The Conversation We Should Be Having

The Conversation We Should Be Having
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This year's Clean-Tech Investor Summit was anything but a cheerleading session for clean-tech entrepreneurs. Yes, Elon Musk of Tesla was there, displaying the driest and most self-effacing wit in the sector ("I have a really good idea for someone to explore. Of course, success may not be a possible option.") Musk was there to declare that Tesla plans to be not just a niche automotive innovator but a mainstream company, doing its own sales and marketing. He also said that he expects dramatic declines in the cost of electric vehicles over the next decade as batteries become vastly cheaper, and that by 2030 virtually all new cars sold in North America will be electric.

But General Motors was also there, in the person of Jon Lauckner, who carefully avoided the kinds of future-oriented assessments that were the heart of Musk's presentation. And Lauckner's company is using its leverage in Washington right now to try to persuade federal regulators that big improvements in automobile fuel efficiency just aren't in the cards at a cost we can afford.

NRDC's Ralph Cavanagh reprised his long-running debate with Peter Schwartz of Global Business Network, so the attendees got to hear the best of both sides of the argument.

(Even Schwartz admits that today's nuclear power plants make no economic or environmental sense, and he claims that he simply wants to keep open the option for better technologies to emerge -- but he's sophisticated enough to know that his language ('nuclear must be part of the solution') is feeding the frenzy of the nuclear establishment to pick the public pocket for a another round of bloated subsidies for plants that we can't afford and which, taken as a global model, pose enormous safety and health risks.)

But probably the most intriguing speaker -- even though I think he was wrong on a huge part of his argument -- is former Shell USA president, John Hofmeister. Hofmeister is the author of a new book Why We Hate the Oil Companies. He's founded a new organization, Citizens for Affordable Energy, and he clearly aspires to be the Ross Perot of energy -- the practical guy who is willing to tell the hard truths that insider business and policy leaders hide from the American people.

Hofmeister argues that we hate the oil companies because politicians find them a convenient scapegoat for their failure to establish rational, long-term energy policy and plans for America, and because the oil companies have been willing to accept that role as long as the profits rolled in. The short-term nature of American politics -- not the individual flaws of parties or politicians -- is Hofmeister's villain. He says that we need to operate and decide in what he calls "energy time" -- the decade or more that it takes to significantly change the nation's energy sector -- but that politicians can only look forward in "political time", the two or four years before the next election.

This is not a revolutionary notion. And Hofmeister's formula for what the next decade of an energy policy set in "energy time" ought to look like is pretty standard for someone with his background -- open up all of our domestic hydrocarbon sources, build new nuclear plants, do everything we can to increase energy supply and make energy affordable. So far, so Shell.

But Hofmeister's long-term vision is sharply different. For one thing, he take mass transit and urban planning profoundly seriously, "Real conservation starts with the manner in which we develop and use land, water and air resources in the world around us ... the unconstrained geographic growth of communities that became a way of life in twentieth-century America has got to change...." He embraces a 2060 goal of reducing greenhouse-gas pollution by 80 percent from current levels, and foresees a world in which oil is still used, but is a minor part of the world economy, a niche commodity. Energy would be essentially carbon-free, mass transit would be a reliable and principle form of transportation, electricity would flow from distributed renewables, and the internal combustion engine would be on the way out.

So his long-term vision has Shell morphing into Greenpeace.

But what's most striking and most un-Shell like is how Hofmeister proposes that we get there. Hofmeister compares today's energy situation to the lack of a solid banking sector in 1900, and points out that the United States had to default not once, but twice, on its debt before Congress finally created the Federal Reserve Bank. Hofmeister wants an energy equivalent of the Fed, something he calls the Federal Energy Reserve Board (FERB), to which Congress would delegate most of its authority over the energy sector, and which would develop the short, medium, and long-term plans needed to move America from its present "energy abyss" to a sustainable and affordable energy system.

At the Clean-Tech Investor Summit, Hofmeister was greeted with understandable skepticism as to whether his vision could happen. After all, we have just chosen a chair of the House Banking Committee who wants to get rid of the Federal Reserve Board, and the appetite in Washington for FERB, a group of technocrats appointed with 14-year terms to run the energy sector could hardly be smaller. I think the skeptics are right. Hofmeister, like Ross Perot, has the appeal of offering a simple, ostensibly apolitical formula ("just make the right decisions") for dealing with what, in fact, are political problems. He might, like Perot, make a big impact. But Perot didn't make it to the White House, and neither did his approach to the deficit.

But however skeptical I may be about Hofmeister's political pathway, he does offer a very different explanation for why the current political dynamic in Washington will be turned on its head and a technocratic, centralized-planning approach to energy will be adopted. He concedes that previous short-term fuel shortages and price-spikes have not changed business as usual -- the system has bounced back into its usual pattern. His argument for why the next decade will be different is not founded on peak oil, limited global fuel supplies, or simple spikes in prices -- although he is very worried about energy affordability. Hofmeister argues that four decades of massive under-investment in the entire infrastructure of the energy system -- power plants, coal, gas and oil fields, transmission, pipelines, mass transit, highways, railroads -- will produce a crisis not of fuel prices, but of absolute supply shortages. All aspects of the energy system will simply break down, forcing the government to adopt rationing to keep the lights on and the wheels rolling. It is the presence of systemic, long-term, and difficult to resolve energy-access shortages that he is counting on to convert the politics of energy from a market-based, decentralized, unplanned set of fiefdoms into a centrally planned, long-range government-driven sector.

Hofmeister's view of our ongoing disinvestment in the nation's energy infrastructure is overly pessimistic. He assumed, for example, that Congress would pass some kind of price on carbon and predicts that this would lead to a refinery-capacity shortage. Congress didn't act -- and even if it had acted, refinery capacity would have been buffered. He expects citizen concerns about the environmental risks of broadened natural gas drilling to result in massive shutdowns of new production -- the almost certain outcome instead is a rapid evolution toward a more reliable and solid regulatory system, accompanied by the continuing increase in domestic production of natural gas. The electrical sector has far more excess capacity -- mostly in the form of under-utilitized, modern natural gas generating units -- than he credits.

But the spotlight Hofmeister has shown on the dismal state of energy infrastructure like pipelines, transmission, mass transit, and railroads is instructive. These critical mechanisms for converting and distributing raw energy, and turning it into useful energy services, are indeed at substantial risk -- and we ignore them at our peril.

We need to remember that in 1992 the deficit looked almost as politically impossible as energy does today. That was Ross Perot's appeal. We did, in the 1990s, set our fiscal house in order. Not by electing Perot but by allowing our existing political system to select a president who was willing to think in long-range "fiscal time" instead of short-term "political time." That's the good news -- Bill Clinton essentially eliminated the deficit as an economic crisis. The bad news, of course, is what Hofmeister points out. By solving the immediate deficit crisis, Clinton allowed George Bush to campaign and govern in a way that brought it back, only far worse than before -- because Clinton's fiscal structure was just too juicy for Bush to dismantle for short-term political reasons. But I'd argue that once we get energy right, it's likely to be self-reinforcing, unlike fiscal discipline, which always opens the temptation to binge.

But some degree of greater planning is clearly desirable -- so however much I may disagree with Hofmeister, I thought it was very helpful to have to engage with his ideas. That's the kind of conversation we should be having. It's great to see clean-tech entrepreneurs take time away from their short-term business concerns to engage like this -- what a shame the politicians in Washington, D.C. haven't followed suit.

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