Grid and a Gas Tax, Two Bits

26Nov08

Caitlin Howarth, Washington, DC

Nobody is going to be 100% happy with these suggestions.  But they should still be made.

Over a month ago, the G7 nations were making noises that they would be pulling back on carbon emission reduction goals.  President Elect Obama’s announcement of a comprehensive economic strategy that highlighted investment in alternative energy seemed to quell concerns for a time, or at least indicate that the US would be a leader of clean energy investment and generate new job growth to stimulate the economy.  But today, those noises from the G7 and other European nations – ostensibly the most progressive and aggressive on clean energy investment to date – have become shouts.  

As the economic crisis continues, the cost of alternative energy investment has risen while the prices of coal and oil have dropped.  T. Boone Pickens’ wind farm plans have been reduced as the marginal costs shifted in oil’s favor, and the proponents of ‘clean coal’ will be quick to push their late-election gains (remember the VP debate?) into 100 Day expansions.  (Though it won’t be for investing in carbon sequestration technology, which is still at least 10 years and billions of tons of CO2 away from even existing.  My bet: the coal industry will fight to keep the Bush administration’s midnight regulations that roll back environmental protections and allow mountaintop removals for mining – and because Democrats are too eager to build on election momentum in the South, Ohio, and Pennsylvania, they won’t organize to overrule these regulations.  The new Obama administration will then get stuck with bad policy, environmentally disastrous changes, and campaign pledges they made too loudly too ignore.  This cake is baked.)

There is one thing to keep in mind: investing in a green collar economy is not necessarily the same thing as shutting down jobs in fossil fuels.  This is not an either-or proposition, particularly not as the Obama team framed it.  Nor have proponents of building a green collar economy been particularly vocal about shutting down those dirty energy jobs; you’ll hear plenty about “no new coal plants,” but not a peep about shutting down existing operations.  Jobs come first.

Unfortunately, there’s a snag here.  Before you can have green collar jobs, you need green collar industry.  Ideally, you have an alternative energy investment that requires heavy industry and puts the Rust Belt back to work.  Remodel car factory floors to make the massive blades for wind turbines, then build wind farms out in the Great Lakes - conveniently, Detroit and Flint are ideally situated for just this kind of market, and the wind on the Lakes is one of the best places to invest.  (Not too close to that beloved North Coast, though.)  

So why doesn’t the government create major tax incentives for alternative energy entrepreneurship?  They can, and it looks like the Obama administration will.  But here’s where those diminished margins come back to bite you: they eat into the tax advantage and make it harder for the still-small-scale alternative energy market to compete with the fully established, now lower-priced oil and coal markets.  What’s worse, alternative energy doesn’t have a delivery system anything like fossil fuels.  Before you can get the energy, you need a grid that will carry it.  To get the grid, you’ll actually have to overcome – wait for it – nature conservationists who don’t want power lines crossing mountains.  This is where the alternative energy camp and the environmental conservationist camp diverge; on the one side you have the progressive youth movement, on the other, old-school organizations like the Sierra Club and Nature Conservancy.  What’s more, you’ve got the ‘landed gentry’ organized against power grid expansion: while in favor of land preservation (often for hunting and/or to keep nice views), this group is generally conservative and votes accordingly.

So – where to invest first?  

1. Build the grid.  Minimize damage to the environment, but build it.  The administration and Congressional leaders won’t lose votes they haven’t already lost, and it provides a stimulus to heavy manufacturing at exactly the right time.  (Though will it stimulate manufacturing in the right places?   Someone show me how.)
2. Tax fossil fuel.  This is the part everyone will hate.  It’s regressive and easy to see and Exxon will throw millions of their record profits at demonizing it.  But it will give alternative energy more of a toehold in the market, a fighting chance at exactly the time we most need it.  What’s more, the volatility of prices may mean that a 5 cent tax won’t be quite obvious, and several quarters of record profits for oil companies means that the government can counter their hue and cry IF it invests in a smart counterstrategy in the media.  I’d replicate the British government’s impressiveACT ON CO2 campaign, which is exactly the kind of thing we should expect from an Obama-led government.  
3. Invest in entrepreneurship.  Done right, this will not only help create the smart new companies that will drive green collar job growth, but will also pick up the underutilized resources of Midwestern and Rust Belt areas: namely, graduates of the Universities of Wisconsin, Michigan, and other brain-drain regions.  Some of the nation’s best universities and smartest, most entrepreneurial minds are located in the areas bereft of investment.  In addition to tax incentives for business growth in this sector, government can subsidize select state education funds and create a bigger version of Opportunity Maine, wherein the state gradually pays back a student’s state college tuition if that student works in the state for a minimum of 5 years after graduation.  In this way, the promise of tuition repayment operates like a loan, but with the advantage on the side of the state: the students front the money, which the state pays back while reaping tax revenue. 
4. Require retrofitting and incent weatherization.  Government is a big business in its own right, and it can mandate its own retrofitting and spur industry growth at a time when the private market is struggling to provide sufficient demand.  Next, kickoff that Obama tax cut with credits for anyone working to weatherize their home or otherwise reduce their energy costs.  This still won’t reach everyone who doesn’t make enough to earn a tax credit, though – again, any ideas for how to reach these folks?  (This is why I run a policy shop; when I’m out of ideas, there’s a few hundred people smarter than me that I can call upon.)
5. Make community college free.  Entrepreneurs don’t want to invest millions of increasingly hard-to-come-by capital in a sub-par workforce.  What’s more, limited workforce training programs won’t cut it.  Expand the Green Energy Corps by making community college free, automatically enrolling high school students, and providing pathways into careers rather than into just one kind of job.  Diversifying your workforce requires diversifying your education system, and community colleges serve exactly the right groups: older workers who need new or different skills, young workers seeking out technical training, and lower-income workers in a huge variety of communities across the board.  Plus, community college is heavily subsidized to begin with; reducing virtually all opportunity costs by eliminating tuition and expanding night and weekend classes is best for workers, for potential employers, and doesn’t hurt government revenues nearly as much as high unemployment does.  With 40% of new jobs requiring a college education, improving this pathway to higher education is vital.  Check out the Bureau of Labor Statistics report on Tomorrow’s Jobs for more details on the need for higher education.

Filed under: Uncategorized   |  1 Comment