The Providence Journal just published an op-ed I wrote regarding how long term contracts for clean energy can help reduce costs and risks for electric utility ratepayers.
Tag Archives: Energy Policy
Recently, I testified at the Rhode Island Statehouse regarding the impact of the state’s Distributed Generation Contracts law on ratepayers. In preparing the testimony, I realized it is important for legislators to have a tool to estimate those impacts under a variety of scenarios. I decided to create that tool for them, which is attached here:
This isn’t intended to replace a full economic impact study, and actually significantly underestimates the positive benefit of solar for ratepayers. But it gives a general sense that cab hopefully help better inform policy related to renewable energy and utility regulation. Try it out.
Not since Hitler offered his solution to the despair of the great depression has civilized society faced such clear signs of serious danger. Unlike that era, in which complex problems could be somewhat simplified in a focus on the persona of an evil man, the problems the world face today reflect the accumulated irresponsibility of a short sighted world view that has predominated modern culture for generations. Simple answers of good and evil don’t suffice. The harsh reality of historic flagrant irresponsibility is coming to a crescendo.
The tyrannical stability in the Middle East, that has under girded the western world’s dependency on cheap petroleum for decades, is being reconciled with the aspirations for freedom that our foreign policy rhetoric has encouraged, as the entire mid-east explodes with demands for legitimate governance and a just economy. As we launch yet another war in a Muslim country, the conflicted history of our “national interest” becomes increasingly clear, while the future of the petroleum supply to which our society is addicted becomes increasingly murky.
At the same time, the economic crises in Europe and America escalate with the risk of municipal, state and national insolvency increasing around the world. Large European financial institutions are lining up for more bailouts, while the ever more political power and wealth is concentrated in the “too big to fail” banks in the US. The Federal Reserve is desperately propping up the bond market with irresponsible levels of “Quantitative Easing” that will inevitably lead to high inflation, a significant increase in interest rates and greater challenges in funding future US treasury debt. The Fed also continues to accumulate the risk of the speculative endeavors of Wall Street as liabilities for the federal tax payers.
Meanwhile in congress, Democratic Party “leaders” argue the federal government should be spending $1.6 trillion more than it takes in, while the Republican “leaders” condemn the Democrats irresponsibility arguing we should only be burdening our children with $1,5 trillion in additional unsustainable annual debts to support the short term spending they can’t get under control.
With the recent earthquake and tsunami, the fantasy of safe nuclear power has been exposed, as the Fukushima nuclear disaster unfolds in the most technologically advanced and emergency prepared nation in the world.
Reading the news, there seems to be so many serious problems all at once and one has to wonder why there seems to be so few responsible leaders insisting on credible solutions.
Government spending can’t exceed revenues for long. Promising entitlements without realistic means of paying for them is neither kind or compassionate, but rather foolishly cruel and irresponsible, since those promises can’t be kept. Merely calling it “investment” does not turn unsustainable spending into anything other than what it is. True investments have realistically profitable projected returns. Unless someone can show how their suggested “investments” will provide significant financial returns and reduce the need for future taxes and spending, we should insist on a balanced budget every year, through reduced spending or increased taxation. We can’t afford more empty promises for a postponed mythical future responsibility based on unrealistic projections.
In a little over a hundred years, we have burned through about half the world’s petroleum and other fossil fuels reserves that have taken hundreds of millions of years to form. Do the math. How sustainable could that be? Even if fossil fuel reserves end up being many times those known today, we cannot pretend that future generations will benefit from the luxuries our generation has enjoyed through wastefully burning through so much of the world’s richest concentrated sources of energy. Our society can no longer allow energy companies to value these resources at the mere cost of extracting them from the ground, or even less with the insane subsidies that governments provide. We have to consider the value to society these stored resources represent and include that value in pricing the use of fossil fuels. What’s the right price? Hard to say. But if it will take another hundred million years to replace them, that price sure should be a heck of a lot higher than it is today. And the value shouldn’t go entirely to a few companies just because they have a permit to mine or drill.
Resources that have taken hundreds of millions of years to form should be treated as an annuity for society to be valued in a manner that accrues to many future generations. Like the massive debt being incurred to support our excessive government spending today, the waste of fossil fuels at unjustifiable and unsustainable low prices represents blatant theft from our children.
As for the chimera of safe inexpensive nuclear power, the evolving mess in Fukushima is once again highlighting the sheer lunacy of using such dangerous technology for producing electricity. After decades of research and compromise focused on Yucca mountain as the sole depository in the nation for nuclear waste, in order to garner the political support of Harry Reid for some short term policy initiatives, President Obama ended consideration of the Yucca Mountain project, abandoning the only option for nuclear waste disposal the US has ever seriously considered. Now and for the foreseeable future, like the waste causing problems at Fukushima, our nuclear waste is accumulating in temporary pools at nuclear power plants around the country, with no plan at all for what to do with materials that even nuclear proponents agree will be highly dangerous for thousands of years. Those waste pools, like the reactors themselves, remain attractive targets for terrorists and some will be casualties in the next not quite adequately predicted natural disaster or the inevitable accident caused by human error, aging equipment or some other unexpected factor. Even if nukes weren’t dangerous on their own, nuclear power is the perfect cover and materials resource for the proliferation of weapons of mass destruction, both for rouge nations and terrorist organizations.
Perhaps the thing most crazy about nuclear power is that the nuclear industry is not remotely cost effective, so the federal government continues to subsidize nukes in all sorts of overt as well as indirect ways. With the Price Anderson Act, the government absolves this most dangerous industry in the world from the need to cover its own liabilities with insurance in the manner that every other US business does. Without Price Anderson’s unjustifiably shielding an entire industry from responsibility for its real liabilities, no insurer would insure the industry, no investor would give nuclear power even the slightest consideration and the existing nuclear plants would be shut down instantly. No private investor considers nuclear power without the other huge subsidy of giant loan guarantees from the federal government. Meanwhile the nuclear industry’s research and development is funded almost entirely by tax payers.
As the federal government allows fossil fuels that took hundreds of millions of years to form to be squandered in a geological blink of the eye, while it subsidizes a nuclear industry that proliferates nuclear weapons, terrorist targets and the most toxic and radioactive byproducts known to science, we are told that solar and wind energy are not economically competitive. But wind and solar are actually very affordable and low cost in any sensible economic calculation that accounts for the real costs and values of the alternatives. While we squander billions in subsidies to fossil fuels and nuclear power while risking our credibility, the financial viability of our government and the lives of our brave troops in overseas wars to protect this Kafkaesque status-quo, we are told putting a real price on all these “economic externalizes” of our current unsustainable system is just impossible.
We are rapidly approaching the time we have to face the harsh reality that rather than sensible policy solutions that we are told are politically impossible, it is in fact sustaining our current insane paths in energy and finance that is actually going to be impossible to justify or sustain.
How have these blatant and cruel abuses of our own children come to be accepted conventional public policy? Irresponsible politics is simply failing us. Unless we make some hard choices and real changes, our children face a future of deprivation, economic collapse and armed conflict throughout the world. Politicians who continue to believe they can spout empty platitudes while postponing hard decisions until after their next elections don’t deserve any consideration at all for re-election. The hard problems our nation and our world face need serious solutions now.
The politician that gets my vote is the one who is willing to develop a credible plan to repeal the Price Anderson Act, shut down the nuclear power industry, put a serious tax on fossil fuels while removing taxes on work and productive investment, end the wars and close most our over seas military bases, completely balances the federal budget, break up the “too big to fail banks” and make serious realistic reform to the unsustainable false promises that Social Security, Medicare, Medicaid and other social programs represent.
Hard stuff? – You bet. Disruptive? – No question. Can it all happen over night? – No way. But we have to start these hard conversations and address these hard policy questions in a credible manner – Now.
My college aged kids think I am an unrealistic idealist for even suggesting such radical changes, even while agreeing that they make more sense than the current status quo. But it is increasingly clear to me that if my generation doesn’t act with some self constraint, their generation and my grandchildren will suffer a very diminished future.
There is a fundamental priority coded in the DNA of all life that creates opportunity for the next generation and for the future of the species. The selfish abandon with which we squander resources today and burden our children’s future has become like a cancer of immoral irresponsibility in our society. It is as if we have lost hold of the most basic premise and purpose of life itself.
We need to rediscover and commit to our moral obligation to future generations and make some very hard decisions as a nation. All sides need to just stop the political grandstanding and get serious. We need real leaders offering courageous calls for meaningful change.
The following was published in the Spring 2011 Issue of Northeast Sun, the journal of the Northeast Sustainable Energy Association.
A New Tax Policy for the 21st Century
Let’s revitalize the US economy by replacing all federal revenues with a simple energy tax
America needs new answers regarding energy, economics and the environment. There are no real solutions on the table. And everybody knows it.
One radically simple proposal could work: Replace all federal government revenue with a simple energy tax. That may sound impossible. But it is a far more realistic approach to the problems our country faces than the pseudo-solutions that make their way through Congress these days.
This idea could inspire and appeal to Americans across the political spectrum while igniting an unprecedented era of economic prosperity. Along with radically reducing energy waste and pollution, it could release our society from the burdens and economic distortions of our current tax system, make our economy vastly more efficient and our industries far more competitive internationally, and provide the security of greater energy independence.
The numbers work
According to the US Energy Information Agency, in 2009 our country consumed about 18.8 million (18,771,400) barrels of petroleum a day, the equivalent of more than 287 billion (287,765,562,000) gallons of petroleum a year.
The Congressional Budget Office reports that all federal revenues for fiscal year 2010 were about $2.2 trillion ($2,162,000,000,000). That includes all individual income tax, corporate income tax, investment taxes, social security tax, disability insurance, hospital insurance, unemployment insurance, excise taxes, fees, energy and transportation taxes, and every other form of federal government revenue other than debt.
Doing the math, if we replaced every source of government revenue with a tax on petroleum, that tax would be only $7.51 per gallon. And if you add the average mid-December 2010 cost of premium gasoline of $2.85 a gallon (before taxes), the total price on gasoline and other petroleum products would average about $10.36 per gallon.
That isn’t a whole lot more than average prices for premium gas in Europe in mid-December 2010, as reported by the US Energy Information Agency: Belgium, $7.42; France, $7.15; Germany, $7.39; Italy, $7.19; Netherlands, $7.93; UK, $7.31. And those countries are burdened with massive taxes on top of high energy prices.
Along with paying far more for petroleum, in 2009 Europeans paid about twice what Americans paid for natural gas and coal. If our federal energy taxes roughly doubled the price of both the billion-plus short tons of coal and the 23 trillion cubic feet of natural gas we consume each year, that could partially offset and reduce taxes on petroleum, leaving our overall level cost of energy around the same as Europeans currently pay—while replacing all other forms of government revenue completely.
To keep American industry competitive, the feds should also collect a tariff on goods from countries that don’t implement similar levels of taxation on energy. That unilateral action would do far more to spur responsible energy policy worldwide than well-intentioned but unenforceable international treaties. At the same time it could further reduce energy taxes or help offset the federal budget deficit.
Most sensible people would favor the opportunity to adopt a European level of energy prices in exchange for no government interference with business revenues and personal income: no IRS, no income taxes, no payroll taxes, no business taxes, no inheritance taxes, no government fees.
The obvious pushback
Many will argue that high price signals will encourage energy conservation and alternative energy resources, thus putting government revenues at risk.
Radically reducing energy waste and pollution is one of the fundamental benefits of this proposal. Reducing the need for military adventures and compromised foreign policy to secure oil are other intended benefits. With the Congressional Budget Office reporting that federal expenditures are now more than twice what was spent in the year 2000, most Americans are also ready to see the excesses of government spending and intrusions into the economy constrained.
As the idea of tax shifting is taken seriously and refined, we can likely find consensus to tax other wasteful or counterproductive activities. With a shift to rational taxation, we can balance our federal budget and pay down our out-of-control federal debt, while more appropriately aligned market forces improve our lives and the environment.
We should begin the tax-shift conversation by recognizing how affordable it could be to align rational revenue policy with sensible market mechanisms that would encourage economic prosperity, job and business growth, broadly shared environmental and clean-energy goals, and the basic principles of personal freedom and liberty that our country was founded upon.
Big changes for big challenges
Minor adjustments to the sclerotic, contradictory patchwork of public policies that have emerged over the decades won’t address the massive challenges that confront our nation. As we face continuing economic stagnation and pass the era of peak oil production, it’s time to get serious about transforming our economy and restoring our economic productivity. We need to rethink the role of government and how we fund it.
It is clear from polls that most Americans are fed up with Congress, the federal government, and politicians from both parties. Everyone hates the complexity, irrationality, and obvious corruption of our tax system, which discourages work, productivity, entrepreneurship, job creation, and almost every other goal and fundamental value that our economy is purported to be based upon.
Think of the productivity gains that would be unleashed if businesses could make decisions based on common sense rather than manipulations of the tax code.
Think of the jobs that would be created if we no longer imposed punishing taxes on working and productive investment, if we eliminated the insane tax subsidies for shifting industrial productivity overseas, and if we eliminated the payroll tax penalties on hiring.
Think of the time, money, and talent that would be freed up if we no longer had to spend countless hours and dollars reporting our personal business to the government. The IRS itself estimates that about 7.75 billion hours of human labor went into completing 2009 tax forms—and that doesn’t include the vast amounts of time and money spent figuring out how to game the system and avoid taxes.
Making the transition
Change this profound couldn’t and shouldn’t happen overnight. We should plan a transition over at least fifteen years, first replacing the most regressive and counterproductive forms of taxation, like payroll taxes, with energy taxes, and then phasing out other forms of taxation while increasing energy taxes. The transition period would give businesses and individuals time to make appropriate plans and investments for the future. The certainty associated with substantial energy taxes would do far more than any other solution being proposed to encourage investment in energy conservation and clean energy.
To minimize the cost, complexity, and impacts of tax collection, energy taxes should be implemented at the wholesale level, at the mine, well, or port of entry. Another technicality that could help ease the transition would be a ratchet mechanism on energy prices. Whenever market forces pushed energy prices up, they would be allowed to rise, but as energy prices declined, energy taxes would rise at a matching rate. This would have the added benefit of discouraging unproductive speculation in energy trading markets.
Change this fundamental would affect every American. Inevitably, the winners and losers will lobby madly to turn a simple idea into the complicated sausage making that is the hallmark of Congress. But if we insist that its simplicity and transparency are critical to its success, perhaps a bold proposition like this could gain enough support to overcome the corrupting influence of lobbyists.
Why tax fossil fuels?
Energy is the lifeblood of a modern economy. The highly concentrated energy available from fossil fuels is a precious resource both for us and for future generations. Unlike metals or other materials that can be readily recycled in a prudent society, once mined and burned, fossil fuels are gone forever. They shouldn’t be squandered but rather husbanded wisely, as higher prices would encourage. Balance of trade deficits, compromised foreign policy, pollution, the cost of military entanglements, and other challenges resulting from our fossil fuel addiction offer clear reasons to focus taxation on fossil fuels. It is far past time to put a fair price on the costs of the traditional energy industry’s “economic externalities.”
Arguably, irreplaceable fossil fuels that have taken millions of years to form should be considered common resources that provide benefits for the common good. Although we begrudgingly accept being forced to pay such taxes today, government funding through the confiscation of the fruits of citizens’ work and investment is actually far less rationally or morally justified.
Finding broad-based consensus
We all need to overcome our fear of sensible change. This proposed tax shift represents a real test for clean-energy advocates, environmentalists, and political liberals, conservatives, and libertarians to all match our rhetoric with good policy solutions. Are conservatives really willing to effectively promote liberty, economic efficiency, and fair free markets? Are liberals able to admit that like so many federal policies they have supported, our convoluted tax system is completely failing to meet their progressive goals? Are libertarians able to admit that there is a role for government and that collecting taxes rationally is better than the corrupt irrational system of taxation we have today? Are environmentalists ready to support policies that are economically sensible? Are clean-energy advocates ready to compete in a fair marketplace rather than begging for government subsidies? Rather than blaming others for our nation’s problems, we all need to focus on finding solutions sensible enough to garner broad support.
Let’s start taxing waste and pollution instead of punishing people for working, creating jobs, and making productive investments.
Let’s try real market-oriented solutions and restore the economic competitiveness our nation enjoyed before every aspect of the economy was micromanaged by the government and manipulated for tax reasons.
Let’s encourage conservation of our limited fossil fuel reserves so we don’t impoverish our children, grandchildren, and planet with our profligate waste.
Let’s fundamentally reform the American economy with a government funding system that doesn’t undermine the most essential ideals and principles of our national heritage.
Let’s support an idea bold enough, simple enough, and compelling enough to actually work.
Another solar manufacturer closes up shop, shedding 800 “green jobs”.
It is indeed tough to compete with Chinese manufacturers, as the news report suggests. What wasn’t made clear is that even in situations like ARRA funded projects requiring solar panels made in America, Evergreen still couldn’t compete. Even with their high prices, Evergreen Solar has never turned a profit. The Boston Globe reports that Evergreen “since its founding in 1994 has run up a deficit of over $685 million.”
Perhaps less government funding would force companies to operate more efficiently and develop a more sustainable business culture.
There’s been some very good people at Evergreen. But perhaps it would be helpful, if along with hiring all the brilliant college professors, scientists and lobbyists, some of these over-hyped green technology firms hired some stars in fields like budgeting, production, procurement, sales, marketing, cost control and other basic business functions.
Just two months ago, another government funded solar company with inflated claims of superior technology shut the doors to one of its plants, facing market reality rather than the sunny rhetoric of government grant applications.
The clean energy sector would be better off it the government got out of the game of picking winners and losers and let at least some level of competitive market forces shape the growth and development of healthy businesses.
In “Get The Energy Sector Off The Dole“, clean energy investor Jeffrey Leonard offers a great way to make renewable energy more competitive, reduce pollution and greenhouse gas emissions, and help restore our economy to some rationality and health with competitive markets.
The title says it all. Leonard suggests ending all direct subsidies, tax advantages, hidden subsidies in special regulatory treatments and other “externalized” subsidies for all energy industries. Its great stuff.
Some choice quotes:
Government statistics show that about 70 percent of all federal energy subsidies goes toward oil, natural gas, and coal. Fifteen percent goes to ethanol, the only renewable source of energy that consistently gets bipartisan support in Congress (think farm lobby and Iowa). Large hydro-power companies—TVA, Bonneville Power, and others—soak up another 10 percent. That leaves the greenest renewables—wind, solar, and geothermal—to subsist on the crumbs that are left.
None of these estimates account for continuing support to the nuclear industry, estimated to be about $1 to $2 billion, much of it to promote research and development efforts on new nuclear technologies and waste disposal methods. There are plenty of hidden subsidies, too. We place a cap on liability for accidents (like the BP oil spill). We offer the nuclear industry large loan guarantees. And, of course, we maintain an immense military embroiled in the Middle East and elsewhere as it tries to secure access to energy resources around the globe………..
We can waste money and distort the market by subsidizing all of these forms of energy. Or we can just call it quits on the waste. Disarm completely. Kill all the subsidies—yours and mine,,,,,,,,,,,.
So we find ourselves in a new political moment when for the first time it is possible to imagine an alliance of GOP libertarians, disaffected environmentalists, and budget hawks coming together for a grand deal that would sweep away sixty years of bad energy policy. Obama should seize the moment to bring this coalition together in support of a single objective: to eliminate all government subsidies and tax credits on production of all primary sources of energy.
This story is a perfect example of enlightened government officials picking winners and losers and parceling out borrowed money while sticking our kids with the multi-trillion dollar tab for their reckless and wasteful spending. The half billion dollar loan guarantee from the federal ARRA “stimulus program” for a start-up with at best questionable technology and prospects, is a glamorous version of the complete waste the vast majority of the stimulus spending represents. It’s perfect example of the fundamentally flawed policy framework that parcels out public money for private ventures based on the subjective and often arbitrary criteria of government officials.
What’s the best explanation the article offers for a start up with unproven technology getting a half billion dollar loan guarantee?. “Solyndra actually applied for DOE loans back in 2006, when Bush was still President. When Obama announced that he wanted to rev the energy economy, Solyndra happened to be first in line.” Likely it also involved something like the way government corruption works here in Rhode Island and one of their VC’s suggested “I know this guy, who knows a guy…..”
Hopefully the recent election represents a political wake up call that will put an end to this kind of senseless waste. The new congress should clarify the fundamental principal that the proper role of government is to set and enforce fair, sensible and stable rules for the economic game rather than unfairly and arbitrarily inserting itself in the game as a competitor. The sooner we get government completely out of the roles of business, the more likely we will be to recover some semblance of a sustainable economy.
Expect Solyndra to become a political poster child for those opposing clean energy policy generally, not just wasteful government policies like the stimulus program. The kind of arbitrary political favoritism the stimulus program and most government economic policy represents today is a deep fundamental challenge to a healthy economy and to sensible sustainable public policy.