Will the Economic Crash Take Down Our Hopes for Clean Energy?

Date: 29 Oct 2008 | posted in: From the Desk of David Morris, The Public Good | 0 Facebooktwitterredditmail

Will the Economic Crash Take Down Our Hopes for Clean Energy?

By David Morris, originally published in Alternet, October 29, 2008

A century ago French philosopher and writer Paul Valery observed, “The central problem with our times is that the future is not what it used to be.” He could have been commenting on current events.

In August, Alternet invited me to write a series of articles on energy policy leading up to the election. At the time the invitation was extended, the price of oil was about $135 a barrel. Gasoline prices had eclipsed $4 a gallon. Natural gas prices hovered around $11 per million BTUs. SUVs sales were down, but car companies were having some trouble keeping up with the demand for smaller cars.

Renewable energy was expanding rapidly. The most important energy issue was whether the renewable electricity credits, bottled up by Senate Republicans for the previous 12 months, would be extended before they expired at the end of 2008. The renewable fuel everyone loves to hate, ethanol, was blamed not only for the rapid rise in food prices but also for food riots around the world.

In August, the economy was still expanding at a rate near its historical average. The stock market, down from the beginning of the year, was holding steady. By all accounts, the Iraq War was going to be the dominant issue in the presidential election.

What a difference 60 days make! The price of oil has now dropped by more than 50 percent to just over $60 a barrel. The price of natural gas has declined in similar fashion. Nationally, gasoline prices have plummeted by about $1.30 a gallon. In Pittsburg, Kan., one can buy gasoline for under $2 a gallon. The relationship between ethanol and food prices has proven tenuous because ethanol production continues to expand while the price of corn drops by more than 50 percent and food prices don’t decline at all.

The economy is contracting at a terrifying pace. The stock market has plunged by more than 35 percent. The Iraq War has all but disappeared from the presidential campaigns. Sales of SUVs continue to dive, but now sales of all cars are declining as well.

The context for energy policy has changed dramatically. This happened once before, in 1981. I discuss those changes in a new foreword to my 1982 book Self-Reliant Cities, available at the Institute for Local Self-Reliance next month.

Self-Reliant Cities: Energy and the Transformation of Urban America was published just as the first wave of local, state and national energy activism peaked and crashed. Two factors caused the crash. One was political: the election of Ronald Reagan, a man who saw government as the problem, never the solution. He shut down as many alternative energy programs as he could and made his position crystal clear on the issue when he dismantled the White House solar collector array Jimmy Carter had had installed.

The second factor was the collapse of the economy. In 1981, world trade contracted for the first time since 1931. From 1981 to 1985, the price of oil plunged by 75 percent, falling from $36 a barrel ($93 in today’s prices) to about $12.

Will energy history repeat itself in 2009? The economic conditions are eerily similar. We may now be witnessing the first worldwide economic contraction since 1981. We’re already deep into the worst financial collapse since the early 1930s. The renewable energy tax credits have been extended, one of the few welcome outcomes of the financial meltdown since the energy bill was tacked onto the second bailout bill, but even with that long-sought passage, renewable energy expansion is stalling because of the credit crunch.

Federal energy incentives and mandates appear safe, although they may be reduced or their timelines may be pushed back. At the state and local level, painful budget crunches may result in significant cutbacks in energy programs. And in the marketplace, will consumers still be willing to pay a premium for green electricity or green fuels?

The biggest difference between 1981 and 2008 is that in 1981 the renewable energy industry was embryonic. National sales were probably below $500 million for all renewable energy technologies. This year investments in wind, solar and biofuels alone may exceed $15 billion. The economic and credit crisis will undoubtedly weaken these industries; research and development will slow, but it will not cease, and sales will probably increase, although at a much slower pace.

If John McCain is elected president, these renewable and energy efficiency industries will face a man whose philosophy of government is similar to Reagan’s, but they now possess sufficient political clout to defend themselves. And if Obama wins, we will see an activist government that could, and should, view renewable energy and energy efficiency as an important activity. If unemployment continues to rise, as many expect, approaching the 10 percent level, Obama could take a page from FDR’s playbook and institute a massive public works program focusing on infrastructure that lends itself to a green orientation.

There is an important reason investments in alternative energy and energy efficiency may prove attractive in a time of economic hardship: Many if not most of these investments save money by reducing operating costs. In other words, the investment pays itself back. The additional cost of an energy-efficient building pays itself back several times over during the life of the building, as does the cost of a geothermal system.

This fundamental feature of energy investments could lead the next president to mandate maximum efficiency wherever he has the authority to do so (e.g. large appliances, cars), and to work with states and cities to maximize efficiency wherever they have authority (e.g. buildings). The next president could, for example, insist that car companies taking advantage of the newly available $25 billion in federal loans retool their assembly lines to produce very high efficiency electrified vehicles whose additional investment repays itself within the life of the vehicle.

Even where an initial energy investment does not fully repay itself from reducing operating cost, it often is an attractive investment from a national perspective because of its indirect impacts. Wind energy pays itself back from a regional and national perspective by reducing the need for, and therefore the price of, natural gas. Electric vehicles repay the initial additional cost from a national perspective by reducing the dollars exported to pay for oil.

Starting the day after the election, the president-elect must involve himself directly in shaping policy that rights the listing financial ship of state. He can’t wait until he takes office. A part of that task must involve resurrecting the New Deal restraints on greed and speculation that were systematically dismantled by the Clinton and Bush administrations.

One goal of that task, aside from achieving financial stability, must be to dramatically reduce the financial sector’s share of the economy. Twenty-five years ago the manufacturing sector was about twice the size of the financial sector. Today the financial sector is about a third larger than the manufacturing sector. Over the last 15 years, our primary job engines have been symbolized by the growth of Wal-Mart and Lehman Brothers.

We need to get back to creating domestic high-paying design and manufacturing jobs. The good news is that today, unlike in 1981, such an effort may be bolstered by a government that believes in public action. And today, unlike in 1981, our renewable energy and energy efficiency industries are big enough and capable enough to shoulder the responsibility of strengthening the economy by massively reducing our energy operating costs and equally massively displacing imported fuels with domestic and sustainable energy sources.

The New Deal didn’t pull America out of a deep recession. But New Deal investments did benefit succeeding generations. Publicly funded workers planted millions of acres of new forests, farmers were paid to reduce soil erosion, federally assisted cooperatives brought electricity to rural areas, and public works projects like water systems were built all over the country.

The next president and Congress will spend hundreds of billions of dollars to revive the economy. We should insist that they be invested in a way that enriches the common wealth and builds a new physical foundation that can benefit generations to come.

David Morris is vice president of the Institute for Local Self-Reliance, based in Minneapolis and Washington, D.C.

About ILSR: The Institute for Local Self-Reliance is a nonprofit organization founded in 1974 to advance sustainable, equitable, and community-centered economic development through research and educational activities and technical assistance. More at http://www.ilsr.org

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David Morris is co-founder of the Institute for Local Self-Reliance and currently ILSR's distinguished fellow. His five non-fiction books range from an analysis of Chilean development to the future of electric power to the transformation of cities and neighborhoods.  For 14 years he was a regular columnist for the Saint Paul Pioneer Press. His essays on public policy have appeared in the New York TimesWall Street Journal, Washington PostSalonAlternetCommon Dreams, and the Huffington Post.