Right now the U.S. Senate is conducting a master class on the perils of legislation by rearview mirror. On July 27, when Majority Leader Harry Reid unveiled the “Clean Energy Jobs and Oil Company Accountability Act,” the two most powerful clean energy provisions were missing: a cap on carbon emissions from the electric power sector and a national Renewable Electricity Standard (RES), which would require utilities to generate at least 15 percent of their electricity from renewable sources by 2021.
For years, business leaders from General Electric Chief Executive Officer Jeff Immelt to venture capitalist John Doerr have warned that if America failed to pass a comprehensive climate-and-energy bill, the country risked losing the clean energy race to China -- sacrificing the jobs of the future in a timid, ill-fated effort to preserve the jobs of the past. Now those warnings are coming true.
Clean energy advocates were angry but not surprised on July 22, when Reid said he was pulling the plug on the carbon cap. Powerful utilities were withholding support. President Barack Obama wasn’t trying to forge a compromise. And key Democratic senators had no appetite for a bill that might cause a modest, short-term increase in electricity prices -- potentially endangering some 20th century manufacturing jobs -- even if it helps create many more 21st-century jobs by making clean energy competitive with coal.
The disappearance of the renewable energy standard, however, was a shock. Both the House and Senate have passed RES bills in the past, yet it has never become law. With elections looming, this may be the last chance for years to set the rules of the road for energy investment.
While the carbon cap, at this intensely partisan moment, has exactly zero Republican supporters, at least four GOP senators have signaled support for the RES. Proponents are hoping to introduce it as a floor amendment -- and whether or not they have the votes to pass it, this is a debate worth having.
In a meeting with business leaders and environmental advocates early last year, Obama economic adviser Larry Summers described a “scissors” approach to economic recovery, according to several people who were present but not authorized to discuss it publicly.
The first blade of the scissors, Summers explained, was the stimulus package and its tens of billions for clean energy deployment. The second blade would be a mandatory, declining cap on carbon, which would remove the investment uncertainty that has hobbled the energy market, and draw billions of private dollars off the sidelines.
Utility chief executive officers such as Lew Hay of Next- Era Energy, Ralph Izzo of PSEG, and Jim Rogers of Duke Energy have all said they are ready to invest in clean energy just as soon as Congress establishes a carbon cap that creates a clear, steady price signal for dirty fuel -- in effect, pricing in some of the social costs of carbon pollution that have never been part of America’s energy bill.
The scissors is missing a blade. The Senate has made clear it is not ready to cap carbon, and President Obama has made clear that he won’t go to the mat for it now, either.
On July 24, when some of the clean-tech industry’s leading executives gathered in Aspen, Colorado, for a Clean Energy Economy Roundtable sponsored by the Aspen Institute, the group was perplexed. “The deployment rate of renewable energy projects in America is withering,” said Andy Karsner, CEO of Manifest Energy and a former assistant secretary for Energy Efficiency and Renewable Energy during the George W. Bush Administration. “Projects announcements are happening, but largely at the end of a federal check.”
Instead of funding U.S. projects, banks and venture capitalists increasingly are putting their energy money into China, where the market is large and secure, thanks to government mandates. In the second quarter, for example, China attracted more clean-tech asset financing than Europe and the U.S. combined, according to data compiled by Bloomberg New Energy Finance.
Financing of wind turbines, solar panels, and low-carbon technology in China climbed to $11.5 billion, a 72 percent jump from the year-earlier quarter. U.S. investment in clean energy for the quarter measured $4.9 billion; Europe’s, $4.5 billion. “Where investors are placing their bets,” says BNEF Chief Executive Michael Liebreich, “is changing rapidly.”
On the same day that Reid pulled the plug on the carbon cap, China Daily announced that the People’s Republic would begin an experiment in carbon trading -- a policy mechanism invented in America, used by Republican George H.W. Bush to fight acid rain, and vilified by today’s GOP as “cap and tax.”
China may spend $738 billion over the next decade developing cleaner sources of energy, according to Jiang Bing, head of the planning and development department for China’s National Energy Administration. “The government is taking the issue of cleaner energy seriously for the reasons of climate change (and) energy security,” says Barbara Hon, an analyst at China Everbright Securities in Hong Kong. “It’s already meeting some of its targets for sectors like wind power well ahead of schedule.”
It may already be too late to catch the Chinese, though there are ways the U.S. could stay in the game. The carbon cap would be Plan A, but that’s off the table for now. Plan B would begin with passage of the RES and other measures also not being considered in current legislation.
One such idea is a “Green Bank” that would leverage Treasury Department money for low-interest loans to projects that can’t attract conventional financing because their path to profitability is too long. “I don’t know if it really amounts to a Plan B,” says Kenneth Berlin, a Green Bank proponent and cap-and-trade supporter who heads the environmental practice at Skadden, Arps, Slate, Meagher & Flom. “It’s more like Plan D, but it would be far, far better than nothing.”
Twenty-eight states and the District of Columbia already have RES laws, many with much higher targets than the one cut out of the Senate bill.
Colorado voters approved one in 2004, and the state has increased the standard twice: The current target is 30 percent by 2020, double the one left out of the Senate bill. Colorado now generates almost 6 percent of its electricity from wind, and its commitment to clean energy has helped develop a solar industry as well: from 100 companies in 2007 to more than 400 today, according to the governor’s office. When Vestas Wind Systems, the Danish turbine maker, chose to build its North American manufacturing plants in Colorado (a $1 billion investment that was good for 2,500 new jobs), it called the RES a major factor in the decision.
Another early adopter is Texas. Its RES, signed into law by Governor George W. Bush in 1999, has helped the state become a major producer of U.S. wind power, adding almost 10 gigawatts (up from 0.2 in 1999) and thousands of new jobs in the decade since the law was enacted. Although Texas has reduced its carbon emissions as a result of this push into wind energy, Bush and his fellow Texans didn’t create the industry because they were worried about global warming. They did it because there was money to be made.
There still is. And if Congress doesn’t hurry, most of it is going to be made in China.
(Eric Pooley is deputy editor of Bloomberg Businessweek and author of “The Climate War: True Believers, Power Brokers, and the Fight to Save the Earth.” This column will appear in the magazine’s Aug. 2 edition. The opinions expressed are his own.
To contact the author of this column: Eric Pooley in New York at email@example.com