So Predictable

This last Thursday the latest big climate bill predictably failed in the Senate. Not just failed, like didn’t get enough votes, or even couldn’t break a filibuster. No, it got pulled from the legislative calendar. There wasn’t even a single minute of debate before it came to a rather pathetic end, without so much as a self-satisfied “well, at least we tried” whimper. It’s rather funny though, if not delusional, how many pundits and green lobbyists talked incessantly about how this was going to be the time. And yet this is the fourth such failure, after the three previous failures in ’03, ’05, and ’08.

I mentioned that this bill had no chance to every green intellectual I know and the most common reaction was one typical of our era defined by non-stop Hope branding. They laughed me off as irrelevant, or at the very least unimportant. They talked about how the cap could be simplified to just the utility sector. They trusted blindly in the power of Harry Reid. All the while, the bill lost it’s only Republican co-sponsor months ago and didn’t have anything close to the votes. And the biggest giveaway of all that it had zero chance? There’s 2 BLEEPIN’ weeks left on the legislative calendar and they haven’t even voted on the Supreme Court nominee, the BP spill response, or any budgets. And it’s, rather ironically, hotter than hell in DC and everyone just wants to get mandatory votes out of the way and flee to their summer vacations. Even with a strong coalition and Presidential support, both completely lacking in this half-assed effort, the calendar itself doomed this initiative. Trying to tackle the largest environmental legislation in history one week after passing a two year financial reform effort, and two weeks before vacation is either a) greenwash- political campaigning or b) delusional and impossible.

I’ll use that very dangerous word again- hope. I sincerely hope that this town will think rationally for a moment. And rather than letting every staffer, lobbyist and interest group on the Hill insert their page into the next aspiring climate bill, that we use a little Econ 101. We won’t have declining emissions until we replace dirty energy with clean energy. And we won’t ever have clean energy unless it is cheaper than dirty. And seeing as dirty energy can literally be scooped or dug out of the ground, and all amount of disaster and environmental catastrophe will never quell our appetite, and all the well-intentioned retrofitting and Prius rebates in the world will not reduce emissions so long as the world is growing, China and India are modernizing, and coal is abundant, the only way to achieve this is through altering the price of dirty energy. The equilibrium of supply and demand is determined by the price. Price is the only mechanism. And we wouldn’t even have to do anything- just put this gem of a bill on the calendar! 19 pages, no buy-offs, a clear price signal, how refreshing! http://www.govtrack.us/congress/bill.xpd?bill=h111-1337

To me it is obvious that those who have so strongly pushed for cap and trade meant well. Emissions targets, done the right way without too many offsets or free allowances, will reduce emissions. But it is just too complicated for most Americans or businesses to accept. And it tries to buy off so many groups that some will inevitably perceive themselves to be the losers and pose strong opposition, or throw some elbows at the trough to try and get theirs. A price is very simple. And it is equitable. Above all, cap and trade is a cynical structure. It seeks to hide the price increase of GHGs with a new name. “Cap and trade” is still a vague and confused topic to most Americans. The Greens know this, and they mistakenly think it will make it more appealing politically. How many failures must we endure before we realize this isn’t true? Will number four be enough? White House pollsters and media consultants explicitly told staff not to mention the climate change or price part, just green jobs. They've been saying fluffy, lazy stuff like this for a long time, and guess what, the White House wasn't any better served by it. Shit still didn't sell. If you're going to go out, why not do it at least authentically, discussing the issues directly. Their branding didn't help at all. Maybe a few of these slick 3 Blackberry toting, $5,000 suit NYC media types actually, gasp, don't know what the fuck they're talking about. Maybe they're overpaid losers, not the winners we always assume them to be. What the fuck do they know about policy, about climate change? And why would we purposefully play the American people. No. We should be as direct as possible.

We should just level with the American people. Do not underestimate them or try to hide the ball. Tell them we need to make clean energy more affordable and investment-worthy by making people pay for their pollution. And then tell them that this won’t cost them anything more, because we’ll rebate all the taxes right back into their bank account. This seems so obvious, but what any political pollster will tell you is that you can’t mention taxes. But what if we did? What if we had a straightforward debate on this? If the President laid out all the options for solving climate change- e.g. cap and trade, renewable portfolios, regulations, carbon tax or feed-in tariffs/subsidies. And then explained how a carbon tax is the best method. Why not? Because it makes too much sense.

Until then, R.I.P. cap and trade:

http://thebreakthrough.org/blog/2010/07/time_to_bury_cap_and_trade_and.shtml

Bloodless Revolution

I had a great Fourth of July. It's one of my favorite holidays. But it seems to be a holiday, really like all the others, where the real meaning and symbolism of the day is getting all but lost, the gulf between reality and those who celebrate it ever-widening. The Fourth seems to consist of tens of millions of drunk, or at least cheesily exhuberant revelers, apparently celebrating the spirit of violent uprising, independence, and bloody revolution with PBR, American Eagle and pre-made charcoal, and tens of thousands of gun-wielding young men and women squatting in the heat of the Middle East, gun in their hands, risking their lives for us, carrying on the original tradition in the most authentic way possible some three centuries later. But there is little in between.

DC on the Fourth is overtaken by the kind of people that proudly sport Americana striped shorts, bald eagle insignied button-up shirts, red, white and blue flashing sunglasses, and kids desperately looking for a party. Some like the kids I walked by on the way home, so desperate for a good time that they shoot fireworks at passerbyers. And we should celebrate. But I wish there was a little more substance to this tradition. Something that actually spoke to the principles America aspires to, and inteprets what the Declaration of Independence is supposed to mean twenty generations on.

Would it be too much to ask the Smithsonian to host a debate, or some intellectually relevant forum of any kind, every year in conjunction with their three day rock festival and nod to the fads of the year? It could be entertaining, not an academic lecture of theorists, but two popular thinkers in the public realm passionately arguing out something unqiquely American. Christopher Hitchens v. Malcolm Gladwell, Jeff Sachs v. Bill Easterly, Lou Dobbs v. Bill Maher, Tony Bourdain v. Alan Richman, Bill O'Reilly v. Rachel Maddow, Al Gore v. Jim Inhoffe, come to mind. To debate what it is we think freedom is, what America is today, why America is the greatest. What it means to be independent in a 21st century increasingly defined by anything but the nation-state, like online networks, international crises and global corporate financial meltdowns. To try to instill a sense, if only orally, of depth, substance, resistance to this day. To at least get the blood pumping a little more and not just the blood alcohol content. The fireworks would look that much more splendid if there was some tiny morsel of intellectual foundation for the day. They could just have it right on the main stage there, for like an hour. It would be fun, and meaningful. A little genuine appreciation and consideration to go with those nine hours of continuous drinking and grilling. Miller's ad of Ben Franklin, Thomas Jefferson and others break dancing with a bunch of bonnet wearing ass-shaking hoes while shooting canons is the perfect allegory. We may not even celebrate the spirit of this day, more force the day to conform to our current norms and compulsions.

I crossed paths with countless star-spangled drunk-ass revelers shouting "God bless America!" on the Fourth. That's great. But I didn't hear a single person articulate where America finds itself in this new ever-changing, less predictable, more competitive world. Precisely how America is so independent, and from what. I didn't see anyone in other words show that they love America and the countless who died for it any more than they love NASCAR or David Archelleto, in fact maybe that's exactly what they do love about America. I'm beginning to think it's because more and more of us have no clue. Revolutionaries, it seems, are becoming a species at risk of extinction, replaced by those who use their likeness to make a buck, or worship them, ironically in light of our forefathers' violent resistance to the very idea of a class of the earthly divine, e.g. the Crown, as a sort of God. I wonder what these revolutionaries would think of celebrating our independence with splendid demonstrations of submission.

See you in 2011 June, can't wait

"...now that the White House is open to alternatives to pricing carbon. "

Perhaps there's a shift in the way we're thinking about pricing carbon-

http://www.politico.com/news/stories/0610/38599.html

Maybe they saw the polls showing Americans prefer incentives to caps-

http://www.slideshare.net/Revkin/six-americas-study-of-climate-views

Research Note

News just came out that April was the largest U.S. trade deficit in almost a year and a half, putting the U.S. on pace for another $500 billion deficit like 2009. The current account deficit was larger still in 2008 at some $700 billion. There is nothing inherently wrong with deficits, so long as they can be financed with GDP growth. However, if they continue to increase, it could undermine international confidence as doubts linger about the seriousness of long-term U.S. fiscal and trade policy, or drive uncertainty around whether there is high currency risk via the U.S. monetizing the debt by printing money, reducing creditor's purchasing power. Add to the fact that as China grows in prominence over the coming decades, U.S. denominated assets and debt obligations may become less in demand. China will in all likelihood surpass Japan in 2010 as the second largest national economy and is on pace to surpass the United States by mid-century. The U.S. dollar may become the secondary currency for international trade in the long-term. In the short term though, correcting this imbalance could be achieved through the double prong strategies of reducing the fiscal deficit and promoting U.S. exports, thus creating jobs and reducing the need for foreign savings.

The current account deficit is a rough measure of U.S. economic competitiveness relative to the global economy. It is the difference between national saving and national investment, or the net of foreign reserves entering the U.S. economy and U.S. dollars going out. The U.S. buys more (dollars out) than it sells abroad (reserves in), financed mainly by foreign purchases of our debt. The biggest factor in this imbalance is the mutual dependence between the U.S. and China. China depends on U.S. demand for export growth, the largest driver of their GDP growth, while the U.S. depends on China to buy and roll over our debt, used in large part to buy their exports. Each needs the other, and so it is both an unsustainable, and self-perpetuating, cycle. Here are three things the U.S. should do to lower this balance and increase foreign demand:

1) Biggest long term priority should be innovating new products and exporting this trade advantage to the world. This would lead to some dollar appreciation, but the increased demand would create sustainable jobs and generate reserves. The biggest market here, both in terms of marginal return on investment and depth of demand globally, is clean energy technology and services. A domestic price signal on carbon would catalyze the U.S. economy to leap ahead in this area and close the trade imbalance as we export smart energy applications, concentrated solar, consulting services, wind turbines and other carbon neutral or carbon negative technologies abroad. The U.S. could get ahead of the curve by adopting this price signal before other countries.

2) In the shorter term, bring the fiscal deficit down.

3) Continue to make progress with the U.S.-China Strategic Dialogues, nudging China to stop suppressing their currency to promote U.S. demand, and to create a stronger domestic credit environment and social safety net to prevent cash hording and exorbitant savings. Freeing up Chinese savings for consumption would help decrease the net trade imbalance between the two economies.

Dear Mr. President

1600 Pennsylvania Ave. NW
Washington, DC 20500

Dear Mr. President,

Thank you for acknowledging the need for a new, comprehensive national energy and climate change plan. It’s refreshing. This was a pillar of your campaign and a main reason we supported you. As the Senate prepares to consider the American Power Act we urge you however to think bigger about the energy sources that can power this nation, and job growth, while not imperiling future generations. We urge you to support a fee-and-dividend framework in lieu of the flawed cap and trade.

Political sweeteners for specific industries, such as coal, natural gas, ethanol, utilities, and old nuclear, are not examples of such big thinking. Yet the American Power Act is chalk full of them. It is also full of emissions goals. The fact is you can set all the GHG abatement goals you want, but so long as you keep permitting OCS drilling, new coal plants, or tar sand pipelines and oil shale mines with Canada that will burn and emit for decades, if not centuries, with no proven capture technology, there is no realistic pathway for such reductions.

The American Power Act also provides billions of tons of unverifiable GHG offsets/exemptions some 40% above the total cap. In addition to significantly diluting any potential GHG reductions, such offsets create all manner of perverse incentives. Some examples include encouraging the creation of pollution just to sell the rights to destroy it, or enabling someone else to buy energy inefficient goods because one entity emitted below the cap, or giving an economic incentive for accountants, companies, and governments to inflate future emissions projections to claim higher current offsets, or encouraging dictators to over report their populations or suppress their economy to generate surplus credits to sell to the rich world. These perverse incentives just further increase the likelihood that U.S. goals will fail like those of the U.N. set under the Framework Convention. Japan for instance made the goal of a modest 5% baseline reduction under Kyoto, and even with significant investment, honest effort and a stagnant economy, actually increased emissions 10% over that period.

Goals are at best guiding principles, not self-executing mechanisms. Goals are also endless excuses for haggling and bickering among nations over who gets the rights to emit GHGs and under what inexact assumptions (basing it on past emissions benefits the developed world, basing it on current emissions benefits emerging economies, basing it on future emissions benefits poor economies; there are many such abstract issues of equity in originating and distributing emissions rights). A primary reason the world still lacks a climate treaty 20 years after the United Nations Framework Convention on Climate Change was ratified in 1990 is because a top-down "all at once" global regime requires asset distribution that inevitably hurt certain countries ex ante. Climate change also represents a tragedy of the commons, where no one stands to lose in the status quo, but there are potential private gains from assigning property rights to these public goods, and so a strong incentive for hording, gaming and free-riding. The most effective way to lead in such a case is not by decree or simultaneously negotiating with dozens of countries. As the UNFCCC shows, and theory supports, there is not necessarily a rationale to expect such an approach to ever work. The best way to lead is by demonstrating the gains to be made from clean energy investment at a domestic level. Once you show the gains to be made by a more efficient tax system (by shifting taxes from socially beneficial things like income to costly things like GHGs) there is a strong incentive for similar regional and global reform, and increasing demand for U.S. GHG technology exports.

Goals are nice but meaningless without incentives, such as a fee-and-dividend approach. EPA has estimated the marginal utility value of CO2 at $21/ton. Other organizations have estimated it to be more in the $30-40 range. If you introduced a carbon tax below this rate that gradually increased above it, offering predictability for industry and business, and returned 100% of the revenue to households, via for instance quarterly checks, you would have a real incentive and economic mechanism for emissions reductions and clean energy investment and demand- much more so than any top-down “goals”. You would also have a majority of lower and middle income families that emit below average, who really love getting more money back from the government than they pay in energy taxes. Not to mention huge demand for new labor to renovate the nation’s aging energy infrastructure. Fee-and-dividend would be a strong, tangible signal for global cooperation on the grounds of self-interest, while maximizing employment effects by neither increasing the tax burden nor assigning property rights imperfectly.

We know you know all this. And we recognize fee-and-dividend is not currently as politically tenable as the opaque and ill understood cap and trade, a tax which provides widespread exemptions, escape valves, and a huge new secondary market for Wall Street to game, inflate, and ultimately distort. Do we really need to go through this again with GHGs like MBS? Do you have that much confidence in the SEC and CFTC who let a simple pyramid scheme go unchecked for years to parse what are real and fake emissions, or prevent a speculative bubble in a brand new market they have little experience with? Mr. President- scrap the cap, see the fee.

As the legislative process proceeds, hold off on new OCS and Arctic permitting. They contain a small amount of reserves compared to either U.S. demand or global reserves, yet spews billions more tons of CO2 into the atmosphere for the next 150 years for your children and the countless unborn to reckon with. The paleoclimate record already suggests we are near committed to a 2 degree centigrade global mean increase, overwhelming natural temperature forcing nearly ten-fold.

Three policy recommendations:

1) Enact a revenue neutral carbon tax, i.e. fee-and-dividend. Carbon equivalents could initially be taxed at a low level to provide an early signal for the market to begin transitioning to a carbon constrained world. The tax could begin in 2012 at $10/ton (about 10 cents per gallon of gasoline) and increase over time as a multiple of inflation. All revenues must be 100% returned to the taxpayers, a central element for both economic efficiency and fairness. Each legal adult resident should get an equal share via electronic transfer to bank accounts or debit cards, with half a share for children up to two children per family. Opposition will attack you no matter what you do. Framing this as a multi-hundred billion dollar tax cut to stop global climate change and drive innovation and job creation is a potent (and true) counter-argument, one that cannot be made with cap and trade. WTO compliant cross-border tariffs could be applied at the port of entry on imports that do not meet this requirement in order to prevent free-riding and emissions leakage. Allowing each nation to keep the revenues from its carbon tax will align the individual interest of sovereign governments with the common interests of the global community. China for instance seemed open to strong incentives for clean energy at Copenhagen. Instead they were presented a cap on future emissions based on the past emissions of Europe and the U.S. They not surprisingly rejected it. The world will listen to incentives that create and drive new markets.

2) Invest in and build a demonstration fast-breeder (4th generation nuclear or FBR) nuclear facility as a prototype for industry to study and scale up. These reactors can reduce nuclear waste nearly 100 fold compared to current commercial models, and can burn a much wider portfolio of fissile materials, including waste from current generation reactors (which we have centuries worth). Fast-breeder reactors also reduce the depletion timeframe of waste production from tens of thousands of years to hundreds of years, making storage vastly more feasible. DOE had a demonstration plant in the 1990s called the Integral Fast Reactor that was close to completion, but it was mistakenly cancelled/defunded in 1994 because of unwarranted environmental alarmism. Nuclear should realistically be 10-20% of the energy supply to provide reliable baseload energy. Great work being done here by Bill Gates and others: http://intellectualventures.com/Libraries/TerraPower/IV_Introducing_TWR_February_2010.sflb.ashx

3) Lease federal land parcels in the Southwest U.S. for the development and expedited permitting of concentrated solar plants (CSP). There’s ample solar forcing, cheap unused land, and green jobs would help the whole economy. The parcels could generate revenue via auction; these parcels and CSP would be quite valuable because of the fee-and-dividend. CSP is vastly more efficient than traditional photovoltaic systems and can provide up to 80% baseload reliability- more than enough to meet normal household needs. It would be cheaper to produce and buy with a gradually increasing carbon tax. Today CSP costs about $.10/kWh compared to coal at $.05kWh, which would imply a real tax of about $50/ton. Additionally, tax credits and land for the construction of next generation transmission lines are necessary.

Stop throwing money at every technology and leaky window in the country while not reducing the deficit in the process. Instead, set up clear rules of the road with a fee-and-dividend framework that would put many more people to work than fast expiring, temporary job-creating appropriations and let the market scale up clean energy. This will take some audacity.

Sincerely,
Wyatt Boyd

cc:
Rahm Emanuel
Lawrence Summers
Christina Romer
Peter Orszag
Steven Chu
Melody Barnes
Lisa P. Jackson
Nancy Sutley
Carol Browner
Timothy Geithner
Neal Wolin
Mona Sutphen
James Jones
Xav Briggs
Phil Schirilo
David Axelrod
Valerie Jarrett

Happy Friday

Just a few reasons why things are looking up for the U.S. Fiscal position (the largest single component of the American economy):

1) The economy is growing, jobs are being created, and tax receipts are growing as a result. Nearly 300,000 non-farm jobs were created in April. No one is saying employment levels are where they need to be, but they're trending in an encouraging direction. (http://www.bls.gov/news.release/empsit.nr0.htm)

2) Since February the federal government has been operating under Statutory Paygo, meaning any additional spending must be accompanied by an equal offset- it's the law. This combined with #1 will reduce the deficit. The President has also frozen all non-security discretionary spending for the next 3 years. This freeze is expected to reduce federal expenditures $1.1 trillion over the next 10 years. (http://www.whitehouse.gov/omb/budget/fy2011/assets/tables.pdf - Table 2 ; http://budget.house.gov/laws/CRS-stat-paygo.pdf)

3) Expiration of the Bush Tax Cuts. For individuals earning more than $200,000/year, rates will return to pre-cut rates- accounting for an estimated $678 billion over 10 years and further reducing the deficit gap. 39% of these cuts went to the 99th percentile of income earners, while the middle 20% of income earners recieved 8.5% (and under Obama will continue to). These cuts have caused the lowest level of federal tax collections as a share of GDP since 1950. When these temporary cuts are allowed to expire tax levels will not exceed those of the Reagan Administration. (http://www.cbpp.org/cms/index.cfm?fa=view&id=1811)

4) Healthcare reform. Officially this will reduce the deficit around $100 billion over the next decade of outyears and one $1 trillion the following decade (http://www.cbo.gov/ftpdocs/113xx/doc11355/hr4872.pdf). This is likely a very conservative scoring as it only accounts for direct cuts, not savings or efficiency gains, for example through the dozens of pilots it establishes to learn about cost control.

5) National Commission on Fiscal Responsibility and Reform (http://www.whitehouse.gov/the-press-office/executive-order-national-commission-fiscal-responsibility-and-reform). The President's Budget lays out a plan to cut the deficit in half by 2015, from 10% of GDP to 5%. The (very) long-term sustainable rate of deficit spending is equivalent to the economic growth rate, e.g. the ability to finance current borrowing with future growth in a non-zero sum fashion. The 50% reduction in the size of the deficit is an enormous accomplishment; the President's FY 2011 Budget released in February represented the largest reduction in the deficit in over 10 years. The previous Administration never proposed a budget that reduced the deficit, not one penny. Obama's budget reduces it over $2 trillion in the outyears, before throwing in the commission and likely the largest domestic policy reform in 50 years- healthcare.

Four papers i wanna write if I'm ever patient

Local Organizing in a Global World: The Marginalization of Bright-eyed Idealists
(Post-industrialization has largely worked itself through the developed world, this means more and more problems are driven by external forces fundamentally outside the control of communities or would be activists. An organizer in the Rust Belt today might do better to work in New Delhi. But what does this mean for the identity or prospects of the individual who wants to affect positive change?)

The Evolution of Real versus Derived Profits on Wall Street from 1970-2010
(This information is so proprietary- but I imagine the shift from primary to derived assets would be interesting. There is no normative judgment that derived or synthetic profits are bad, but it's a macro analysis I don't know that's been done. Additionally, a larger real asset base only potentially provides a broader base for structured income products. At some point though, productivity necessitates actually making something in the first place.)

Prisoners Just Want Community: Lessons in the Green Prisons Movement
(This idea of hardened criminals wanting to cut the pesticides out of the prison yard, or compost their food or install solar cells is very interesting. What motivates this? Boredom? Manipulation? Atonement? I assert that if prisoners had access to these programs in the first place they might never have committed crimes, as the green movement connects people profoundly not just with a broader purpose, but an entire community. Parole programs could incorporate these services into their programs as both service and therapy.)

Speed of Thought as Speed Bumps for Information Transmital
As the vectors of information delivery expand and accelerate now on a seemingly annual basis, the rate limiting step of our ability to celebrate or appreciate, yet alone digest, information may increasingly be our innate capacity to process such exposure. In 2005, the email checking and AOL searching of 2000 seemed pedestrian, and in 2010, the blogging and i-tuning of 2005 seems pedestrian compared to our tweeting and i-padding, and there's little to suggest it won't be the same in 2015- my guess would be in the direction of integrated devices reaching out to us, rather than passively responding to our requests, based on the many known preferences it has compiled from our routine requests, a sort of Amazon suggested purchases feature for all media across all platforms. Yet I find myself sometimes simply unable to make sense of everything I see before me, the children's book Where the Wild Things Are turned into a major motion picture turned into a digital dowload turned into an instant App on my i-pad, to watch on the side as I work an excel sheet and check my blog-feed. There is more that I want to watch and do, and am now capable of, than I could ever complete. In these moments the brain almost freezes akin to a hardrive. Which one to open? Which to prioritize? In other words, there may be a limit to how useful such devices may be, the rate limiting step being our thoughts patterns themselves.

P.s. - As Goldman Sachs testifies today, I have a hard time understanding the allegations and think the SEC's case is going to have a hard time (it was only voted out by 3-2). Goldman was selling income streams from insurance on mortgage debt (synthetic CDOs) to two global institutions that engaged in this all the time. Any transaction necessitates a buyer and a seller, the idea that these funds would go long by buying in assumes there is a counterparty that would go short. It's immaterial what Goldman thought of the deal, they are the market maker. The funds requested assets of a certain type to buy, Goldman obliged, and in the process consulted with individuals of varying perspectives. For someone to make money on long positions, there has to be another party willing to cover the positive spread if they are proven wrong, which would be the shorts. Our regulatory system is about 30 years behind the curve and needs to be upgraded, but this vilification of the bankers society collectively depends on for basic finance as well as investment finance can at times look like a modern day witch hunt, or the populist version of McCarthyism. I am no deep sympathizer with speculators, particularly in the non-deliverable commodities sector, but last time I checked people are innocent until proven guilty. Also, derivatives need to be regulated, but this can be done through registries, clearinghouses, or exchanges, or some type of self reporting. Why the fixation on exchanges? Most of these contracts don't even involve public entities, they should just report their balance sheet to the SEC/CFTC and be done with it, John Q. Public doesn't need to be able to Google their proprietary deals so we can hear a bunch of mindless quipping and potentially damaging adjustments to market confidence.)