Will Obama Put Real Money on the Table for Clean Energy?

Originally posted at the Breakthrough Institute

For those paying close attention, there was a nugget of critical energy and climate policy news buried at the tail end of a Saturday New York Times story focused on President Obama's budget plans:

On energy policy, Mr. Obama's budget will show new revenues by 2012 from his proposal to require companies to buy permits from the government for greenhouse gas emissions above a certain cap. The Congressional Budget Office estimates that would rise to $300 billion a year by 2020.

Since companies would pass their costs on to customers, Mr. Obama would have the government use most of the revenues for relief to families to offset higher utility bills and related expenses. The remaining revenues would cover his proposals for $15 billion a year in spending and tax incentives to develop alternative energy.

Many climate advocates will no doubt read this with excitement at Obama's apparent commitment to move forward with a cap and trade proposal, even during these tough economic times. But if you're looking closely at the public investments Obama plans to pair with his carbon pricing proposal, you've got to start worrying: if Obama remains committed to spending just $15 billion per year to spur a new energy economy, America will fail in that endeavor. Cap or no cap, I'm not sure you can find one energy expert that thinks the public investments required to build a new energy economy will cost that little.

I know I may be chastised for criticizing Obama so soon after he delivered an unprecedented clean energy investment in the stimulus. But let's be clear: those investments were just the beginning, and Obama needs to articulate a clear and viable plan to make the sustained commitment and ongoing public investments necessary to truly build a new energy economy.

The public is overwhelmingly behind President Obama right now, and if he was elected with a mandate to do anything beyond stem the economic crisis, it was a mandate to build a new, clean energy economy that finally secures America's energy independence and averts potentially catastrophic climate change.

Yet Once you start looking at the critical areas where public investment in a clean energy economy is necessary - research, development and demonstration, or RD&D; critical infrastructure, like a modernized electrical grid; deployment incentives to spur emerging technologies; and efficiency incentives, financing and other investments to retrofit American homes, businesses and factories - it's not hard to see why the $15 billion per year Obama has pledged is simply not up to the task.

RD&D: There's widespread consensus - including among Obama advisers like White House science adviser John Holdren, Sec. of Energy Steven Chu, and Obama campaign energy adviser Dan Kammen - that public investments in clean energy RD&D alone need to rise to $15-30 billion annually, putting them on the same scale as other national innovation priorities (e.g. health research at NIH, military R&D, etc.) and past R&D initiatives (e.g. Apollo, Manhattan, Project Independence, etc.).

Building a 21st century electrical grid: building a modern electrical grid, including long-distance transmission expansion and the integration of smart grid (and probably utility-scale energy storage) technologies will cost on the scale of hundreds of billions over the coming decade or two. Not all of that will have to come from the public sector, but a sizable chunk will, maybe $5-15 billion annually. Breakthrough proposes creating a National Electricity Modernization Authority to facilitate and finance grid modernization activities across the country, investing $50 billion in public seed money to get the Authority started. More on what it will take to build a 21st Century Grid in an upcoming post...

Driving clean energy deployment: Incentives to spur the deployment of emerging clean energy technologies and drive down their cost are also necessary, even with a cap and trade program in place. Denmark provides a perfect case study of the necessity of pairing carbon pricing with direct investments in clean energy technology deployment. Looking elsewhere in Europe, it's also not hard to see that the EU's Emissions Trading Scheme doesn't preclude Germany's sizable investment in solar deployment, a roughly 50 cents/kWh feed-in tariff, for example, nor does it stop nations across the EU from putting in place more modest deployment incentives for wind, solar, biomass and other renewables. Here in the United States, the three-year PTC expansion in the stimulus is projected to cost $13 billion over the next ten years, and the cost of supporting emerging renewable energy technologies will only increase as the scale of their deployment ramps up.

If the United States launched a cohesive strategy to support a whole portfolio of emerging clean energy technologies (for both electricity and transportation), aimed at achieving economies of scale and improving price and performance, it could cost on the scale of $30 billion annually before long. Those are smart investments though to make clean energy cheap over time (in real, unsubsidized terms), especially when compared to the total expected cost of cap and trade ($100-300 billion/year). Since deployment incentives can be targeted strategically at specific technologies, they will cost our economy and taxpayers far less than the blunt instrument that is carbon pricing; why make all energy more expensive than solar (a three-to-five-fold increase in the price of energy) in order make solar competitive when you can design a deployment incentive specifically for solar that accomplishes the same goal at a fraction of the cost?

Rebuilding an efficient economy: Spurring widespread and ongoing energy efficiency retrofits and upgrades across multiple sectors of the US economy will require major public investments as well, particularly in the form of low-cost financing to bring down the high capital costs of efficiency retrofits - what I call the "Capital Barrier." On the higher end, Architecture 2030 recently called for a $171 billion, two-year stimulus investment to bring down the Capital Barrier for efficiency, predominantly through low-interest mortgages and loans. Green for All, the Center on Wisconsin Strategies, and Center for American Progress have called for a much more modest investment of $15 billion over five years to underwrite the establishment of a $50 billion public revolving loan fund to bring down the Capital Barrier for efficiency retrofits. The stimulus bill, with at least $8.5 billion in annual investments in efficiency gives us another scale reference. And of course, those investments merely begin the task of building a more efficient American economy.

In summary, it's no wonder the Breakthrough Institute is joined by the the Apollo Alliance, and the Center for American Progress in proposing public investments in clean energy on the scale of $50 billion annually. Obama's plans to spend just $15 billion a year simply falls far short of what is needed (even after the good start he's made in the stimulus).

So what will it take to get Obama to double, triple or even quadruple his commitment to the strategic public investments necessary to spark a clean energy economy?

Now, I'm not wedded to financing these investments entirely (or even at all) with money from carbon price revenue (especially since I'm not confident cap and trade will pass soon enough to provide a near-term revenue stream). But if the money doesn't come from carbon auctions, it's gotta come from elsewhere (and soon). Does Obama have a plan to finance the scale and type of clean energy investments on the scale we need?

Obama says that sparking a clean energy economy is his top priority (after getting the economy out of crisis). It's time for him to put (real) money on the table.