Can Government Go Green?

If the “mission accomplished” photo-op was the defining moment of the Bush administration's foreign policy, the president's recent visit to the National Renewal Energy Laboratory in Golden, Colorado, defined its energy policy. One week after he embraced alternative energy in his State of the Union address, Bush's budget axed 32 employees at the nation's premier alternative energy lab, a facility that developed key technologies for hybrid cars and photovoltaic cells. His political operatives didn't even know what they had done until a few hours before his visit, triggering a mad scramble to restore the jobs to avoid embarrassing the president.

Too late. Reporters had a field day. But they should have paid more attention to the rest of the administration's proposed federal budget, the ultimate arbiter of national energy policy. Bush's TV rhetoric was disconnected from reality.

Programs that could reduce greenhouse gas emissions and lower U.S. dependence on foreign oil got short shrift. Instead, the president proposed lavishing new resources on long-range research programs that had more to do with rewarding key corporate backers -- “clean coal” and nuclear power, as well as corn-based ethanol -- than with building a comprehensive, sustainable energy system.

Under the president's plan, home weatherization assistance programs will be cut by nearly a third; investment in geothermal, hydropower, and solar heating and lighting programs will be eliminated; and aid for upgrading local building codes (a key element in improving energy efficiency) will be ended. “The states will now have to become the true laboratories of innovation because the federal budget is not helpful,” said New Mexico Governor Bill Richardson, who headed the Department of Energy in the Clinton administration.

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In the decades since president Jimmy Carter donned a cardigan to declare energy efficiency the moral equivalent of war, the United States has essentially relied on market mechanisms to wean itself from oil. This was a departure from the 1975 Energy Policy Conservation Act, which required automakers to achieve specific fleet averages in miles per gallon. Unfortunately, corporate average fuel economy (CAFE) standards, which were remarkably successful in achieving their initial goals, were abandoned as a strategy. The CAFE goal was last raised in 1990.

As inflation-adjusted oil and gas prices fell from their 1980s highs, markets responded the way markets do: mindlessly. The U.S. transportation sector became even more dependent on cheap foreign oil; the unanticipated SUV loophole made a mockery of the fuel standards (SUVs are counted under the weaker light-truck standard, not the tougher passenger vehicle one, even though that's how most are used); the electricity sector adopted natural gas as the primary supplement for coal; and the overall economy lagged far behind its European and Japanese rivals in both energy efficiency and adding renewable sources like solar, wind, and geothermal into the energy mix. Concerns about global warming, air pollution, and defense outlays required to maintain access to Middle Eastern oil were ignored.

During the current Bush administration, these trends accelerated. In earlier days, political proponents of alternatives were driven from the national dialogue by an administration with deep personal, political, and financial ties to fossil fuel industries. Vice President Dick Cheney, launching an energy strategy hatched in secret with his energy industry cronies, famously claimed that energy efficiency and alternatives may be signs of “personal virtue” but have no place in the national strategy. Even after 9-11, which presented the nation with a golden opportunity to move down a different energy path, nothing changed.

However, energy markets have belatedly begun to reflect some of the hidden costs of U.S. reliance on fossil fuels. Hurricane Katrina and global warming, instability in many of the oil-producing regions of the world, growing competition for supplies from China and India, and accumulating evidence that the globe has finally reached its peak oil-producing capacity have kept oil more than $60 a barrel and gasoline prices well above $2 a gallon. Home-heating oil and natural gas prices have increased 16 percent and 24 percent, respectively, in the past year.

Mr. Market is responding to the changed circumstances, sort of. The use of alternatives to oil and gas is exploding. Demand for hybrids, solar installations, and wind power is rising at a 30 percent annual clip. But this consumer-driven response begins from such a small base that it would take decades to push fossil fuels from their preeminent position. Bush's contradictory strategy both promotes more oil exploration and hopes to hasten energy diversification by giving a push to the supply side. At some point, the cost of alternatives, presumably, will fall below the cost of importing oil.

Unfortunately, it's the same strategy that minimalist proponents of energy alternatives and reduced dependence on foreign oil have used for three decades without success. The sunk costs of oil, gas, and coal dependency -- the transportation infrastructure, the sprawl, the power plants, the industrial and commercial buildings and processes (not to mention their political influence) -- create inertial forces that adjust to every increase in fossil fuel prices the way a frog adjusts to rising water temperatures. It doesn't know that it is cooked until it's too late.

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Three potentially powerful political streams could push the government toward more active intervention in energy markets. Labor and its allies have launched an Apollo project to promote the good -- jobs and technological potential of alternative energy strategies. Environmentalists continue to sound the alarm about the consequences of global climate change. And in the wake of 9 -- 11, a vocal element within the national security establishment recognizes that breaking the foreign oil habit requires breaking the oil habit entirely. Operating under the umbrella Set America Free Coalition, they responded to the president's speech with a call for “a focus on deployment, not only R&D.”

A comprehensive government strategy would proceed on multiple fronts: not just biomass fuels, but higher fuel efficiency standards; not just more research into wind, solar, and geothermal power, but increased state requirements that they be deployed; not just industrial energy efficiency, but higher efficiency standards for lighting, home-heating systems, appliances, weatherization, and building codes. “There is no slam dunk,” says Scott Sklar of the Sustainable Energy Coalition.

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Energy consumption in the united States can be divided into three distinct sectors: transportation, electricity generation, and the industrial/commercial/residential sectors. Each consumes roughly one-third daily demand for energy. Each requires its own strategy.

In transportation, the United States should raise the CAFE standard while giving the U.S. auto industry a three-year breathing space for retooling. In addition to lifting the SUV/light truck exemption (except for legitimate working vehicles), the fleet average should be raised to 40 miles per gallon (mpg) in 2010, 50 mpg in 2013, and 60 mpg in 2016. Every vehicle coming off the assembly line should, starting in the next model year, be a flexible-fuel vehicle that can run on any type of alcohol or gas-alcohol blend -- roughly a $150 per car add-on that will have less impact on the new car market than requiring seat belts and air bags.

Transforming the electricity sector will require a mix of federal and state policies, because most utilities are state-regulated. Twenty states and the District of Columbia already ask utilities to obtain a certain percentage of their electricity from renewable sources like wind, geothermal, solar, or hydroelectric power. At least 15 states have taxed electricity consumers to fund investment in renewables and energy efficiency, which provides a far greater return on investment than building new power plants. All states need to adopt such standards. The federal government should play a stronger role in easing the permitting process for new renewable energy facilities. It should also make permanent the current temporary tax breaks for renewables. “Business won't invest based on a tax credit that needs to be renewed every two years,” says Michael Eckhart, president of the American Council on Renewable Energy. “Globally, the market demand is quite good. The question now is whether we'll have a domestic industry producing it.”

The building and industrial sectors also need a boost from government to leapfrog ahead on efficiency. Revamped building codes and appliance standards and the strategic use of tax incentives would create thousands of jobs retrofitting America's industrial and commercial sectors. This could reduce energy usage, increase profitability, and restore the competitiveness of lagging U.S. industries.

Greening the U.S. economy has obvious security and environmental benefits. But it is also a high-growth strategy that can provide millions of well-paid jobs for working-class Americans, who are currently the biggest losers from oil dependency. It will never be achieved without the strong hand of government leading the way. In 1961, President John F. Kennedy vowed to put a man on the moon in less than a decade, and the U.S. government got the job done. Is there any reason to think that this nation couldn't rise to the energy challenge?

Merrill Goozner is a Prospect senior correspondent.

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