New Report: The Misconceptions of Heritage’s Energy Proposal

On 05.04.11, In Announcements, By Staff

Screen shot 2011-05-04 at 2.21.44 PMIn the high-stakes federal budget debate, getting the facts right is critical.  That is why the Heritage Foundation’s recent error-riddled report — which proposed a near-dismantling of the U.S. energy innovation system — demanded an immediate response, which Americans for Energy Leadership has provided with our colleagues at the Information Technology & Innovation Foundation (ITIF) and the Breakthrough Institute.

Last week, these three organizations released a point-by-point analysis of the inaccuracies and misrepresentations of Heritage’s proposal.  Today, we are releasing a new report on the fundamental misconceptions of Heritage’s approach.

Download: “All About the Fundamentals: Three Misconceptions of the Heritage Foundation’s Deficit/Energy Proposal” [PDF]

The report highlights three major problems with the Heritage proposal:

1. The proposal fails to meaningfully reduce the deficit now or in the future.

Even though the proposal advocates cutting DOE research budgets in the name of deficit reduction, the Department of Energy represents a tiny portion of the federal budget and contributes little to the deficit and national debt. Moreover, the proposal fails to distinguish between government spending and productive public investment in science and technology, which drives innovation and economic growth.

2. Heritage fails to understand where technological innovations come from.

Heritage wrongly assumes that “when it comes to energy policy, the free market works” and is best suited to develop new technologies. In fact, the energy sector is anything but free, and has always been characterized by extensive regulations and subsidies, natural monopolies, and other divergences from the free-market ideal held by Heritage. Moreover, Heritage ignores the long history of public support for innovation and assumes the private sector will invest sufficiently in energy innovation. For decades, the energy sector has consistently underinvested in R&D, and market failures plague the energy innovation process at each stage of development, from lab to market launch. There is a broad expert consensus that public investment and public-private partnerships are essential to moving new, innovative technologies into the marketplace.

3. The proposal ignores the immediacy and enormity of U.S. energy challenges.

While Heritage pays lip service to energy security, its recommendations would undermine many of the best efforts underway to achieve it. The Department of Defense has recognized the critical role that innovative clean energy technologies will play in enhancing their strategic and tactical abilities, as well as the nation’s energy security. DOD also views the DOE as a strategic partner in its effort to reduce its own vulnerability from relying on fossil fuels. If Heritage had it their way, DOD would lose a key partner in the long-term effort for greater force effectiveness and security through better energy management.

Download the full report here.

Download the point-by-point rebuttal here.

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A New Approach to Passenger Rail

On 02.24.11, In Opinion, By Timothy Krueger

a new approach to passenger railFlorida’s rejection of $2.4 billion of federal rail money last week brings to light a new truth of federal projects: the federal government cannot simply act like a charitable foundation. Under such a foundation model, in which states choose whether or not to compete for grants and governors can pull out at a whim, we may end up with one high-speed rail line connecting Los Angeles to San Francisco and another connecting New York City to Buffalo. It’s difficult, however, to see how this system will produce a national passenger rail system. Luckily, there are a score of other strategies to pursue.

Eisenhower’s aspirations of building an interstate highway system were in some ways similar to Obama’s current rail aspirations. The interstate highway system was a huge investment spread over multiple decades. Like a national passenger rail system, our highway system would be much less useful if it only went through states with pro-infrastructure governors. Also on par with current rail proposals, the federal government fronted about 90% of our highway system’s cost, while states funded the remaining 10%, as stipulated in the Federal Highway Act of 1956.  Florida’s $2.4 billion of rail funds would have required matching funds of $280 million, or 10.4% of the projected total cost.

Unlike current passenger rail projects, however, there is little indication that individual governors attempted to send back federal funds or otherwise resist the construction of highways in their states. This may be in part because the interstate highway system was understood as important to national security. It may also be true that infrastructure investment was, in the 1950’s, seen as patriotic in a way it no longer is today. Prevailing economic theory has also shifted in the past half-century. These and a dozen other factors point to the conclusion that a plan to simply dish out federal funding, while it may have been successful in 1956, will not work today.  Seeing a national passenger rail network through to completion requires that we understand why the foundation model is no longer appropriate, and what the possible alternatives look like.

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The Unintended Consequences of Obama’s “Sputnik Moment”

On 02.17.11, In Opinion, By Elizabeth Campbell

Note: The views expressed are solely those of the author and do not necessarily reflect the position of AEL.

Thomas Friedman popularized it in 2009; Barack Obama reiterated in 2011. The Sputnik metaphor employed by both—Obama most recently in the State of the Union—handily condenses the clean energy challenge into a “great race” to win our nascent energy economy, to win the future, and to put America back on a path to exceptionalism.

We’ve had a few weeks to review and digest the Sputnik metaphor as put forth in the State of the Union. Commentary (including that from AEL) has been positive, noting a need to unify Americans in “stark and bracingly simple” terms, embrace a supply-side investment strategy, and inspire the action needed to take America’s energy future by the reins.

On the other hand, those skeptical of the metaphor have focused on the idea that Sputnik is generally mismatched to America’s current challenge — some stating that America’s energy situation doesn’t demand the same urgency as the Space Race and that if Obama’s domestic investment policies don’t bear fruit quickly, the public may soon grow disenchanted with them.

Atlantic Wire, while dutifully acknowledging the power of Sputnik as a catalyst, admirably synthesized various reasons for the perceived metaphor mismatch. One argument put forth— “Can We Have ‘Sputnik’ Without an External Enemy?” –is worthy of further discussion, and argues that “President Obama wants us to recreate the same sense of urgency [as in the Space Race], and the same national unity, but without the same fear of another competitor country, unless that country is supposed to be China.”

Particularly in light of President Hu’s recent visit, the administration does not appear to want to turn China into a competitor country on the same scale as the Soviet Union. (Nor should it.) But while China is not currently considered an outright competitor country, what if, in attempts to further the Sputnik narrative, the administration’s approach to a Sputnik-centered energy policy unwittingly transforms China into a staunch “competitor” in the eyes of Americans? And if that begins to occur, how do we prevent the alienation of Chinese Americans within the United States, or a general mistyping of the Chinese people as a whole?

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DOE Favoring Renewables or Reality?

On 02.16.11, In Opinion, By Daniel Goldfarb

At today’s Senate Energy and Natural Resources Committee hearing on the Department of Energy’s proposed $29.5 billion budget, both Democrats and Republicans expressed concern over increased funding for the DOE’s renewable initiatives while simultaneously cutting its spending on fossil fuels. Yet on a day when the Wall Street Journal reported on Exxon Mobil’s struggles to find new sources of oil, it seemed oddly out of touch for Senators to press Energy Secretary Chu for pushing renewable technologies over traditional fossil fuels.

Senator Murkowski, Ranking Member of the committee, pointed toward preferential treatment as a big problem in the new budget: “It seems to me that within the administration, you are picking those areas through the budget process that you would like to see advanced.” However, as Secretary Chu stated, “there are mature technologies and there are technologies that need more help,” challenging the notion that the Obama administration has simply ‘chosen’ arbitrary technologies.

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Obama to Penn State: Energy Innovation Key to “Winning the Future”

On 02.03.11, In News, By Daniel Goldfarb

President Obama’s speech at Penn State earlier today was a chance for the administration to laud its energy accomplishments and  further clarify its vision for America’s clean energy transition. The vision, at least that in the speech, was of a federal government that would facilitate innovation and competition to help America “win the future.”

Penn State is a strong example of how federal investment can spur energy innovation. Just last year, a consortium lead by Penn State was awarded $122 million by the DOE’s Energy Innovation Hubs program to research efficient building methods and materials. The consortium will build the hub in the Philidelphia Navy Yard, bringing together scientist, manufacturers, and entrepreneurs. Mark Muro, director of policy at Brookings Metropolitan and one of the nation’s foremost thinkers on hubs and clusters, said of the Penn State proposal the day the DOE announced its funding:

“…a masterstroke. One of multiple truly inventive proposals from around the country, the winning Philadelphia entry epitomizes the power of a new era of smart, region-centered thinking and action about science, innovation, and regional development in America.”

Obama’s speech today reaffirmed the advantages of the DOE’s Energy Innovation Hubs, touting not only the job creation associated with the Penn State project, but its crucial role in a plan to reduce building emissions 20% by 2020 – a plan which could amount to $40 billion a year in savings for businesses. These savings could in turn mean more competitive companies and therefore more money for hiring.

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How Nuclear Fits into Obama’s Energy Goal

On 02.03.11, In Opinion, By Dan O'Connor

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The target which President Obama proposed in his State of the Union address – that 80% of the United States’ (US) energy would originate from clean sources by 2035 – sets the bar for near-term clean energy implementation absurdly high. But there is no real disappointment in failing to reach an unreachable goal, so long as significant progress is made toward it. Seemingly, how near the target (or how far off) we land depends on, more so than any other realistic strategy, badly-needed reform in the regulatory and financial systems associated with the nuclear industry.

The energy industry has many technologies and tools for tackling the 80% challenge, but most are small in the face of such a daunting task. Electricity generation from solar photovoltaic cells and wind turbines cannot meet base load demand without breakthroughs in energy storage technology. Solar water-heating systems could be more widely implemented but their collective reduction of natural gas and electric heating would be tiny given the localized and season-dependent solar availability in much of the US.

Optimistically, hydroelectric capacity could be increased by 50% to top out once and for all at about 6% of current national energy production. Fusion technology is further from being economically-viable than it is from being sufficiently-proven in the lab. And while “clean coal” could eventually do its part to reduce carbon-to-energy ratios, a teeth-laden federal clean energy standard (CES) would be necessary, very soon, to incentivize the expensive technology’s installation in new or existing coal plants.

To be sure, all of these options should be tried and will improve in time, but the scales on which they currently or could soon operate are too small to have both quick and significant impacts on clean energy numbers. For instance, a recent assessment concluded that the 80% target would necessitate installing 1,410,060 2.5-MW wind turbines in tandem with 1,568 500-MW natural gas plants for support during intermittency. That is not going to happen in 25 years, if ever. Granted, this is a high level calculation that makes broad assumptions; it also equates to 784 1,000-MW nuclear plants by 2035, which is infeasible too. But it illustrates the enormity of the task.

The fact that the nuclear industry provides 70% of US carbon-free energy without a new plant built in the last 3 decades, while the renewable sector still only contributes a minority share but has seen 31% growth in generation in the last 3 years, points to nuclear as the appropriately-sized tool for the president’s challenge. But how do we make it happen?

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WTO Complaint Complicates Chinese-American Cooperation

On 01.25.11, In Opinion, By Natalie Relich

China’s President Hu Jintao recently ended his 4 day visit to the United States, leaving many questions as to the future of Chinese, American relations over clean energy and climate change mitigation.  The U.S. and China have numerous public and private partnerships on energy issues, but a recent complaint to the Word Trade Organization filed by the U.S. Trade Representative (USTR) against China could stall progress.

In September, the United Steelworkers Union (USW) filed a 5,800 page complaint with the US Trade Representative against China. The USW argued that China’s renewable energy policies violated international trade agreements by favoring domestic manufacturers.  The USW released a statement saying:

“These practices include discriminatory laws and regulations, technology transfer requirements, restrictions on access to critical materials, and massive subsidies that have caused serious prejudice to U.S. interests. Together, these practices have given Chinese producers an upper hand in accessing investment, technology, raw materials and markets, while foreclosing these same opportunities to U.S.producers.”

The USTR investigated the USW’s claims and in December filed an official complaint with the World Trade Organization against China’s wind power subsidies. The complaint lodged by the USTR specifically refers to China’s “Special Fund for Wind Power Manufacturing.” Under this program grants are available to Chinese manufacturers of wind turbines and manufacturers of parts and components for wind turbines ranging from $6.7 million and $22.5 million. Recipients can receive multiple grants as the size of the wind turbine model increases and the USTR estimates that since 2008 the grants awarded under this program could total several hundred million dollars. The USTR claims this program violates WTO regulations because the grants awarded are dependent upon Chinese wind power equipment manufactures using components made in China as opposed to foreign products.

China’s Commerce Ministry responded by saying:

“All countries are developing new energy sources to deal with the climate changes. China’s measures on wind power development help save energy, reduce emission, and protect environment, which are important measures for sustainable development, and comply with WTO rules. China show grave concern on U.S. request , and will make serious study of it., and deal with the request based on WTO rules, and also reserves her relevant rights.”

After a complaint is lodged with the WTO, the two parties have 60 days to resolve the dispute on their own. If the two parties do not come to a mutually agreeable resolution on their own, the WTO will review both parties’ arguments before making a ruling. The WTO panel’s review process can take anywhere from a year to 15 months. Should the WTO side with the U.S., then the U.S. would be allowed to impose penalty tariffs on Chinese goods to make up for lost revenue. On the other hand, should the WTO find that China’s wind grant program is not in violation of international trade agreements; it could be an embarrassment for the U.S., not to mention a waste of resources and time. (more…)

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US-China Energy Trade Dispute Supports ‘New Sputnik’ Moment

On 01.05.11, In Opinion, By Staff

Guest contribution by Leigh Ewbank

In an attempt to advance the “new Sputnik” narrative, the Obama administration filed a complaint with the World Trade Organisation against China over its clean energy subsidies in the last weeks of 2010.

The administration’s move comes just months after the United Steelworkers (USW) union filed a trade case with the office of United States Trade Representative. The earlier USW petition argues that China’s generous subsidies and land grants, available only for locally made parts, constitute preferential treatment of its domestic clean energy manufacturers. The current practices, the USW argues, disadvantage American firms and are trade distorting.

Over at Grist, Lucia Green-Weiskel and Tina Gerhardt write that:

“Both complaints ignore the fact that energy industries all over the world benefit from government subsidies. In the U.S. and Europe, the nuclear and fossil-fuel industries get massive public subsidies. And as a percentage of GDP, Spain and the U.K. pump funding at levels similar to China’s into green subsidies.”

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Deficit Reduction and Clean Energy

On 12.14.10, In Opinion, By Michael Craig

A 'Wall Stats' visualization of government spending in 2011

Obama’s freeze on federal employee salaries and Republican efforts to eliminate earmarks are two of the tangible signs that deficit reduction has, and will continue to be a hot topic in the near future. The 112th Congress will almost surely take up the issue, making it crucial to understand what impact serious deficit reduction plans may have on the nation’s clean energy industry. An apt starting point for this investigation is the ever-increasing array of deficit-cutting plans that aim to shape the national dialogue surrounding this issue.

Perhaps the most prominent deficit reduction plan released recently has been The Moment of Truth by the President’s National Commission on Fiscal Responsibility and Reform. The commission proposes two major reforms that would directly impact clean energy: cuts to discretionary spending and tax reforms. The discretionary spending cuts amount to an immediate $50 billion and a further $150 billion by 2015, divided evenly between security and non-security spending. The commission specifically proposes eliminating the Department of Energy’s applied research on fossil fuels, saving approximately $0.9 billion; reducing research, development, testing, and evaluation by the Department of Defense by 10%, which could lower the DoD’s ability to procure and develop alternative energy sources; and instituting a 15-cent per gallon gas tax, which would go toward transportation funding but could be a boon for hybrid and electric vehicles.

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Green Provisions Added to Bipartisan Tax Package

On 12.13.10, In News, By Nishant Shah

The contentious tax deal between President Obama and House Majority Leader Mitch McConnell (R-KY) got a little more interesting last week.  On Thursday evening, Senate Majority Leader Harry Reid (D-NV) revealed a bill that adds green energy tax provisions to the deal.  As Alexander Bolton writes in The Hill,

“To win over wavering liberals, Reid has added an ethanol tax credit, which Sen. Tom Harkin (D-IA) supports, and an extension of the Section 1603 cash grant program for the renewable energy industry, which Sen. Sherrod Brown (D-OH) favors.”

The White House has welcomed the news, as has Senator John McCain (R-AZ), who despite having “serious concerns” about the package, plans on supporting it.  Lon Huber and Alex Christensen wrote recently on the importance of extending the Section 1603 grant program, and renewable energy trade groups have strongly supported the measure.  Bolton goes on to note,

“The package includes other green-energy incentives that could win support among House liberals, who are disappointed the Senate failed to take up a comprehensive energy reform and climate bill this year. They include tax credits for biodiesel and renewable diesel; energy-efficient homes; alternative fuels; and a 30-percent investment tax credit for alternative vehicle refueling properties.”

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