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Posted at 11:00 AM ET, 02/ 3/2011

Give me the green light

By Derek Thompson

Businesses respond to signals, not speeches. High unemployment tells companies to hold off on production, and low interest rates tell companies to borrow, but State of the Union addresses don't have the power to tell companies to do anything.

So when the president says he's committed to green energy, that's fine. But the U.S. isn't giving alternative energy companies the green light. We're giving off something more like a ruddish-yellow light, as if to say: Go ahead if you'd like, but proceed at your own caution.

Ask Eric Spiegel, CEO of Siemens USA, who told me his company is held back by the United States' reluctance to pass a carbon tax or make permanent the solar tax credit. "If you don't do anything on carbon and you don't have renewable energy standards or investment tax credit, every utility company would go out tomorrow and build coal," he said.

Ask J. Bryan Ashley, chief marketing officer at Suniva, a celebrated solar cell manufacturer out of Georgia, who told me his company exports 80 percent of its products partly because there's so little demand for solar at home. "More people would manufacture [solar products] here if demand was here," Ashley told me. "We need a renewable energy standard to create a market in the United States. If demand is overseas, then I'll move factories to other parts of the world. That's just good business."

The White House doesn't want to oversee a mass exodus of alternative energy companies to China. That's why it put $151 million in experimental clean energy grants in 2009. That's why Obama announces the "Better Buildings Initiative" Thursday to get commercial buildings to retrofit themselves with government money.

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This is a step. But what a small step. Total R&D spending in green energy is miles behind biosciences and IT, which together make up two-thirds of total research spending in the U.S. Private-sector investment in energy research amounted to barely half what Merck or Microsoft put to R&D in 2009, economist Michael Mandel said. If you're betting on the future of America's innovation engine, what reason is there to put your chips on green?

One answer is that if the federal government fails to give clean tech companies the green light, world events might force our hand.

In the recession and the recovery, the price of oil plummeted, and wind-power installations fell 72 percent between 2009 and 2010 in some states. But in the global resurgence, it's beginning to look like 2007 again. The price of a barrel of oil cracked $100 this week. Speculation and organic demand from Asia and Latin America could drive up the price even further. One way or another, alternative energies will replace the dirty and unstable supply of fossil fuels. We can either get serious about sending the right green energy signals or accept that the United States won't lead this particular revolution and focus our attention on other industries.

Derek Thompson is an associate editor at the Atlantic, where he writes about economics, business and technology.

By Derek Thompson  | February 3, 2011; 11:00 AM ET
 
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Comments

So I guess we can then overlook the fact that alternative energy is Chinese energy eh?

Also you really shouldn't call fossil energy "dirty and unstable" in the same paragraph where you note that wind powered installations fell 72% in a year.

The "dirty" part makes you look like a radical fringe environmentalist, and the unstable part makes you look like a genuine idiot!

Rising prices are a sign of STABILITY not instability, as it is a logical market response to higher demand. That higher demand is then met by greater production which stabilizes the price rise.

Only in fields where government subsidy is the main profit mechanism do you see an absence of this stability. That is why you needed to write this column because while the price of oil has recovered from it's fall, in response to demand, the installation and cost of alternative fuels have not because they are not subject to market forces.

Maybe Derrick Thompson should emphasize the technology part of his resume, because he certainly knows nothing about the economic and business part.

Posted by: johnmarshall5446 | February 3, 2011 11:19 AM | Report abuse

"We can either get serious about sending the right green energy signals..."

Carbon tax - unlikely

Alternate energy subsidies - federal gov't coffers are bare, some states are looking to cut back existing subsidies

Mandates - certain states have laws which require utilities to produce x% of their electricity using non-fossil fuel sources by year y; wait till the higher electric bills start kicking in

Posted by: tuber | February 3, 2011 11:45 AM | Report abuse

True Oil over $100 is the true friend here. But that same rate lands up as huge profit to Exxon making them to undertake riskier drilling, create more jobs (and hence the fear in Congress of shutting down Oil & Gas industry) and pour money into lobby.

It is a hard riddle to get solved by pure Market forces too.

Posted by: umesh409 | February 3, 2011 11:54 AM | Report abuse

The price of oil really only impacts the transportation industry and homes that rely on heating oil. The electrical grid is nuclear, coal or natural gas and not impacted. It's really the availability of cheap coal and natural gas that differentiate us from many of the European countries.

Siemens is a German country and the economics and resource situation is 180 degrees from the US so I don't think it's fair comparison. Sure green power is great but it is difficult other than through some kind of mandate or huge subsidy that it will be competitive within the next 20-30 years.

Posted by: agoldhammer | February 3, 2011 12:53 PM | Report abuse

johnmarshall5446 - You're leaving out an important fact: 70% of the ~ $20B annual federal energy subsidies go to oil,natural gas and coal. Another 15% goes to ethanol and 10% to federal energy producers like TVA and Bonneville Power, leaving 5% or less for renewable energy. The oil, natural gas, and coal subsidies are almost entirely permanent subsidies. (info from recent article by Jeffery Leonard, "Get the Energy Sector Off the Dole". If you want to use the economics and business lens, then use economic and market information.

Posted by: traveler47 | February 3, 2011 1:01 PM | Report abuse

traveler47 - Indeed! And I'd add that along with the innumerable subsidies we provide to current energy producers, johnmarshall ignores the massive negative externalities (and environmental impact) caused by increased oil and coal production. Although something tells me he'd have rather unique views on global warming, wouldn't he . . .

That, and the "production will increase to mitigate price" ignores the cartelization of prices under OPEC, who don't seem very motivated to increase production at this point in time or, you know, the fact that oil is a non-renewable resource. Ah, bless.

Posted by: strawman | February 3, 2011 1:12 PM | Report abuse

Ah, yes. Liberals, once again imagine they know how to spend other people's money better than the people who *earned* that money.

Ponder the fact, liberals, if you knew best how to *earn* money, you wouldn't have to continuously connive and plot to steal it from elsewhere.

Any idiot can spend. Liberals are particularly idiotic in that they think the weird echoes in their heads give them special sanction to direct others' spending.

Posted by: msoja | February 3, 2011 1:48 PM | Report abuse

strawman and traveler:

Why do we have those subsidies in the first place?

Did the government subsidize the creation of the IC engine, and the transition from a horse powered economy to an oil one? No actually it didn't!

In fact road building lagged so far behind the adoption of the automobile in this country that the only way to create the inter-state highway system was for Eisenhower to get it funded under a Defense bill!

Now you can argue about the corruption of government by big money in all ages and times, and you are certainly correct. But the historical fact is that oil is the MOST superior form of energy yet put into mass use, ever. We owe that not to the government, but very heavily to John D. Rockefeller.

There is a place for the moral argument that he was evil in acumulating his money. That fact is however that in this nation he lowered the cost of heating and transportation drastically to the indivdual, to make it among the lowest if not THE lowest in the world as a percentage of income.

Your environmental impact costs are indeed part of the equation and can't be minimized. You don't look at what was replaced though. It is seldom mentioned that there is a coincident rise between the health of the urban population and the use of the auto. No one remembers, except my 90-year old father the millions of pounds of excrement and urine distributed all throughout the city by the use of horses, to say nothing of the sometimes hudreds of dead carcasses lying in the streets each day. This was devastating from a disease standpoint.

That doesn't even begin to touch the health effects of the replacement of fireplace and coal stove heating with oil, or natural gas heating. The indivdual home is MUCH healthier than it was over 100 years ago and the general city environment as well.

ALL energy has environmental costs. Solar and wind depend on the mining of rare earth on a huge scale, as well as the despoilation of huge areas of land by the construction of solar grids, as well as wind turbines and the high-powered lines that will be strung for thousands of miles to carry their energy over long distances.

These environmental aspects are usually simply dismissed. (contrary to your guess, no problem with the overall idea of global warming from me)

So finally, yes fossil fuels are subsidized and it has been a good thing in the same way that the mortgage interest deduction is a subsidy that tends toward creating stabile productive communities.

If you want to create alternative energies, I'm right there with you, but make them SUPERIOR to what we have now, not inferior.

Posted by: johnmarshall5446 | February 3, 2011 2:07 PM | Report abuse

Curious how the people who are apoplectic that the surplus in the Social Security trust fund will be exhausted in three decades requiring us then to increase revenues to pay benefits by about 25%, are also the same people who are completely unconcerned about the trillions it will cost for the engineering and infrastructure to address climate change impacts and ocean level rise.

Fossil fuels are cheap now because what they are going to cost gets paid later. We could build up a trust fund by increasing fuel taxes now (just like Reagan did for Social Security in anticipation of the baby boom retirement), but that would be just too responsible for today's politics.

If you factor in the future costs of fossil fuels (or, for that matter, the decommissioning costs of nuclear), green energy is more attractive. But this is a far too subtle concept for our culture.

Posted by: suehall | February 3, 2011 2:12 PM | Report abuse

traveler47 - I don't know where Jeffrey Leonard got his numbers. The 15% of $20 billion cited as subsidy for ethanol doesn't even pay for the excise tax credit, let alone the subsidies for the corn, the mandates for use, etc. He also pads the oil and gas subsidies by including the foreign tax credit, which applies to *all* businesses with overseas operations. I've seen other people pad the estimate by including the domestic manufacturing tax credit, which is also available to all domestic "manufacturing", which is so broadly defined that it includes the film industry.

It's not an oil and gas subsidy unless only the oil and gas industry receives it.

For a more honest accounting, you can look at the EIA report on energy subsidies.

http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html

Posted by: tl_houston | February 3, 2011 2:20 PM | Report abuse

suehall:

If you "decommission" nuclear power in this country, you only increase the demand for fossil fuel, not decrease it.

Nuclear provides about 20% of the total power generation capacity of the nation, solar and wind about 3.5%.

There is no way in the foreseeable future technologically to get the 3.5% to replace the 20%. Not only technologically can't it be done on that scale, but the capital costs would be devastating.

If you are factoring in future costs what would be the economic costs of taxing the 95% of the economy that does NOT run on wind or solar, to subsidize the 4% that does?

What would be the employment impact of such a thing? Also how would employment be impacted by the switch from American jobs in the coal mining and nuclear power industry to the jobs sent to China, which has sole possession of the mining of rare earth, is the world leader in the production of solar panels, and is increasingly gobbling up share in the wind turbine industry?

Posted by: johnmarshall5446 | February 3, 2011 2:26 PM | Report abuse

johnmarshall5446 writes, "If you 'decommission' nuclear power in this country, you only increase the demand for fossil fuel, not decrease it."

Then I guess we just won't decommission any nuclear power plants. While we're at it, let's all avoid funeral expenses by not dying ever.

Alas, just like you and me, nuclear power plants have a finite lifetime, and when they reach the point that they must be shut down, then we have to transform them into something that can be left untended indefinitely. That's called decommissioning, and it's a lot more expensive to do for a nuclear plant than for a coal or gas power plant.

I'm pro-nuke, by the way, but unlike many others of that opinion, I'm under no illusion that nuclear power is cheap.


"If you are factoring in future costs what would be the economic costs of taxing the 95% of the economy that does NOT run on wind or solar, to subsidize the 4% that does?"

I would not use the money to subsidize anything. I'd sock it away and spend it 30+ years from now when the costs of climate change start hitting. Kind of like what you do with your 401k ... or do you not save for your retirement because of the economic impact that would have on your life now?

Posted by: suehall | February 3, 2011 2:46 PM | Report abuse

suehall:

Interesting subject. I mistook your position as a call for decommissioning all nuclear power plants and replacing them with wind and solar. So we apparently don't have a diagreement there. What nuclear gives is

-terrifically awesome power per square foot of generation area

-consistent output

-comparatively low environmental impact in the best case scenario

-somewhat frightening construction costs

-a worst case scenario that really IS a
worst case scenario

- a helluva public relations problem.

I know you're being facetious about the sock it away scenario. LOL

Posted by: johnmarshall5446 | February 3, 2011 3:23 PM | Report abuse

"More people would manufacture [solar products] here if demand was here"

Demand doesn't exist for useless boondoogles.

Posted by: krazen1211 | February 3, 2011 9:27 PM | Report abuse

Acarbon tax (as opposed to cap and trade or EPA regulation and already vocally supported by a majority of leading economists, scientists and opinion leaders) would be supported by a well-educated electorate as well. Furthermore, the revenues from this approach can be recycled in tax relief for American families, making it politically attractive to members on both sides of the aisle. I certainly hope that Congress pays attention and at least includes a carbon tax in the discussion.

Posted by: SallyVCrockett | February 10, 2011 1:04 PM | Report abuse

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