We here in the United States have been slow to recognize this connection, perhaps because of a national political dialogue on climate change that focused on the costs of cutting emissions while ignoring the much larger economic benefits. This has been less of a problem in Europe, where attempts to meet the goals of the Kyoto protocol have spawned deep interest in energy policies to promote efficiency.
The progress that Europe is making can be heard in an interview between the Alliance to Save Energy's President Kateri Callahan with European Energy Commissioner Andris Piebalgs.
The Commissioner discusses some of the more ambitious goals that the European Union has established and how the EU and its member states are working to meet them.
The Alliance to Save Energy (ASE) is a strong partner with NRDC in the effort to bring policy attention to energy efficiency globally as well as in the United States. ASE will be holding a conference and trade show - the Energy Efficiency Global Forum and Exposition - in Paris from Monday, April 27 through Wednesday, April 29. Commissioner Piebalgs will be speaking, one of 100 leading voices representing 26 countries and six continents expected to be at the conference.
I hope that NRDC's members and supporters who are able to be in Paris at this time, or are willing to make the sacrifice of travelling there, will attend.
For more information on EE Global 2009, to register for or serve as a sponsor of the event, please visit http://eeglobalforum.org; or contact Mindy Berman at (310) 915-5947 or mberman@ase.org.
]]>Particularly astonishing was the recent vote to establish a tax credit for buyers of new homes.
While a tax credit could superficially be seen to help stimulate more housing production and sales, more careful analysis shows that this is just adding to the nation's problems rather than solving them.
The most direct cause of the recession is that prospective homeowners borrowed money that they couldn't repay, perhaps ensnared by lending policies that offered the ability to buy a house to people who otherwise couldn't afford it.
But this is exactly what a tax credit does. Especially since the main costs of owning and operating a house-the cost of driving to and from it and of paying the utilities-still are not considered when originating loans. (As I previously noted, for a typical house lost in suburban sprawl, the median loan is below $175,000 but the average 30-year commitment to utility costs to run the home is $75,000 and the cost to drive to and from is $300,000.)
So the tax credit will perhaps help solve one problem-reducing the inventory of unsold homes-while actually worsening a bigger one: the toxic debt of mortgages that may default.
If we want to stimulate new housing, we should condition it on good energy efficiency and location efficiency. Senator Snowe recognized this in her amendment to the Economic Recovery bill that would offer a $5000 tax credit for building a new home but condition it on achieving a 50 percent reduction in utility bills. The reduction is measured by a home energy rating performed after the house is constructed.
Working with a broad group of nonprofits and business organizations, NRDC has developed a set of programs aimed directly at addressing all of the root causes of the recession through improving energy efficiency in a way that creates lots of jobs quickly but also develops a sustainable program of stimulating spending and provides a way to pay back all the costs through energy savings.
Unlike the tax credit for purchasing a new home, which may alleviate one cause of the recession but only at the expense of exacerbating another, energy efficiency policy helps relieve ALL the causes of the recession.
These issues will be discussed in detail in my forthcoming book from Bay Tree Publishing called Invisible Energy.
]]>Energy efficiency and economic well-being have never been tied together closely in the public’s mind. But economists and public policy experts have made the connection and it is my belief that each of the following economic woes worsened in recent months and years because of our refusal to stay current with energy technology:
The connection with inflation is most direct. Energy costs were the main driver of inflation over the past 5 years, a fact that was well recognized by the Federal Reserve in raising interest rates. In fact, energy was the main culprit behind all of the last runups in inflation, in 1973, 1979, 1992, as well as the last one.
Energy efficiency can cut energy costs by reducing the demand for energy while leaving supply unaffected. The recent drastic reduction in oil prices shows how responsive energy prices are to drops in demand. But unfortunately the 2008 drop in demand was due to economic weakness, not efficiency.
Energy costs were 38 percent of the trade deficit in 2007. Efficiency could cut the amount of imports as well as reducing the cost of imports.
Energy efficiency investments typically pay all their cost back in 3 years, even though they last much longer. If we need to spend more to get out of the recession, we need to spend it on things that pay back; otherwise we just trade solving the problem of spending for exacerbating the problem of government deficits (#5 above).
The low savings rate may be in part of consequence of the rising costs of driving and energy. These costs are also related to the most direct cause of the recession. But consideration of energy and transportation costs in future home lending can help prevent a recurrence of the mortgage mess without preventing all but the rich from owning a home.
The current recession is not just a repeat of the Great Depression or the Japanese “lost decade” that followed the collapse of their real estate bubble. It is also a result of longer-term problems, many of which are fundamentally about energy efficiency.
Fighting the recession will require using all the tools at our disposal, not just avoiding the short term errors of the past.
In sum, efficiency policy is one of the very few government actions that can solve or at least mitigate all of these 7 problems. These issues will be discussed in detail in my forthcoming book from Bay Tree Publishing (http://baytreepublish.com/) called Invisible Energy.
]]>The connection between energy efficiency and economic recovery needs to be continually emphasized: for too long efficiency has been the invisible resource. Its key role in growing the economy has gone largely unnoticed, and so the lag in efficiency for the last eight years has not been connected with the current recession.
The deepening recession was not caused by reckless mortgage lending practices alone. For the last decade or so, commentary from economists such as Paul Krugman and journalists such as Tom Friedman, as well as the official notes from the Federal Reserve, noted several major drags on the economy that are all a consequence of excessive and wasteful energy use.
Of course, the direct cause of the recession was the combination of the bursting of the housing bubble and the massive market failure in mortgage lending. Poor energy efficiency was implicated in the this issue as well: for a typical house built in the last 5 years in suburban sprawl, the median price loan was about $200,000 (median house prices are now down to $175,000) but the average 30-year commitment to utility costs to run the home was $75,000 and the cost to drive to and from it was $300,000. (Both of these could be cut in half by green building practices and smart growth patterns of development.) It is not surprising that a lending system looked only at the $200,000 commitment and not the $375,000 went wrong.
Any economic stimulus that does not address these root problems may succeed for a few years but will fail in the long term. Spending government money as the President has proposed to stimulate spending may help in the short term, but the money will all be borrowed. Unless we pay attention to how it will be paid back, we will not have solved the problem.
That is why it is encouraging that the stimulus package is beginning to address the need to invest in energy efficiency, where there are high rates of return that will allow spending today to be repaid by savings in only three years. There is much more that needs to be done, and we are hoping that subsequent congressional actions on climate and on energy will take advantage of efficiency opportunities that would otherwise be lost.
Many policy makers act as if free markets always automatically produce the best results for everyone. I call this belief "economic fundamentalism" and describe it in Saving Energy Growing Jobs. Today this attitude seems to be reflected in the belief that if we can just solve the immediate problems of the economy--by creating jobs through short term government spending for economic stimulus--everything will take care of itself.
But this belief seems to be premised on the concept that the current recession "just happened," rather than looking at the evidence that it was caused by the specific factors I have discussed here. We saw this recession coming. Many writers noted that worldwide competition for limited supplies of oil was a growing economic problem; it was common knowledge that the growth in consumer spending of the last decade was supported by increasing debt and could not be sustained.
What we seem to have forgotten amidst the storm clouds of recession is that these problems still have not been addressed. Until they are, we would be overly optimistic to forecast an end to recession.
But today we took a first step in that direction with the President's actions to improve automobile efficiency and emissions intensity, and his recognition that this was an economic stimulus action. We hope for much more of that in the future.
]]>Some analysts today are saying that we may be seeing the bottom of the default crisis in the foreseeable future.
The reasoning is apparently like this: "borrowers got in trouble by purchasing $400,000 homes that they couldn't afford. But now the prices are down to $250,000, so everything will be all right."
This sort of thinking ignores the key contributor to the crisis - energy and transportation costs. A $400,000 house in suburban sprawl does not commit its owner to only $400,000 of costs over 30 years. It commits the household to almost $800,000: $400,000 to buy the house, over $300,000 to drive to it, and over $75,000 to pay the utility bills. If the price of the house comes down to $250,000, the total commitment is still $650,000. It hasn't changed much!
And since without changes in underwriting standards, the house at the lower price will be considered "affordable" to households with even lower incomes than before (all the lender thinks about is that the purchase price has come down more than 35%), Fannie Mae and Freddie Mac would just be setting up the sequel to the default crisis of 2008.
Now that Fannie Mae and Freddy Mac are responsible to the taxpayer, let's make sure that their lending policies are financially responsible. And also environmentally responsible.
New underwriting standards should be based on the total of monthly obligations resulting from transportation costs, utility bills, and house payments all taken together, rather than considering house payments to the exclusion of these other two large obligations.
Not only will this help with economic growth and financial responsibility, it will also help with fairness in lending. In the cases where we have been able to get data, the most location efficient neighborhoods have much more diversity and also lower rates of home ownership. New standards will help improve environmental justice in home ownership opportunity.
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