their useful lives.

3) Low-carbon Power Generation - Economic Opportunity $1.75trln

Investment in renewable-based electricity production is expected to total $4.7trln over the next two decades under the IEA's 450ppm Scenario. This represents just over 60% of total global power generation investments ($7.95trln) and a $1.75trln increase in renewables deployment relative to the reference case. Wind is expected to be the biggest beneficiary (investments increasing by $800bln relative to the base case) with all renewable sector investments more than doubling over this time frame as production costs continue to fall, making these technologies more competitive with their fossil fuel competitors (see graph below):

4) Industrial Efficiency - Economic Opportunity $1.05trln

Globally, industry will need to invest an additional $1.05trln on more efficient technologies in order to keep greenhouse gas concentrations below 450ppm. This increase in demand for efficiency investments creates a significant business opportunity for companies involved in waste heat recycling, process engineering, sensor equipment manufacturing, and the production of various other efficiency technologies for the industrial market. More than half of these investments are needed outside the OECD with the highest concentration of opportunities for new business seen in the energy-intensive industries such as iron and steel, cement, chemicals and petrochemicals and paper and pulp (see graph below):

5) CO2 Enhanced Oil Recovery - Economic Opportunity $1.1trln

According to a recent study conducted by NRDC, the House-passed Waxman-Markey climate bill is expected to help increase production of domestic oil by 10bln barrels by 2030. An increase in domestic supply of oil large enough to cut our dependence on foreign oil by 30%, employ tens of thousands of workers, and generate over $1.1trln in additional domestic oil revenue.

This is expected to be accomplished through incentives in the bill designed to help capture CO2 at coal-fired power plants which can then be used to recover an additional 20% of the "stranded" oil remaining in existing domestic fields using a common oil recovery technique known as CO2-enhanced oil recovery (CO2-EOR).

Working with Advanced Resources International, a specialist in enhanced oil recovery (CO2-EOR), NRDC forecasts that there would be more than enough additional carbon dioxide available from power plants alone under the Waxman-Markey climate bill to help recover 37bln barrels of this stranded oil from existing oil fields. Enough of an increase in domestic oil output to lower imports as a percentage of total demand to less than 50% by 2023 and to roughly 25% by 2050 (see graph below):

In total, these investment opportunities present a truly unique opportunity for American businesses and the American worker. Congress holds the key to unlocking $10trln in new global markets for American companies through the passage of climate legislation and the sooner they do so the sooner we can get to work "cleaning the world's clock in clean-tech."

A Price Collar Won't Protect the Carbon Cap

2009-07-28T22:02:19Z

A brief Politico article last week titled "Time for a Price Collar on Carbon" argued that a price ceiling should be included in the Senate version of climate legislation as a way to better ensure the bill's passage. While the authors of the article believe a price ceiling is necessary to get the bill over the finish line, they fail to weigh the costs a price ceiling would impose on 1) the cap's integrity; 2) low carbon investments; 3) the price of carbon allowances in later years; and 4) our ability to negotiate a binding global agreement on emissions reductions over time.

Simply put, the cap and trade program is designed to limit our cumulative emissions over the period from now to 2050 through a declining cap. If a cap and trade program were to allow emitters to ignore the cap, and buy an unlimited number of carbon allowances at a ceiling price, we would be forced into making one of two bad choices. Either we would have to abandon our emissions budget, leading to more dangerous climate change, or we would have make much steeper emission reductions in the future, causing the program to be much more expensive than necessary.

While the authors argue that the cost containment provisions used under the ACES bill are "merely moving stringency from one year to another without actually limiting the overall cost" of the program, they are not taking into account the cost savings generated by accelerating low carbon investment under a market based approach. Lower carbon prices under a price ceiling may save emitters money in the short run, but they would be doing this by sending a false price signal to the market, delaying the low carbon investments needed to grow clean jobs and keep carbon prices low over the long term.

Lastly, creating a price ceiling in the US would also make securing a global agreement on carbon emissions more difficult as the rest of the world would demand that they be allowed to abandon their emissions budgets as well.

In sum, putting a price collar on carbon emissions would serve to limit the integrity of the cap, reduce investment, make securing a global agreement more problematic, and leave us with expensive carbon debt that could only be paid back by raising carbon prices over the long term and should be avoided under cap and trade legislation.

Rep. Joe Barton’s Lack of Familiarity with Climate Bill Breeds Contempt

2009-05-14T18:09:35Z

The ever quotable climate change skeptic Rep. Joe Barton has dismissed cap and trade legislation as "dead" before arrival and has instead decided to launch his own version of climate change legislation. The Barton plan, with an additional 200+ amendments waiting in the wings, would strip the EPA of its authority to regulate greenhouses gases under the Clean Air Act, and would increase US dependence on high-carbon polluting energy sources.

A plan, that in simplest terms would INCREASE our carbon pollution, reduce our energy security, and do nothing to help re-power the American economy.

While Barton doesn't speak for all Republican's in the House Energy and Commerce Committee, he clearly seems to agree with former speaker Newt Gingrich's view that the US can "drill, drill, drill" its way to energy independence.

The Barton plan's claim that the US can become energy independent through a policy of "drill, drill, drill" is an embarrassing bit of self delusion and Barton should know it. Access to credit and high commodity prices are far bigger drivers of investment than access to new oil and gas fields on the OCS. The truth is that domestic production is driven by the prices the oil and gas firms can charge us. When the price is painfully high, they "drill, baby, drill" but when the price drops as it has in the past year those drill rigs disappear faster than cockroaches when you turn the light on. In Sept 2008 there were over 2,000 production drill rigs in operation; last month there were only around 900, a nearly 60% drop. This didn't happen because the government put lands off limits. It happened because the companies who want us to believe their only interest is in bringing us as much cheap oil and gas as we can possibly burn, lose interest when the price drops.

True energy security can only be gained by wasting less and from diversifying our energy resources, and the Waxman-Markey bill looks to create an investment environment to not only drive efficiency but also give us the tools to build cleaner cars, capture carbon from coal-fired power plants, and develop a new low carbon, technology driven energy economy. Indeed, given Barton's desire to increase our domestic oil production, he should embrace the provisions in the Waxman-Markey bill that will provide enough cheap CO2 to help recover over 45 billion barrels of domestic stranded oil through enhanced oil recovery (EOR) with CO2 that now pollutes our air.

Instead, the Barton plan relies on taxpayer subsidies that and you and I will pay for to coax business to consider cutting their pollution. And his plan contains a witches brew of "drill everywhere" ideas, like a mad addict looking for a piece of fresh skin to stick the latest needle in. The indiscriminate "all of the above" frenzy in the Barton plan will do nothing to improve our energy independence, help the economy recover, or reverse the trend of jobs losses in the manufacturing sector. The truth is that job losses are expected to continue to decline for our energy intensive industries through 2016 under the business as usual path proposed by the Barton plan.

US manufacturers, hobbled by the recent economic downturn, are desperately looking for ways to create demand and the Waxman-Markey bill does just that. It provides the economic resources to create trillions of dollars of demand for low carbon energy services that will benefit the economy and grow jobs for decades to come.

One example of an industry that will benefit from increased energy efficiency investment under cap and trade is the US semiconductor industry. According to a new report from ACEEE, "smart" sensors created by the semiconductor industry have already cut our electricity bills by about 20% over the past 40 years, eliminating the need for 184 additional power plants and saving the average household $613 a year as of 2006. The study continues to show that semiconductors "have the ability to continue to drive economic growth, protect and enhance our environment, and pass on a better world to future generations."

ACEEE sees potential to save an additional $1.2trln in energy costs through the year 2030 through "smart" grid technologies enabled by the semiconductor industry. Technologies that have a better than 2-1 payback in energy savings and would create 935,000 new jobs in the United States. Technologies that will be enabled under the Waxman-Markey bill, as utilities and manufacturers are given transition assistance funding to invest in low carbon solutions. Investments based not on goodwill, but on their high return on capital under climate legislation.

In sum, Barton plan will not provide America with energy solutions but rather with energy illusions. As disasterous as "drill, drill, drill" is as a climate policy, it is even worse as an economic policy. We need to find ways to reverse the loss in manufacturing jobs, cut our dependence on oil, and ensure America's place as a global economic leader, and "drill here, drill now" will not get us there. While no expects it to be an easy transition, as Nobel Prize-winning economist Paul Krugman recently said, "if you really believe in the magic of the marketplace, you should also believe that the economy can handle emission limits just fine."

Gallup's Poll on the Economy, Energy and Climate Has Passed Its Sell-by Date

2009-03-20T17:56:56Z

A recent Gallup poll survey conducted on the priorities for Americans with respect to the economy, energy production, and the environment has concluded that "there is little question that the current economic crisis poses a significant challenge for the environmental movement in this country". The article titled "Americans: Economy Takes Precedence Over Environment" notes that based on its survey, support for environmental protection has slipped below the economy for the first time since Gallup began asking these questions in 1984.

While on the face of it Gallup's assertion may not surprise many given that we are experiencing one of the worst economic slowdowns in recent memory, the fact is that this conclusion has more to do with asking a 25 year old question about how the economy, energy, and the environment interact than with what Americans are actually thinking today.

With unemployment expected to rise further this year, Americans' priorities are rightly focused on jobs and more specifically the demand needed to support those jobs. President Obama understands this and his stimulus package aims to create at least 4 million jobs over the next two years. The kinds of jobs he expects to be created highlight why Gallop needs to rethink its questions. NRDC estimates that the $50bln of clean energy investments in the American Recovery and Reinvestment Act will create 1.5 million "green" jobs that will help grow the economy and help to protect the environment at the same time.

In addition to the stimulus bill, the passage of cap and trade legislation, that would fast track investments in a series of low carbon technologies starting today, would create jobs for the millions of Americans needed to transform our multi-trillion dollar energy economy. Engineers, electricians, plumbers, industrial workers, installation specialists, and service employees are needed to get the job done and these are all jobs that help grow the economy, keep our energy dollars in the US, reduce our green house gas emissions, and ensure that America's recovery is sustainable over the long term.

As a specific example, a cap and invest bill will provide the economic and regulatory certainty needed to accelerate investment in the manufacture, installation, and use of combined heat and power (CHP) equipment in the United States. By providing supply-side incentives to encourage domestic production of CHP equipment, which lowers fuel consumption by capturing and utilizing the waste heat from its industrial processes, and at the same time offering demand-side incentives to schools, hospitals, and industrials to install and operate CHP equipment in their facilities, jobs can be created and our overall energy costs can be significantly reduced. In a recent study by Oak Labs, scaling up CHP capacity can reduce US energy costs by nearly $1trln over the next two decades, improving our energy productivity and employing nearly one million people in well paying jobs that can't be exported.

Given the recent collapse in global demand, companies aren't just looking for access to capital, but access to customers in order to help re-power the economy. Under a cap and trade bill, incentives can be provided to not only push from the supply side but also to pull from the demand side to achieve the economic stimulus needed to grow jobs and reduce our carbon emissions at the same time.

Another example of how a cap and trade policy can stimulate investment today in low carbon technologies is in the demonstration and deployment of carbon, capture and storage (CCS) at coal-fired power plants. This critical technology is currently being produced in the US by General Electric and others for industrial processes and while it is technologically ready to be deployed at the power plant level to help solve one of our greatest challenges, de-carbonizing the electrical grid, utilities have been unwilling to invest in CCS at their plants due to the fact that carbon emissions have until this time cost them nothing.

Going forward, with a cap and trade policy in place that puts a price on carbon, creates a performance standard for coal, and offers meaningful incentives to deploy CCS equipment to first to market players, utilities are widely expected to accelerate their plans for investment in this technology, opening up a new industry in America. Over the medium term, these utilities would then be able to provide a cheap source of carbon dioxide to oil companies to help them recover an estimated 45 billion barrels of stranded domestic oil through a process called enhanced oil recovery (EOR). This double benefit of climate legislation helps address another one of the problems with Gallup's survey questions. The issue of whether increasing energy production necessarily comes in direct conflict with efforts to protect the environment.

Indeed, if the Gallup poll wished to refine the debate about domestic energy production and the environment, it should be asking Americans the following question: Which of the following statements about the economy and the environment do you most agree with? Protection of the environment focused on reducing our dependence on foreign oil should be given priority, even at the risk of limiting the amount of energy supplied by domestic fossil fuels - such as oil, gas and coal, or the development of US fossil fuel supplies - such as oil, gas, and coal - should be given priority even if that inevitably increases our dependence on foreign oil over time?

In sum, while the Gallup poll survey correctly highlights the impact that the recession is having on the economy, its conclusion that "Americans are more willing than ever to forgo protection of the environment if needed in order to ensure economic growth or the production of energy" is more of a reflection of the out-dated nature of their questions than an accurate reflection of Americans' attitudes about the how the economy and the environment interact today.

Transforming our twentieth century energy economy into a twenty first century energy economy is going to require trillions of dollars of investment and millions of Americans to make it happen. While President Obama recognizes this and is looking to use environmental solutions to stimulate the demand needed to ensure a sustainable recovery, Gallup is still relying on 25 year old questions that have lost their relevance to the debate.

Sunflower Co-op Should Rethink its High Priced Coal Commitment

2009-02-09T15:06:49Z

Sunflower Electric Power Corporation's plan to take possession of 200MW of the 1400MW Holcomb supercritical coal-fired power facility in southwest Kansas comes with significant economic risk that will ultimately be borne by their rate-payers. These risks include higher construction, credit, and fuel costs, regulatory risk of carbon emissions and demand uncertainties that can raise the cost of this facility by billions of dollars over time.

While the full details of the costs involved in building the Holcomb facility have not been disclosed, a study prepared by RW Beck for a new supercritical coal-fired power plant facility in Meigs County, Ohio should offer a very close approximation of the facilities costs.

Using the RW Beck revised feasibility study prepared in October 2008, the cost of constructing a new supercritical power plant is approximately $4,100 per kilowatt including short term interest expenses before the facility comes on line. This means that the original capital cost estimate for the 1,400MW Holcomb's expanded facility should be revised up to $5.75bln from $3.6bln, and Sunflower's capital costs should rise from $514mln to $822mln.

The $300mln increase in capital costs for the Sunflower facility would raise the cost of electricity for Sunflower's members by 1.6 cents per kilowatt hour. The higher capital cost for the facility is also likely to affect the ability of Tri-State to finance this deal in the current environment given the tight credit markets. If the higher capital costs and the weakness of the credit markets result in a 1% increase in financing costs for the facility above business as usual, this would increase rate payer's costs by a total of 2.6 cents per kilowatt hour.

In addition to construction and credit risk, Sunflower is likely to be subject to a great deal of carbon risk from the new facility. With the EPA determining that carbon dioxide is a known pollutant that should be subject to regulation, carbon risk should be included in the economic analysis of this facility as well. While President Obama has called for a cap and trade system on carbon emissions, and Representative Waxman has signaled his intention to pass a cap and trade bill through committee by Memorial Day, the regulatory risk would appear to warrant a closer study of legislative proposals that seeks to address the issue of carbon emissions.

While new legislative proposals such as the Dingell-Boucher bill reference coal issues, a new joint agreement signed by some of the nation's largest carbon emitters like Duke Energy as well as environmental groups like NRDC offers specific recommendations with reference to coal-fired power plant regulation and transition assistance. The USCAP Blueprint for Legislative Action suggests to Congress a plan that would create a cap and trade system for carbon dioxide that would require any new coal-fired generating facilities, that has not been permitted by January 1st 2009, to pay the full cost of their carbon emissions starting in 2012. The document also includes performance-based subsidies to develop and deploy carbon capture and storage (CCS) technology to scale as a way to mitigate the impacts of new regulation on power providers.

Under this proposal, while the Sunflower plant would be eligible to participate in the incentive program for CCS, it would not be grandfathered in any way with respect to its carbon emissions as the Holcomb plant has not yet received its permits. As a result, Sunflower would be subject to pay carbon costs that would begin at $24mln a year for their 200MW portion of one plant and escalate to $172mln by 2050 using EPA carbon cost estimates (see graph below). This would mean that Sunflower's $95mln up front fee and their $25mln annual management fee would be eclipsed by the facilities carbon costs by 2021. In terms of costs per kilowatt hour, these carbon costs would translate into an increase of 2 cents per kilowatt hour in the early years, rising to an increase of 14 cents per kilowatt hour by 2050.

In addition to carbon risk, rising fuel costs may add additional risk to the economics of this facility. While fuel costs have been revised up in the October 2008 RW Beck feasibility study due to growing US exports of coal to Europe, a 20% increase from these numbers would result in a 4 cent per kilowatt hour increase for Sunflower's rate payers as well.

Lastly from a demand perspective, the economic slowdown should require many communities to rethink their need for additional long-lived power assets. A compelling case can be made that energy efficiency programs and scalable alternative power investments offer a better economic alternative to new high cost high risk coal power during uncertain economic times.

In sum, the economics of Sunflower's 200MW investment in the Holcomb facility look fairly unattractive when all the risks are properly accounted for. The table below provides costs estimates for the new 1,400 MW Holcomb facility based on the cost estimates of the AMP-Ohio supercritical coal-fired power plant prepared by RW Beck. These costs should be compared to the costs for this facility under the original cost estimate of $3.6bln for the Holcomb facility which put the cost of power at $64/MW in 2015 and $95/MW in 2030 without carbon costs.

5 Reasons Why Cap and Trade is Preferable to a Carbon Tax

2009-01-20T18:18:18Z

It is often asserted that a carbon tax would be simpler, more transparent, and have fewer special provisions, accommodations, or loopholes than a cap and trade system. The fallacy, however, is to compare a "real-world" cap and trade design with an idealized carbon tax design.

Indeed, every pressure for special accommodations seen in the legislative process for developing a cap and trade system would be present in the legislative process for adopting a carbon tax. The following is a list of five reasons why cap and trade is preferable to implementing a carbon tax as a means to achieving our expressed goal of an 80% or greater reduction in greenhouse gases by 2050:

1) Guarantees Emission Reduction

If the goal is to reduce the amount of greenhouse gases in the atmosphere by 80% or more, a cap and trade program that gradually reduces the amount of CO2 permits available to emitters over a 40 year horizon is far more effective at achieving this goal than a tax. A carbon tax can only attempt to change consumer behavior and is therefore one or more steps removed from actually affecting the desired emission reductions within an acceptable time frame. In other words, a cap directly regulates the quantity of dangerous pollution, whereas the emission results of a tax are less certain.

2) Creates Better Economic Certainty for Investment

In order to make the investments in clean energy needed to achieve our goals, investors need a clear price signal. Cap and trade provides a 40yr framework of economic certainty that will allow investors to base their investments on what industry thinks the price of carbon is today and will be far into the future. A carbon tax would only offer what government thinks a carbon tax rates needs to be on a year by year basis in order to best attempt to affect the desired emissions reductions.

3) Program Costs are Countercyclical

The price of carbon under cap and trade legislation will fall as the CO2 output from the economy slows and will rise as the CO2 output from the economy accelerates. In other words, carbon prices are countercyclical and wouldn't provide an undue burden on the economy during periods of economic stress. This makes cap and trade far more effective than a carbon tax, which needs to take into account how much progress the carbon tax has made historically before it can decide whether or not to provide economic relief during an economic slowdown.

4) Less subject to Political Intervention

While the regulation of a cap and trade market for CO2 is likely to be reviewed every five years, the program itself will be designed for nearly four decades and will not be subject to the intense political pressure that a carbon tax during periods of economic stress. As it is politically advantageous to under-estimate the amount of tax needed to affect a certain change in behavior, it is likely that a carbon tax program would be persistently behind on its reduction targets and constantly confronted with calls to either reform or abandon the program. Further, during periods of nascent economy growth, politicians will constantly struggle to determine the amount of increase in carbon taxes needed to avoid derailing the recovery.

5) Better Advances Goals of Complementary Standards

Under a carbon tax, innovation in one area isn't rewarded as predictably as it is under cap and trade program, as carbon taxes don't directly affect emissions reductions but rather consumer behavior. This makes cap and trade more effective at stimulating investments in complimentary standards which measure their economic value based on known carbon prices.

USCAP Says Yes We Can as Congress Prepares Climate Legislation by Memorial Day

2009-01-20T16:50:33Z

On January 15th the US Climate Action Partnership, a group of 26 major industry players and 5NGOs (including NRDC), released its Blueprint for Legislative Action on climate change -- a document designed to provide Congress with a consensus approach to reducing our greenhouse gas emissions by 80% in 2050.

While the Blueprint's signers acknowledge "that this is not the only possible path forward and we stand ready to work with the Administration, Congress, and other stakeholders to develop environmentally protective, economically sustainable, and fair climate change legislation", the Blueprints' call for urgent action on climate change is groundbreaking in its acknowledgement that climate protection does not require economic sacrifice and can in fact help to provide a foundation for our economic recovery.

Indeed, momentum for passing climate change legislation this year seems to be gathering steam as House Energy and Commerce Committee Chairman Henry Waxman released a statement last week setting a timeline to pass comprehensive climate and energy legislation out of the Committee by Memorial Day. Chairman Waxman's announcement was then supported by House Speaker Nancy Pelosi who stated she "shares Chairman Waxman's sense of urgency" on climate change legislation and "his belief that we cannot afford another year of delay".

In order to meet the goal of an 80% reduction in emissions at a manageable cost, USCAP's Blueprint for Legislative Action recommends the creation of a cap and trade program for carbon emissions. Under this program, carbon emitted from point source facilities would be capped at a declining rate through 2050 (until emissions in the economy reach an annual target of less than 2 billion tons from just over 7 billion tons today). The right to emit carbon under the cap would then be either auctioned off or directly allocated to emitters on an annual basis. These allowances, amounting to trillions of dollars over the life of the program, would then be traded in an open market to facilitate the transfer of allowances from one economic actor to another and to provide a clear price signal for new investments in the clean technologies needed to transform the way our energy is "produced, delivered, and consumed".

Since the price of carbon allowances over time will be primarily determined by how well low carbon innovation is able to keep up with a declining cap on our carbon output, USCAP recommends that some of the funds from a cap and trade system be allocated to promoting the scaleable deployment of clean technologies in the marketplace. To ensure that this supply/demand balance is achieved, the Blueprint calls for revenues from the program be used in part to fund the deployment of several low carbon technologies including; solar, wind, efficient vehicles, low carbon fuels, industrial efficiency, buildings efficiency, and carbon capture and storage.

Other uses for carbon revenues under the program would include providing funds to; 1) mitigate the financial impacts on consumers, businesses and the overall competitiveness of the economy, 2) advance carbon technology research and development, 3) provide workforce training, 4) facilitate adaptation at the state, tribal, and local levels, 5) provide financial relief for low-income families, and 6) dividend funds back to households.

In particular, USCAP calls on Congress to provide substantial financial incentives for the early deployment of carbon capture and storage (CCS) technology to avoid "locking in" high carbon emissions from new coal facilities without CCS. To ensure new coal facilities are developed in a manner that speeds the deployment of CCS, USCAP also recommends that all new coal and other solid fuel facilities permitted between now and 2020 be subject to a performance standard that would require new plants to emit no more than 1100lbs of CO2 per Mega-watt hour. The Blueprint also would require plants permitted after 2020 to emit no more than 800lbs of CO2 per Mega-watt hour. Financial incentives would be structured to achieve even better performance.

A Game Changing Call to Action

The USCAP Blueprint for Legislative Action is a game changing call to action and a significant step forward in getting climate change legislation on President Obama's 2009 agenda for the following reasons:

1) The USCAP Blueprint is a Consensus Document -The Blueprint for Legislative Action is a consensus document on climate legislation drafted from a diverse body of high carbon intensity manufacturers, utility service providers, and NGOs. While this group did not address the concerns of all affected parties, it did establish a meaningful starting point for more intense debate on this issue.

A complete list of the organizations involved is as follows: Alcoa, AIG, Boston Scientific Corporation, BP America Inc, Caterpillar Inc, Chrysler LLC, ConocoPhillips, Deere & Company, Dow Chemical Corporation, Duke Energy, Dupont, EDF, Exelon Corporation, Ford Motor Company, FPL Group, General Electric, General Motors, Johnson & Johnson, March Inc,, NRDC, The Nature Conservancy, NRG Energy, PepsiCo, Pew Center on Climate Change, PG&E Corporation, PNM Resources, Rio Tinto, Shell, Siemens Corp., World Resources Institute, and Xerox Corporation.

2) The Blueprint is Designed to Reduce 80% of our Emissions at a Manageable Cost to the Economy- The CEOs issuing the Blueprint have agreed that reducing our CO2 emissions by 80% by 2050 can be achieved at a "manageable cost to the economy". This contradicts the claims and fears of some organizations and members of Congress that climate legislation will create a huge cost burden for the economy. Indeed, the USCAP CEOs have stated that action is urgent, not only to protect the climate but to provide a foundation for economic recovery.

3) "Early Action" Incentives Under the USCAP Plant would help to Re-power Stalled Clean Tech Investments - The USCAP plan allows investment in clean technologies to be accelerated to take advantage of "early action" performance incentives.

4) The Blueprint for Legislative Action Provides a Framework to Create Our New Energy Economy - The Blueprint calls for a transformation in the way we "produce, delivery, and consume" energy. This transformation would require large scale investments that would provide good paying jobs and reduce our dependence on foreign oil. Such a program would provide much needed stimulus to the economy as millions of Americans would be needed to engineer, manufacture, install and service this new energy economy. Further, by adopting a cap, invest now, and recover strategy, that uses future carbon allowance revenues to jump start energy productivity driven clean tech investments today, additional focus would be given to improving our energy productivity, easing the transition to a low carbon model once the program is officially launched.

5) The USCAP Blueprint Creates a Performance Standards for Coal- Support for performance standards on coal is a major step forward to reducing our carbon output as it will push banks and rating agencies to evaluate the viability of new coal plants based on their ability to meet stricter carbon output standards. In addition, a performance driven incentive structure is mapped out to deploy carbon, capture and storage (CCS) to scale at coal-fired power plants and other industrial sources of CO2. Carbon, capture and storage technology is seen as a critical "wedge" technology for global reductions in CO2 emissions as 8.3 Gigatons of CO2 are currently emitted from coal-fired power plants and a program which both puts a price on CO2 emissions and funds the development of CCS technology to scale will either prove out the ability of CCS to meet our reduction needs in the short term or force us to look beyond coal as a long term source of global energy supply.

In sum this Blueprint for Legislative Action presents a well-structured framework for capping our carbon emissions. Now it's up to President Obama, Congress, and others to build on the momentum provided by the Blueprint and focus at least part of our economic recovery strategy on the business of climate change.

Green Economic Stimulus Delivers with Jobs and Payback

2009-01-12T15:11:35Z

While President-elect Obama's $775bln economic stimulus plan should be applauded for including many important provisions for green jobs over the next three years, his messaging on why green jobs are a critical component to our economic recovery seems to be getting lost along the way.

In basic terms, economic stimulus packages are about two things, jobs and payback.

Jobs

With the economy losing 2.6million jobs over the past year and around 21 million American workers jobless or underemployed, jobs, jobs, and more jobs are desperately needed to help put money back in peoples' pockets and get the economy moving again.

Economic stimulus packages are designed to help retain and create good paying jobs by creating pockets of demand in the economy. These jobs can be created to deliver short-term stimulus; like investing in "shovel ready" infrastructure projects, or to deliver long-term stimulus; like investment in current and emerging industries.

While long-term job growth is certainly preferred to short-term job growth, if President-elect Obama is serious about retaining and creating 3-4 million jobs over the next three years, he will need to focus his efforts on both, with emphasis on jobs that will pay well enough to increase overall demand in the economy.

Payback

President-elect Obama plans to invest $775bln of our taxpayer dollars in a stimulus package designed to help re-power the economy. Given the enormous sums involved, it is critical that this money is spent well and that these investments pay back in order to avoid adding to the debt burden of future generations.

The economic stimulus packages that were implemented during Japan's "lost decade" offer an important case in point on how throwing money at the problem is not enough. The Japanese government spent nearly $1trln on fiscal stimulus packages to help revive their economy in the 1990's and now have little to show for these efforts other than a mountain of debt and bridges that go nowhere.

This is not to say that we shouldn't be putting people to work building and repairing bridges, but when we build these bridges we need to keep in mind how they will pay back to society and whether or not they take us to a place we actually want to go.

Green Economic Stimulus Delivers

Green economic stimulus responds to both of the challenges outlined above of creating jobs and providing payback, and does it in a way that is hard to compete with.

First let us look at the jobs picture. Global output is falling at an alarming rate, making top line growth opportunities hard to come by. As a result, if we are going to help industry avoid further lay-offs, something needs to be done to improve bottom-line costs to help them better weather the current economic storm.

One obvious area we can have a meaningful impact on our bottom line costs as a nation is in the energy arena, where our energy productivity ranks amongst the lowest in the developed world. America's energy productivity, as measured in GDP terms per Quads of Btu of energy, currently generates $112 of GDP per Quad of Btu which is less than half that of the world leader Japan, which generates $229 of GDP per QBTU.

Indeed it will be no small task to engineer, design, manufacture, site, install, and service this more productive energy economy that needs to be built to dramatically improve our energy productivity as a nation. In fact, it will require the employment of millions of Americans in the following areas:

1) Jobs in improving the energy efficiency of homes and offices. This means jobs for electricians, plumbers, construction workers, and engineers.
2) Jobs in finding and developing alternative sources of energy.
3) Jobs in building cleaner cars.
4) Jobs in improving our crumbling infrastructure.
5) Jobs in education and worker re-training.
6) Jobs in transitioning our major polluting industries into low carbon providers of energy services. This means building out of carbon, capture and storage at coal plants and improving the efficiency rates of domestic oil production through enhanced oil recovery, both huge jobs spinners in their own right.

Now let us look at the payback. The following is just a short list of the ways green jobs can payback the American taxpayer:

1) Green jobs payback by improving our economic position in the world by developing whole new industries to help re-power the US economy over the long term. This would include creating new export opportunities to help improve our balance of trade position.
2) Green jobs payback by improving our national security position by cutting the amount of foreign oil that needs to be imported to run the economy. By increasing corporate average fuel economy (CAFÉ) standards to 40mpg by 2020, the American consumer can save $176bln in fuels costs alone.
3) Green jobs payback by increasing our energy productivity, driving down our overall energy costs and making our manufacturing sector more competitive. Investments in combined heat and power alone can save us nearly $1trln in net reduced energy costs through 2030.
4) Green jobs payback by enhancing our climate security by cutting our greenhouse gas emissions to the benefit of current and future generations.
5) Green jobs payback by encouraging massive investments in education and technology, keeping America at the cutting edge of innovative solutions.
6) Green jobs reduce the amount of the other fossil fuel pollutants in the air, including particle matter, smog, mercury and acid rain, reducing health care costs from many respiratory disorders.

In sum, using some of President-elect Obama's economic stimulus package to invest in a new energy economy makes good economic sense for the American taxpayer from both a jobs and payback perspective. And while some tax breaks are useful in stimulating additional demand, it should be remembered that other tax breaks are not that productive. Additional tax breaks given to Exxon Mobil are a case in point. Given that the company has been spending the bulk of its profits to buy back its own stock over the past 5 years, the amount of job growth and payback attached to providing them with additional benefits is probably fairly small.

Lastly, green stimulus should also be seen in the context of passing climate legislation. Passing climate legislation as part of a cap, invest now and recover strategy, would add further momentum to the President-elects goal of employing millions of Americans by using future carbon revenues today as transition assistance to bringing about a more productive and efficient long-term growth model for the US economy.

Top 10 Reasons Why Climate Legislation Will Be Passed in 2009

2009-01-05T19:05:06Z

The following is a list of 10 reasons why enacting a "cap, invest now and recover" strategy, that uses revenues from future carbon auctions to finance low carbon initiatives today, should be passed in 2009 and can provide the additional stimulus needed to help re-power the US economy.

1) Complimentary Economic Stimulus

Passing climate legislation now and using future carbon allowance allocations to focus additional stimulus toward improving our energy productivity would not only compliment an economic stimulus package, but accelerate and better enable President-elect Obama's plan to put 2.5 million Americans to work engineering, manufacturing, installing, and servicing the new energy economy.

2) Bridges the Credit Gap

A well designed cap and invest program can help bridge the credit gap by enabling state governments and the private sector to use future allowance auction revenue as a form of collateral for performance based low carbon initiatives during the period following enactment and before the start of the cap and trade program (e.g. 2009-12). Key programs under the cap, invest now and recover program would include; 1) low cost financing for producers and purchasers of advanced low-carbon vehicles, 2) financing incentives for energy efficiency initiatives, and 3) deployment support for emerging clean energy supply technologies.

3) Improves Regulatory Certainty

Climate legislation will sharply reduce the regulatory uncertainty that has previously limited capital investment in clean energy solutions. Long-term emission reduction targets and expectations of an impending market price on global warming pollution will give investors the confidence needed to invest in a long-lived clean energy infrastructure.

4) Pays for Itself

With the US Treasury having to fund a series of stimulus packages aimed at stabilizing and jump start the economy, passing climate legislation with incentives that can be paid back through the cap and invest program can help reduce the impacts of the current crisis on future generations.

5) Manufacturing Jobs

Enacting climate legislation in 2009 will create and retain jobs that would otherwise be lost to bottom line cost pressures stemming from the economic slowdown. By providing incentives to scale up energy productivity investment like combined heat and power (CHP), which lowers a manufactures fuel consumption by capturing and utilizing the waste heat from its industrial processes, bottom line costs for domestic production can be significantly reduced. Indeed if deployment of CHP capacity was scaled up to 20% of electric capacity by 2030 from 9% today, manufacturers' net energy costs would fall by nearly $1trln over the next two decades, making domestic businesses more competitive and employ nearly one million people in well paid jobs servicing this growth sector of the economy in the process.

6) Auto Jobs

The autos, which are now teetering on the brink of collapse due to a combination of weak economic fundamentals and poor investment decisions, can also be thrown a lifeline through passing climate change regulation next year. By giving domestic auto makers the ability to tap performance based re-tooling incentives starting as soon as the bill is enacted, a well designed "cap, invest now and recover" bill would provide targeted funding to improve the Big 3's product mix toward the cleaner more efficient cars American's want to drive.

7) Clean Tech Jobs

The renewables industry would receive a double boost from climate legislation in the form of incentives to develop and deploy cutting edge low carbon technologies and the prospect of a level playing field once the cap goes into effect, forcing fossil fuels to pay for their global warming emissions.

8) Efficiency Jobs

A climate bill passed in 2009 would encourage a scale roll out of energy efficiency programs in buildings, industry, and transportation. Currently the US extracts only $112 of real GDP per QBTUs which is amongst the lowest in the developed world. This compares to Europe which gets $138 of real GDP per QBTUs and pales in comparison to Japan which gets an impressive $229 of GDP per QBTUs. With climate legislation in place that would offer incentives to promote weatherization and other retrofit programs to scale on a nation wide basis through state incentive programs, hundreds of thousands of people can be put to work immediately to advance our energy productivity.

9) Energy Security Enhancement

Reduced energy consumption from incentives provided through a "cap, invest now and recover" program would build on the new energy economy aspects of expected near-term economic stimulus legislation, greatly improving our nation's energy security.

10) Directed and Focused Investment Incentives

Passing climate legislation now that would complement the economic stimulus packages being put in place by the new administration would help ensure that efforts to jump start the economy are well directed and focused . By focusing on our carbon intensity, the United States can lower our cost of doing business, grow jobs, improve our climate and energy security, and create export opportunities for innovative US companies for decades to come.

2.5mln Reasons Why Climate Should be Obama's Top Priority

2008-11-25T14:49:52Z

Many are now arguing that the fight to limit climate change is being upended by the global economic slowdown. As Elizabeth Rosenthal's NYT article Economic Slump May Limit Moves on Clean Energy correctly points out, with the threat of a global recession taking root, "head's of governments now have other things on their minds" than climate change.

While this threat of a global recession is very real, the conclusion drawn from the article that investing in clean energy is unlikely to provide the stimulus needed to jump start our economy today ignores in many ways the current economic situation that the country is in. Indeed, I would argue that investing in a clean energy economy at a time when commodity prices and low and the best labor force in the world is ready and willing to get to work immediately is the right plan of action for our next president. An investment plan that will pay us back with the triple benefits of improved economic, energy, and climate security for decades to come.

By his inauguration day, President-elect Obama has indicated his desire to develop an economic stimulus package that would save or create 2.5 million jobs over the next two years. While this stimulus package is inevitably going to focus on infrastructure and other labor intensive initiatives, Obama has made is very clear that if we are going to be building any bridges, they must be bridges to somewhere, not bridges to nowhere. Obama could even go a step farther to say these investments will not only be designed to go somewhere, but will help us get us to place we actually want to go.

Indeed, if Obama really wants to employ 2.5 million middle class Americans in high quality jobs over the next two years, he can begin that process today by directing his economic stimulus efforts towards providing the clean energy solutions that will create America's new securities industry.

No, I am not advocating a plan to dress up 2.5 million Americans in Zegna suits and let them go out and try to gamble our way out of this mess. That was the game plan for the "old" securities industry and we all know how that has worked out. I am talking about a "new" securities industry, one that actually helps us address the three primary security issues we face as a nation; 1) economic security, 2) energy security, and 3) climate security. And what a job it will be for Obama's stimulus measures to help design, engineer, manufacture, build and farm the new energy economy that will be the foundation for all three.

Obama could also look to jump start these investments by making his stimulus packages complimentary to the incentives given to industry under the cap and trade bill he intends to pass next year. By executing a national clean energy strategy in tandem with a cap and trade bill, Obama would be giving us well over 2.5 millions reasons to be happy he chose clean energy as his recovery platform.

Furthermore, to encourage private sector participation in our new clean energy economy and help bridge the credit gap currently being faced by industry, Obama's cap and invest bill could include a provision that would bring the allowance values of future carbon auctions forward to be used once the bill is passed. Allowance values that could then be tapped by industry as a form of collateral for investment in low carbon solutions that will reduce their overall energy intensity, drive innovation and improve our overall global competitiveness at a time when others are unable to respond in kind.

In sum, Obama has a unique opportunity to help re-power the American economy through a combination of targeted stimulus packages and a well integrated cap and trade bill. If he really wants to put 2.5 million people to work in a way that will benefit America beyond the current slowdown, investing in our economic, energy, and climate security is the most effective way to ensure these goals are met. Clean energy investments will put Americans to work in a way like no other and help transform our energy economy into an efficient, low carbon provider of energy solutions that will help the get the economy back on track sooner rather than later.

We Can Invest in a CAFE Driven Auto Bailout

2008-11-17T15:12:20Z

With the fallout from the credit crisis now spreading from the banking sector to the cash starved industrial sector, pressure is now building to provide bailout funding to the domestic auto sector as a way to help secure its economic viability.

The auto industry is clearly on the front lines of the credit crisis, with GM effectively borrowing money above 40% interest and its cash reserves expected run dry as early as next summer. While many would argue that these problems were of the automakers' own making and that government should just let things take their proper course, a full scale collapse of the sector might put up to 3 million domestic jobs at stake, a fact that should give us pause. Given the circumstances, we should at least look to explore all of the available options before allowing Chrysler, GM and their suppliers to be added to the growing list of credit casualties.

In order to honestly explore whether we as taxpayers should play a role in helping to revive our domestic auto companies, we must first look at the problems these companies are faced with. In addition to the overwhelming burden that high financing costs are having on investment in their businesses, the immediate problems faced by the autos are three-fold; 1) they don't supply vehicles their consumers want, 2) they are perceived to be less innovative and have lower quality standards than their competitors, and -- most worrying from a public funds perspective -- 3) the market for autos in the US is expected to contract over the coming years due to the economic downturn.

While the first two concerns appear extremely challenging though solvable given the proper incentives, if the third point is correct and the industry as a whole starts to contract, it will be very difficult if not impossible to successfully execute a business as usual bailout for the industry.

In a recent research report, Goldman Sachs cut their 2010 US vehicle sales forecast by 2.7mln cars from 16mln units to 13.3mln units, citing weaker consumer credit conditions and a slowing US economy. The report notes that access to cheaper and better consumer credit has been fundamental to making automobiles more affordable in the US over time. In fact, the study points out that cheap credit explains in many ways how auto sales in the US have managed to grow faster than population or even driver's license registration growth over the past several decades.

The Goldman report concludes that with consumer credit rates starting to tighten, there is now a growing risk of this trend reversing. Consumer credit costs will start to rise, autos will become less affordable as a percentage of a person's income, and auto sales will begin to contract.

From the taxpayers perspective, a low to no growth scenario such as this would prove disastrous for investment in the business as usual recovery strategies being floated by the domestic automakers. What is needed for a recovery of the domestic auto industry is a completely transformational approach to their businesses. One that is based on best in market technologies that, when deployed to scale, would allow them to compete head to head with their more progressive competitors.

The best way to ensure that this goal of being first in class is achieved is by linking any public financing agreements to the production of dramatically cleaner, higher mileage cars. Cars with a corporate average fuel economy (CAFÉ) that matches or exceeds the goal set by President-elect Obama of 39mpg by 2020.

How higher CAFE or greenhouse gas performance standards can work to reward consumers is quite straightforward. In broad terms, every mile per gallon of higher average fuel economy translates into roughly $5bln of lower fuel costs for the American consumer on an annual basis. This is a significant dividend to the American consumer and if a decision is ultimately made to rescue the domestic auto industry, higher CAFÉ standards should play an important part to ensure a reasonable return on our taxpayer equity.

For example, an agreement to accelerate CAFE standards from 35mpg, scheduled to take effect in 2020, to 40mpg would allow the American public to receive $5bln per mile in fuel savings or $25bln annually from their investment. This fuel savings dividend would be additional to the number of jobs saved and created by the innovations needed to bring these more efficient cars to market.

Indeed, the use of higher CAFE standards is also a critical way to motivating the kind of transformational re-tooling investment needed to vault our domestic auto industry back into a leadership position in the global auto market. Short-term bailout packages could be coupled with longer-term re-tooling incentives in a cap and trade bill, that could be brought forward once the bill is passed, and provide the investment capital needed to make the transition to a first in class, efficiency driven automotive sector that America needs.

Blank checks are not the answer. We have a choice to help GM and others invest in projects like the Volt and become a world leader in the production of dramatically cleaner, higher mileage cars or simply let them carry on with business as usual until they run out of gas. If we choose to use CAFE standards as a way to enhance our investment in a bailout, the American taxpayer could be well rewarded for their efforts.

The US Economy Needs What the Phillies Have

2008-11-05T14:51:37Z

The Philadelphia Phillies won their first world series since my favorite player of all time Mike Schmidt played third base for the team nearly 30 years ago. Looking back on the teams' success, I am struck that one of the reasons Philadelphia is celebrating today can be used as a way to help get our economy back on the path to recovery. A practice that is used in all professional sports to encourage a more level playing field for next season so that the league as a whole remains competitive and fans remain on the edge of their seats. A practice referred to as "revenue re-cycling".

Every year professional sports leagues use "revenue re-cycling" to shift money away from the richest teams to the poorest teams in an effort to increase the overall competitiveness of the league. While these revenue re-cycling programs do not guarantee teams equal revenue, they do provide these clubs with the additional funding needed to compete at a higher level than would otherwise be possible, keeping attendance numbers from falling off dramatically during bad years.

This ability by Major League Baseball to invest in the competitiveness of its teams through revenue re-cycling is one of the reasons why the World Series has been won by eight different teams over the past ten years, and no team is able to rest on its laurels from one season to the next. Revenue recycling in professional sports creates a focused incentive to drive competition, allowing the leagues as a whole to benefit from the results.

Using Revenue Re-Cycling to Re-Power America

This same "revenue re-cycling" program can also be used as a model for fielding new technologies to power America's energy future. Under a "cap, invest, and dividend" program that puts a price on carbon and re-cycles some of the revenues to new energy technologies, we would be investing in our competitiveness as a provider of energy solutions. Energy solutions that could be financed from future carbon revenues and used to develop new industries, grow jobs, and improve our national security.

Indeed, when considering the factors that are limiting the effectiveness of our energy economy today from; supply constraints on domestic drilling to credit constraints on new projects to price volatility uncertainty with respect to energy commodities, the need to expand our portfolio of energy solutions seems all to apparent. The more choice we have for our energy needs the less impact these factors will have on our energy prices and the more economic growth we can expect in future years.

America needs to raise the level of competitiveness in low emission energy solutions, and by re-cycling revenues from future carbon emissions into new energy technologies we can accelerate this process and provide millions of jobs for America's workers. Lets take a lesson in competitiveness from the Phillies and professional baseball and look to re-cycle revenues from a "cap, invest and dividend" program into competitive energy solutions starting today that can help re-energize our economy and reverse the funding trends set in place by the current credit crisis.