May 2, 2010

American Power Act

In 1860, Samuel Curtis, a Republican congressman of Iowa, sponsored a bill to create a transcontinental railroad. The debate over that public-private partnership was long and messy. Democrats said the proposal was unconstitutional. Others rightly argued that it meant huge giveaways to the rich.

But the railroad effort, backed by Abraham Lincoln, swept forward. “Nations are never stationary,” Representative James Campbell told the House. “They advance or recede. We cannot remain inactive ... without the loss of trade, of commerce, and power.”

After the legislation was approved in 1862, there were continual setbacks. The Union Pacific Railroad languished. Scandals mounted. Yet despite it all, the final spike was hammered into place at Promontory Point, Utah, in 1869, linking the nation and heralding a new burst of prosperity.

When you read that history, you’re reminded that large efforts are generally plagued by stupidity, error and corruption. But by the sheer act of stumbling forward, it’s possible, sometimes, to achieve important things.

Energy innovation is the railroad legislation of today. This country is studded with venture capitalists, scientists, corporate executives and environmental activists atremble over the great opportunities they see ahead. The energy revolution is a material project that arouses moral fervor — exactly the sort of enterprise at which Americans excel.

As with all causes of this sort, the righteousness sometimes runs ahead of the reality. When you actually look at the details of global warming legislation, you run into myriad questions. Is cap-and-trade really the most appropriate policy tool to reduce carbon emissions? Do the benefits of the most ambitious global warming bills really outweigh the costs? I strongly recommend two essays by Jim Manzi — “Conservatives, Climate Change, and the Carbon Tax” from The New Atlantis and “Dunce Cap-and-Trade” from National Review — in which he presents data suggesting they do not.

Nonetheless, the vision is certainly right. To remain the world’s pre-eminent nation, the U.S. is going to have to develop energy sources that are plentiful, clean and don’t enrich the worst people on earth. That means in the short term, the U.S. has to unleash the tens of billions of dollars of potential energy investments now being pent up by uncertainty and regulatory hurdles. To make a difference in the long term, the U.S. is going to have to invest more and differently in energy research and development.

Technology companies spend 5 percent to 15 percent of revenue on research and development. Energy companies, on the other hand, spend only one-quarter of 1 percent. The federal government spends $30 billion on health research, but only $3 billion on clean energy research.

It’s clearly going to take legislative action to catalyze private investment and to increase federal research to where it should be — about $25 billion a year, according to Mark Muro of the Brookings Institution. It’s going to take some equivalent of the Pacific Railroad Acts to kick this into gear.

The best vehicle now is the American Power Act, drawn up by John Kerry, Joe Lieberman and Lindsey Graham. The bill, like all politically plausible bills these days, is larded with special-interest provisions and public giveaways to defuse opposition and win votes. But it does perform a few essential tasks. To boost innovation, it raises the price on carbon and devotes some of that money (though not nearly enough) to research and development.

In addition, it establishes a predictable price for carbon. Lew Hay, the chief executive of the power provider FPL Group, e-mailed me on Thursday to say that if he can get that certainty on the carbon price and if there can be a renewable energy standard to create a market for carbon-free energy, his company could boost investments right away:

“Regarding wind energy investment at our NextEra Energy Resources subsidiary, we think we might invest about $1.5 billion to $2 billion more per year. Regarding solar, we think NextEra Energy Resources might invest $500 million or more per year outside of Florida and that our Florida Power & Light subsidiary might invest about $1 billion a year inside Florida.” Last but not least, he wrote, a new law would be a “huge factor” in deciding whether to move forward with new nuclear units.

Similarly, David Crane, the C.E.O. of NRG Energy, wrote that with a new law, his company could double the number of clean energy projects, from 17 to 36; it could triple the megawatts of clean generating capacity it is planning to add; it could produce three times as much nuclear power and 40 times as much coal with carbon capture and sequestration.

You get the sense that this country is straining against the leash, eager for a new wave of energy development. There will be excess, stupidity and greed along the way. But it would be simply amazing if, through some set of narrow political gamesmanship, Washington continued to stand in the way of all this.

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