Nick Snow
OGJ Washington Editor
WASHINGTON, DC, Apr. 7 -- The US energy policy debate needs to be reformulated so that comprehensive energy legislation can be passed to increase demand and create jobs, reduce uncertainty and increase confidence, and encourage innovation, according to the director of the National Economic Council.
Achieving these goals will require reformulating the domestic energy debate’s terms, NEC Director Lawrence H. Summers said in an Apr. 6 luncheon address at the 2010 Annual Energy Conference cosponsored by the US Energy Information Administration and John Hopkins University’s School for Advanced International Studies.
“You know, we’ve been talking about the need for national energy policies…with very great frequency and in every presidential campaign since the first energy shock of 1973—nearly 40 years. And the debate, frankly, has fallen into a series of ruts,” said Summers, who also is US President Barack Obama’s assistant for economic policy.
The ruts include choosing between energy efficiency and conservation or increased exploration, renewable power or nuclear power, environmental protection or economic progress, and higher profits for producers or lower prices for consumers, Summers noted.
“Those debates have their place and they have illuminated tradeoffs that policymakers ignore at their peril,” Summers said, adding, “But I would say to you that if ever there was an issue where we needed to move from ‘either/or’ to ‘both/and,’ that it is energy.”
‘Embracing priorities’
Instead of rehashing old arguments, the nation has an opportunity “to move forward by embracing the priorities of multiple groups” and taking a more aggressive approach to forming a new energy policy as a key component of a major domestic economic revival, Summers suggested.
“Read the history of great nations. Read how they succeed and read how they fail. Their ability to mobilize to solve problems before they are absolutely imminent is what determines their longevity,” Summers said. “That’s why the task of economic renewal is so important broadly. And that’s why I believe it is so important that we move for economic reasons to pass comprehensive energy legislation.”
Summers said the 2009 Economic Recovery Act began the process of increasing demand and creating jobs by committing to double US renewable energy capacity in 3 years, making “critical investments in transformative technology,” and improve federal buildings’ energy efficiency by 75%.
“If the government spends a dollar, that is a dollar of demand,” said Summers. “If the government lends a dollar with a 10% credit subsidy because it is likely to be paid back, then the cost to the government is 10¢, but the extra demand created can be a dollar before you even get to its multiplier effect as it reverberates through the economy. That’s why it’s so important that at a moment when credit markets are having their difficulties, albeit reduced difficulties, the Recovery Act has made significant credit available to support up to $40 billion in renewable energy and transmission.”
The reduced uncertainty and increased confidence that Summers said could result from comprehensive energy legislation would encourage investments in new technologies to reduce US dependence on imported oil, he added. Government support is necessary because major new projects from construction of a transcontinental railroad in the 19th century to the development of jet aircraft and the internet more recently have required federal commitments to succeed, he said.
‘Substantial uncertainty’
“Uncertainty is not just about our own future policy,” Summers said. “Look at the full range of the distribution of oil prices as you can infer from options. As long as we are as dependent on foreign oil as we now are, there is a substantial uncertainty about the range of outcomes. That too discourages investment, reduces confidence, and slows our recovery relative to what we could have achieved.”
Summers also said countries worldwide will need to quit subsidizing fossil fuels by more than $300 billion/year, accounting for 12% of global greenhouse gas emissions.
“I think there’s a chance that when the history is written, the most important thing that happened in the last year was the agreement by the G-20 countries that contain the vast majority of the world’s [gross domestic product] to eliminate their energy subsidies over time,” he said. “It doesn’t go far enough. Ultimately, the price of carbon is going to have to rise. But an elimination of those $300 billion of energy subsidies is a substantial step forward toward allowing market forces to operate in the energy arena.”
The US already has demonstrated that it can put a price on fossil fuel emissions, although on a smaller scale, with its 1990s acid rain program, Summers continued. “We are going to regulate fossil fuel emissions in the future,” he predicted, adding, “It will be much better to do it with market-based mechanisms that enable those who can economize most cheaply to be the ones who economize.”
In an obvious reference to proposed carbon cap-and-trade legislation and the US Environmental Protection Agency’s movement toward GHG regulation under the Clean Air Act, Summers said the first approach would let the private sector respond more flexibly, ensuring that the US takes maximum advantage of its recently identified additional natural gas supplies.
‘Innovation leadership’
“Fourth, the right energy legislation will support what is for the very long run most important for our economy, which is our leadership in innovation,” said Summers. “We can’t know exactly what the next defining innovation will be. It will come in multiple, different sectors. Each one of these technologies has their own story. But think about maximizing potential and minimizing risk for our country. Should we not seek to assure our leadership in energy and environmental technology, given their stake in some of the largest problems facing the planet?”
Summers said this is why Obama’s energy agenda is directed at strengthening the economic environment which has been so crucial to US prosperity: an educated work force, and policies which stimulate entrepreneurs.
“When you think about our strengths and weaknesses, never forget this: We are the only country in the world where, if you have a sufficiently good idea, you can raise your first $100 million before you buy your first suit,” Summers said. “That is, and that has been, a crucial feature of our country, and it is something we have to perpetuate, he said, adding, “No one knows exactly what will define leadership in the 21st century, but I would suggest to you that making sure that we lead as a developer of the technology is crucial.”
Summers also urged policymakers to remember that the US is still the world’s largest economy, and will be for some time. “If we use that fact to ensure that we are also the world’s largest market for innovative energy technology in every sphere, that will create a virtuous cycle of innovation and adoption, adoption and innovation, that can be a very substantial source for our country in the new century,” he said.
Contact Nick Snow at [email protected].