On Sept. 22, in a speech to 100 world leaders gathered at the United Nations to discuss climate change, President Barack Obama declared the U.S. “determined to act.”

But at the same time, word began to circulate on Capitol Hill that the Senate might be equally determined not to vote on the climate bill any time soon.

“We are going to have a busy, busy time the rest of this year,” said Senate Majority Leader Harry Reid (D-Nev.). “We still have next year to complete things, if we have to.”

The bill is bogged down in part because of contentious and extended negotiations over health care. But to a greater degree, it is stalled because it is so flawed.

Indeed, the House bill is so bad that even those who supported it did so reluctantly. During the House debate, my friend Denis Hayes, president of the Bullitt Foundation, board chairman of the International Earth Day Network and veteran of many a legislative battle wrote a column that offered four strong reasons to reject the bill and then concluded, “If I were in Congress, I would hold my nose and vote for the Waxman-Markey bill.”

Happily, a new climate bill drafted by Sen. Maria Cantwell, D-Wash., may soon be introduced that wouldn’t require us to hold our noses at all. Indeed, it could change both the nature of the debate and its outcome.

Cantwell brings impressive credentials to the climate issue. Elected in 2000, she chairs the Senate Democrats 20/20 Energy Independence campaign and co-chairs the Apollo Alliance. Among her legislative achievements are the passage of a bill to prevent energy-market manipulation and the successfully blocking of an attempt by GOP Alaska Sen. Ted Stevens to allow drilling on the Arctic National wildlife refuge.

In its introductory text, Cantwell’s Carbon Limits and Energy for America’s Renewal (CLEAR) Act of 2009 promises “simplicity, transparency and equity.” It delivers on all counts.

The bill is blessedly brief, 32 pages compared to the mammoth 1,427 pages in the Waxman-Markey bill (a number that will only grow in the Senate). You can actually sit down and read CLEAR in one sitting and understand how its pieces fit together.

Upstream vs. Downstream

Cantwell’s approach to greenhouse-gas reductions is fundamentally different from Waxman-Markey. Rather than focus on carbon emissions, she concentrates on carbon inputs.

CLEAR limits the quantity of fossil carbon allowed to enter the U.S. economy. In other words, rather than requiring a downstream power plant to reduce its CO2 emissions, the bill requires the upstream coal, natural gas and oil companies that supply the power plant to limit their carbon production.

By shifting the responsibility upstream to the wellhead or mine or port of entry, the bill slashes administrative costs to a fraction of what they will be under Waxman-Markey. Only a few thousand energy-producing or importing firms would be covered, versus the hundreds of thousands or more entities covered under Waxman-Markey.

Peter Dorman, at the blog EconoSpeak, noted in May:

The decision to issue permits on an industry-by-industry basis — to cap the uses of carbon fuels rather than their sources [invites] … never-ending bickering over who is allowed to emit how much. Every little tweak of the system — whether to include freight transportation or agriculture [which crops!] — has to be hammered out separately. Reductions are calculated from a baseline, but there are acres of wriggle room about how to measure who emitted how much in the base year, and therefore how much should be reduced tomorrow. Enforcement is complex, expensive and full of loopholes.

Auctions vs. Allowances

Focusing upstream allows Cantwell to avoid this administrative swamp. It also allows her to do what Waxman-Markey should have done: require carbon polluters to pay for their pollution. CLEAR requires carbon producers to buy 100 percent of the carbon shares they need. None are given away. Waxman-Markey, on the other hand, gives away 85 percent.

The Cantwell way of dealing with the question of how U.S. companies that must use more expensive fuels can compete internationally is also much simpler and transparent than that contained in the Waxman-Markey bill.

Here’s a brief summary of the Waxman-Markey strategy: U.S. exporters will receive free carbon allowances in the form of rebated charges for 2012-2025. Under certain conditions, U.S. producers of finished goods could also receive rebates, if producers petition for coverage and the EPA determines they meet statutory criteria and should be covered.

The EPA would create a pool of international reserve allowances separate from the allowances domestic entities must use to comply with their cap-and-trade obligations. Importers must purchase 85 percent of these allowances from countries that have an emissions-reduction commitment as stringent as that of the U.S. There is an exemption from this provision if the country is listed by the U.N. as a “least developed” developing country, or if it is responsible for less than 0.5 percent of global emissions.

Got all that?

Here’s how CLEAR addresses the same problem. Impose fees on the carbon used in production processes for commodities imported into the U.S. Lift the fee for countries that have adopted comparable limits to fossil carbon use. Sounds easier, right?

Limited vs. Unlimited Trading

CLEAR allows for carbon trading, but unlike Waxman-Markey, which creates an elaborate — some would say Byzantine — carbon-trading architecture that promises much mischief, CLEAR puts significant limits on trading.

As befits a congressional leader who has fought against speculation and price manipulation in the energy and financial markets, Cantwell has included in her bill many mechanisms to prevent hoarding and speculation. There are monthly carbon auctions. Carbon shares expire after two years. No entity can buy significantly more carbon shares than it needs. Any sale of carbon allowance must be offered to an eligible “first seller.” All relevant transaction dates, carbon share quantities and prices must be made available publicly.

Universal Refunds vs. Set Asides

Still another fundamental difference between Waxman-Markey and CLEAR is revealed in their approaches to the equity issue.

Restricting carbon will raise carbon prices, and thus general prices. This will disproportionately burden the poor. Waxman-Markey deals with this by setting aside 15 percent of the carbon allowances to assist households that can prove they are sufficiently poor.

CLEAR makes consumer equity a central consideration rather than an afterthought. Three-quarters of the proceeds from the carbon auction will be refunded on an equal per capita basis to any legal resident of the U.S. The remaining 25 percent will go into a fund that can be used for many purposes: clean-energy development, compensation for dislocated workers, climate-change mitigation and adaptation.

The creation of a direct per capita refund achieves several ends.

In terms of equity, the refund will offset the pocketbook impact of any energy price increases for most low- and moderate-income households. Indeed, my colleague John Bailey at the Institute for Local Self-Reliance has estimated that the net impact may well be redistributive, because the poor use less energy and buy fewer carbon-intensive goods than the rich. Thus, any increase in carbon-related prices would be more than offset by the receipt of their carbon-related dividends.

Politically, a direct universal refund could generate the popular support for a greenhouse-gas reduction bill that has been so conspicuously lacking to date. One reason for the tepid support is that Americans know that when you put a price on carbon you will raise prices on all products.

Waxman-Markey tries to minimize price increases by giving polluters a huge number of free carbon allowances and directing them to use these to limit price hikes. In a May memorandum, Rep. Henry Waxman (D-Calif.), and Rep. Ed Markey (D-Mass.), called the three largest categories of allowances: “Protection from Electricity Price Increases,” “Protection from Home Heating Oil Increases” and “Protection from Natural Gas Price Increases.”

One could say that Waxman-Markey has given polluters about 75 percent of the carbon allowances in the expectation that they would use these to restrain price increases. It is a messy and largely unmonitorable process. The public is understandably skeptical.

Cantwell on the other hand, accepts that putting a value on carbon will increase prices. She doesn’t need to dissemble to the American people on that important point.

Her bill holds the majority of U.S. households harmless by giving all households 75 percent of the money raised by the carbon auction. Such a strategy is not only much simpler, it might generate an additional carbon reduction through changes in personal behavior since the less carbon an individual household uses the greater its net income from the refund.

A universal refund strategy has still another advantage: it promises to maintain popular support even if carbon prices rise significantly, because as the price of carbon increases, the carbon refund will grow commensurately.

Private vs. Common Ownership

A universal refund reflects a fundamentally different philosophical approach to pollution than Waxman-Markey. By putting a value on carbon, the Cantwell and Waxman-Markey bills put a value on the carbon-absorptive capacity of the sky. The question then is, who owns that suddenly valuable capacity? Or as the title of the path-breaking book by Peter Barnes asks, Who Owns the Sky?

Barnes persuasively argues that we all do, equally. By giving companies essentially free pollution rights, Waxman-Markey, in essence, says that polluters own the sky. By requiring polluters to pay for pollution rights and returning 75 percent of that revenue directly to all on an equal per capita basis, CLEAR says that we all own the sky. The sky is a commons. A discussion about the role of the commons may be one of the most significant outcomes of CLEAR. (For more discussion see onthecommons.org.)

One other feature favorably distinguishes the Cantwell bill from Waxman-Markey that deserves mention. CLEAR does not ban EPA from regulating greenhouse-gas emissions. Waxman-Markey does. Why would we want to strip the executive branch of its ability to regulate greenhouse gases at this historic moment?

CLEAR has yet to be introduced. Cantwell has circulated it for comment and reportedly has gotten push-back from a number of environmental organizations. Some oppose it simply because it may delay a vote on Waxman-Markey in the Senate. They appear willing to support any climate bill, no matter how bad.

Others offer more substantive and valid criticisms.

One is that Cantwell’s bill requires far less greenhouse-gas reductions in the early years than Waxman-Markey. Waxman-Markey requires a 17 percent reduction from a 2005 baseline. CLEAR requires a 1.5 percent reduction from a 2012 baseline by 2020. Cantwell should increase the required reductions.

However, the spread between CLEAR and Waxman-Markey’s effective carbon reductions might not be as wide as the numbers suggest. Some reports estimate that the combination of free allowances and offsets in Waxman-Markey could limit domestic carbon reductions to as little as 2 percent by 2020.

The economic collapse also may narrow the gap. The Energy Information Administration recently announced that total U.S. greenhouse gas emissions might be 8.5 percent lower by the end of 2009 than they were in 2005 and anticipates a very slow increase over the next two years. Thus, CLEAR’s baseline of 2012 may well be significantly lower than Waxman-Markey’s baseline of 2005.

The second substantive criticism of the Cantwell bill is that it establishes a safety-valve carbon price, something Waxman-Markey does not do. That is true.

CLEAR sets an initial minimum carbon price of $7 per ton and a maximum price of $21. But the Cantwell bill increases both the minimum and the maximum prices by about 10 percent per year after 2012, which means by 2020 they could be close to $14 at the low end and $42 per ton at the high end. The estimated price of carbon under Waxman-Markey in 2020 is $15-$20 per ton.

Some environmentalists offer a third objection. Cantwell’s bill has no dedicated allowance for clean energy, while Waxman-Markey dedicates 10-15 percent for this purpose. Again, that is true.

CLEAR offers 25 percent of the auction proceeds for several purposes. Clean-energy advocates will have to fight with those wanting money to mitigate dislocation impacts from high-priced carbon, or for adaptation or mitigation strategies. I expect they would end up with about the same total revenue as under Waxman-Markey.

I hope we can collectively encourage Cantwell to introduce her bill, even without the co-sponsors she would like. Her bill represents a fundamentally different philosophical and strategic approach to fighting climate change: simple, transparent, equitable and, I would add, effective. That approach deserves to be part of the national debate on climate change.

“Command and control” is a military term the Republicans long ago appropriated to caricature and condemn Democratic programs. Republicans like to contrast the Democrats’ embrace of a command and control, regulation-based you-will-do-as-I-say-or-else strategy with their own, presumably, more effective market-based we-will-make-it-worthwhile-for-you-to-do-what-we-want approach.

Nowhere is the phrase “command and control” used more often and with more passion than when Republicans attack environmental regulation. The 2008 Republican Party platform, for example, declares, “Republicans caution against the doomsday climate change scenarios peddled by the aficionados of centralized command-and-control government.”

Well, when it comes to climate change policy making, the Republican Party can justly claim a major victory for its philosophy. We may have a Democratic president and a Democratic Congress, but the American Clean Energy and Security Act of 2009 recently passed out of the House Energy and Commerce Committee is very much a Republican bill characterized by a paucity of sticks and a plethora of carrots.

In fact, President Barack Obama has publicly described the bill as his and the Democrats’ preferred alternative to regulation. Without the bill, he has threatened, the EPA will directly regulate greenhouse-gas emissions, a power it was given by the Supreme Court in 2007 and which it announced it would exercise in April 2009. Indeed, the bill specifically prohibits Obama’s EPA from regulating these emissions.

The bill’s carbon-cap-and-trade provisions are by all reports its heart and soul. They exemplify a Republican approach: Don’t tell polluters what to do, bribe them and hope they do what you want. Democrats have faked left and gone right.

The bill looks to reduce greenhouse-gas emissions by about 1 billion tons by 2020 and then gives away over 1 billion tons of carbon allowance to polluters free of charge. And then, adding insult to injury, it allows polluters to purchase 2 billion tons of carbon offsets, three-quarters of which could come from overseas. In other words, companies could satisfy the Act’s provisions without reducing greenhouse-gas emissions within the United States at all, by buying offsets from other countries that will be extremely difficult, if not impossible, to monitor!

To be successful, a market-based strategy must raise the price of carbon sufficiently to change corporate and personal behavior. But the bill clearly demonstrates the lack of political will in Washington to impose such a dramatic price increase. Indeed, the bill explicitly notes that the purpose for rewarding free allowances in such enormous quantities is to mitigate price increases.

As a result, the EPA estimates the bill would raise the price of a gallon of gasoline by about 20 cents. No one can suggest with a straight face that such a trivial price increase will change driving habits.

The plain truth is that the cap-and-trade provisions of the bill are ineffectual. They may even be pernicious because they would lock us into a convoluted and largely unworkable Republican-inspired global cap-and-trade architecture and a massive pollution permit giveaway program from which it will become increasingly difficult for us to extricate ourselves in the coming years.

An equally important political truth is that the cap-and-trade provisions are unnecessary. For while the Democrats have begun to embrace anti-regulation, market-based strategies, the evidence is clear that virtually all of the progress we’ve made in building a clean-energy society has been achieved a result of command-and-control policies.

The new federal vehicle fuel-efficiency mandate is a case in point. It alone could achieve about a third of the Act’s greenhouse-gas reduction goals by 2020. And the impact could potentially be even greater because the federal government has given California the right to significantly raise those standards, something it may do as early as 2016, with the real prospect of 10 to 15 states following its lead.

Another federal mandate will increase the efficiency of light bulbs, and that could have a significant impact on GHG emissions. Over 50 percent of greenhouse gases that are generated by commercial buildings, for example, come from lighting those buildings.

The only sections of this bill worth saving are its few mandates, as hobbled as they are by Republican intervention. These include the nation’s first renewable-electricity mandate, although in return for allowing this command-and-control provision into the bill, Republicans and some Democrats who vote Republican when it comes to taking on big corporations, managed to so neuter the mandate that it could be satisfied if just 12 percent of the nation’s electricity is generated by renewable energy by 2020. That level will probably be achieved by the collective renewable electricity mandates already enacted by 28 states and the District of Columbia.

Another mandate in the bill requires new coal plants to reduce their CO2 emissions to levels so low that they could only be achieved with carbon capture-and-sequestration systems. However, again in return for Republican support (and that of Democrats from coal states), the provision affects only those coal plants permitted after 2020, several political lifetimes into the future. Nevertheless, it does send an important signal to the coal industry.

A largely overlooked but potentially very important provision of the bill will create our first national energy-related building code. The code will be far more energy-efficient than those in effect today, and all states and localities are mandated to make their own codes as energy efficient as the federal code. If this provision passes, more than 40 states will immediately have to dramatically upgrade their building codes and continuously improve them from 2014 onward.

Most environmental leaders and Democratic Party officials argue that we should support this bill no matter how imperfect because it represents an important, small step forward. Strip it of its cap-and-trade provisions and I would agree. Retain the cap-and-trade provisions and I see it as a giant step backward that may well hobble further progress in federal efforts to combat climate change for years to come.

In the New York Times, Al Gore insists the new president should give the highest priority to “the planning and construction of a unified national smart grid.” President Barack Obama, responding to a question by MSNBC’s Rachel Maddow, declares that one of “the most important infrastructure projects that we need is a whole new electricity grid … a smart grid.”

We lump together the two words, “national” and “smart” as if they were joined at the hip, but in fact each describes and enables a very different electricity future. The word “national” in these discussions refers to the construction of tens of thousands of miles of new national ultra-high-voltage transmission lines, an initiative that would further separate power plants from consumers, and those who make the electricity decisions from those who feel the impact of those decisions.

The word “smart,” on the other hand, refers to upgrading the existing network to make it more resilient and efficient. A smart grid can decentralize both generation and authority. Sophisticated electronic sensors, wireless communication, software and ever-more powerful computers will connect electricity customers and suppliers in real time, making possible a future in which tens of millions of households and businesses actively interact with the electricity network as both consumers and producers.

Advocates of a new national ultra-high-voltage transmission network offer three main arguments:

1. New high-voltage transmission lines are needed to decrease electric grid congestion and therefore increase reliability and security.

There is indeed congestion on some parts of our distribution and transmission networks. Congestion reveals a problem; it doesn’t demand a specific solution. It can be addressed by reducing demand through increasing energy efficiency or by increasing on-site or local energy production. Both strategies are often less costly and quicker to implement than building new transmission lines. An analogy from the solid-waste sector may be appropriate. Exhausting nearby landfills does not inevitably require us to send our garbage to new and more distant landfills. We can emphasize recycling, composting, scrap-based manufacturing and reuse.

2. A new national high-voltage transmission network is necessary to dramatically increase renewable energy.

President Obama wants to build new transmission lines because, “I want to be able to get wind power from North Dakota to population centers, like Chicago.” Writing in Vanity Fair, Robert F. Kennedy Jr. wants a new high-voltage transmission system to “deliver solar, wind, geothermal and other renewable energy across the country.”

But do we really need to deliver renewable energy across the country? The distinguishing characteristic of renewable energy is its availability in abundant quantities virtually everywhere.

The Institute for Local Self-Reliance recently pulled together the modest amount of data available on the amount of renewable energy available in each state. Our report, “Energy Self-Reliant States,” concludes that at least half the 50 states could meet all of their internal electricity demand with renewable energy found inside their borders, and all states could meet their current renewable electricity mandates from homegrown energy sources.

High-voltage transmission lines are not necessary to dramatically expand renewable-energy generation. But they are essential if we want to expand coal-generated electricity, because coal is found in limited places, and coal-fired power plants tend to be very large and therefore must serve very large markets. This is why, until recently, the primary advocates for new high-voltage transmission lines were those who wanted to construct large coal-fired power plants.

One of the most effective ways to stop new coal-fired power plants is to stop building new high-voltage transmission lines.

Before building new transmission lines, we should first investigate how much capacity there is on existing lines. Tellingly, that data is not readily available. A several-year campaign in Minnesota by the North American Water Office led to the nation’s first utility-led analysis of the capacity on the existing transmission system in one part of the state. The results were so positive the state legislature ordered the utilities to expand the analysis.

The most recent study’s data suggest that Minnesota can achieve its renewable electricity mandate of 25 percent by 2020 without building any major new networks of high-voltage transmission lines (a report summarizing the utilities’ studies is available at the Institute for Local Self-Reliance website).

3. New transmission lines allow us to harness renewable energy in its best locations, thereby lowering costs.

Many would argue that although renewable energy is available virtually everywhere, sunshine is more plentiful and the winds are stronger in a few locations, and therefore by generating electricity in those locations, we save money. Sunny Nevada, for example, can produce solar electricity from solar panels for about 20 percent less than Iowa and about 35 percent less than in Pittsburgh. A wind turbine in windy North Dakota could produce electricity at a cost close to 30 percent lower than the same turbine located in Ohio.

But in most cases, these significant variations in production costs result in modest variations in the final cost of energy to the ultimate consumer, because more remote generation resources have an added cost of transporting the energy across long distances. For example, my colleague John Farrell estimates that if Ohio’s electricity came from North Dakota wind farms — 1,000 miles away — the cost of constructing new transmission lines to carry that power, and the electricity losses suffered during transmission, could surpass the lower cost of production.

Even if modest financial savings do occur, they are easily outweighed by the arduous and contentious prospect of having to seize or negotiate for the use of the land of hundreds of thousands of farmers, homeowners and businesses to build the new lines.

The arguments against building and overlaying a new national transmission system are more compelling:

1. Building a new high-voltage transmission line diverts resources from the more important task of making the best use of the existing electrical network and integrating the new generation of decentralizing energy technologies.

Some advocates estimate the full cost of a new national transmission grid at $100 billion. In these tough credit markets, as states and the federal government design financial incentives that make it easier and more financially attractive to build high-voltage transmission lines, they undermine the potential for energy efficiency and decentralized production. Richard Cowart, director of the Regulatory Assistant Project noted back in 2002, “Over-investing in transmission will tend to support remote generation and undermine the value of distributed resources. Under-investing in transmission will have the opposite effect.”

2. Building new transmission lines requires the federal government to increasingly pre-empt state and local authority, which may undermine a generation of advances in state electricity regulation.

To accelerate the construction of ultra-high-voltage transmission lines, the federal government may well have to pre-empt state and local authority, because states and localities and their citizenry will not look kindly on tens of thousands of miles of new transmission lines crossing their lands to deliver power to distant communities. Indeed, it is the fear of popular opposition to such transmission lines that fuels the drive for pre-emption.

Billionaire T. Boone Pickens, the country’s most visible proponent of a national transmission system
, bluntly told Congress a few months ago that he is “disconcerted that state public authorities … are required to consider the benefits of the project to the citizens of their state.” He worries that, “Where state utility commissions are limited by state law to considering benefits to citizens of their state, eminent-domain power may not be available to transmission developers wishing to cross the state without providing transmission service to local generators or local electricity users.” He wants Congress to give the Federal Energy Regulatory Commission “exclusive jurisdiction” to site new transmission lines.

An increasing centralization of authority over electricity planning has been slowly occurring over the last 15 years. It was speeded up with the passage of the 2005 Energy Act that requires the Department of Energy to designate “national interest electric transmission corridors.” Once designated, state regulatory bodies have one year to approve an application for a new transmission line, or the federal government can step in and issue the approval.

Corridors of Power

It is instructive to see how the federal government has exercised this newly acquired authority to designate national interest transmission corridors. In late 2007, DOE released its first group of designated transmission corridors, setting off an immediate outcry by the affected states. Governments and regulatory agencies in Pennsylvania, Virginia, Delaware, Maryland and New Jersey all petitioned for a rehearing. DOE rejected their petition.

Over the last 30 years, grassroots activism has pushed state energy regulatory agencies away from their traditional focus on encouraging bigger power plants and higher-voltage transmission lines and toward a new decision-making matrix called “least cost planning.” Utilities are required to examine and pursue alternatives like increasing energy efficiency or installing smaller, dispersed power plants before they can build new traditional power plants or transmission lines. Recently, states also require utilities to take into account environmental costs and to give renewable energy a priority.

The states complained that in designating transmission corridors, the DOE had refused to consider non-transmission solutions to congestion problems, something their own state laws require, as does the Federal Power Act. The FPA specifically directs the DOE to issue its report only “after considering alternatives.”

The New Jersey Board of Public Utilities asked the DOE to refrain from designating corridors “until after it analyzed whether alternative means, including energy efficiency, demand response and clean local generation within the critical congestion area could relieve congestion more effectively, at lower cost, with less harm to the environment, with better assurance of the reliability and security of our electricity supply, or with less vulnerability to uncertainties such as future fuel costs, future environmental requirements and other variables.”

The DOE claimed that an examination of non-transmission solutions was outside its jurisdiction. According to the DOE’s perverse interpretation of the law, the federal government can pre-empt state authority but it cannot take into account the same factors states do in deciding whether to approve new transmission lines, even though almost everyone agrees that consideration of those factors results in better decisions.

The Mid-Atlantic Area National Interest Electric Transmission Corridor that the DOE designated encompasses nearly all the state of Maryland and New Jersey. New Jersey complained, arguing that the DOE’s own data indicated that much of these areas are not experiencing transmission constraints or congestion. The DOE did not deny New Jersey’s allegation but maintained, “(T)he statute does not appear to foreclose the possibility of national corridor designation in the absence of current congestion … even without congestion, DOE can approve a line where it wants to encourage ‘desirable generation.’”

In this case, the DOE decided that coal-fired power plants constituted desirable generation. The uncongested parts of the DOE’s designated corridor were largely in areas of Ohio, Pennsylvania, Virginia and West Virginia that account for more than two-thirds of the coal produced in the Appalachian region.

‘National’ or ‘Smart’?

This is the context for Obama’s presidency. It is unclear whether he will emphasize “national” or “smart.” Obama’s fiscal stimulus plan calls for $11 billion for what he calls a smart grid investment program. The program specifically mentions spending on new high-voltage transmission lines, but it also encompasses investments in smart grids. Since the federal government has direct control over high-voltage transmission lines through the Federal Energy Regulatory Commission but not over the retail subtransmission and distribution networks, it might find it easier to push money toward the former (“national”) rather than the latter (“smart”).

The DOE’s decisions to date on national interest transmission corridors have come while George W. Bush was president. It is unclear where President Obama stands on the growing state-federal controversy. At his confirmation hearing, Secretary of Energy-designate Steven Chu declared a nationwide grid “in the national interest” and insisted the country needed a “new way of doing business” to get it built quickly.

However, when Sen. Robert Menendez, D-N.J., protested about the DOE’s process in declaring most of New Jersey a federal pre-emption corridor, Chu acknowledged the problem and ended up saying that new lines must be sited “in a way that takes into consideration the local feelings but yet also recognizes the national needs.”

Will Chu require the DOE, and will President Obama ask FERC, to evaluate petitions for new transmission lines using the same least-cost-planning process now used by many states?

Will the federal government require all utilities to undertake the same analysis done in Minnesota to identify the capacity of existing transmission lines to absorb more renewable energy?

Will fiscal stimulus spending on upgrading the electricity grid emphasize smart over national?

The shape of our electricity future might depend on the answers to these questions.

—–

This piece originally appeared on Alternet.

Congratulations on your historic election. Now the truly heavy lifting begins. You have declared your intention to make "a new energy economy" your "No. 1 priority." We urge you to follow a path that leads not only to changes in the fuels underpinning our energy system but also to changes in the structure and dynamic of that system.

You have promised a shift from fossil fuels to renewable energy. The key distinguishing characteristic of renewable energy, its virtually universal availability, offers you and the country an unprecedented opportunity to decentralize and democratize our energy system.

Dispersed and distributed generation will, of course, be an element of any energy initiative. We think it deserves to be its core and guiding principle. The potential is enormous. A recent study by the Institute for Local Self-Reliance (ILSR) estimates that half the states could be energy self-sufficient by harnessing renewable energy within their borders while all states can satisfy a considerable fraction of their energy needs. Where necessary, on-site natural-gas fueled heat and power systems can back up and supplement renewable energy.

It will not be easy for a President or a Congress to make decentralized energy the centerpiece of an energy strategy. National governments naturally think in terms of big national initiatives. Moreover, the federal government has clear authority over interstate energy networks but limited authority over in-state and local energy systems. Therefore, your advisors may tend to favor a strategic framework that emphasizes large scale, centralized renewable power plants located in a handful of states and the construction of a national transmission system to distribute that electricity to the rest of the nation.

We hope you avoid this traditional mindset. Your election victory proves the success of a decentralized campaign and validates your oft-expressed belief that ordinary people can do extraordinary things. Your 50 state, many city, bottom-up approach to politics could be a useful model for a 50 state, many city, bottom-up approach to energy policy.

The benefits of a decentralized energy policy

A bottom-up energy policy can achieve multiple social, political and economic goals.

• Strong communities

In your professional and personal lives, you and the First Lady-elect have long worked to build strong, engaged, and self-reliant communities. A decentralized energy policy can extend and deepen this work, for it makes communities active partners rather than passive observers.

A bottom-up energy policy will tap into more than a decade of vigorous energy-related activity at the local and state levels. Indeed, a persuasive argument can be made that virtually all of the advances in renewable energy in the last 15 years have come from the bottom-up. States have dramatically upgraded their building codes to encourage energy efficiency. Many states have painstakingly evolved electricity regulatory frameworks that emphasize efficiency, renewables, and distributed generation. We should keep in mind that while Congress debated a national renewable electricity standard, almost two dozen states enacted or expanded renewable energy mandates that collectively will generate more renewable electricity than the proposed federal mandate. Over 900 cities have committed to reducing city wide greenhouse gas emissions as signatories of the U.S. Mayors Climate Protection Agreement.

A bottom-up energy policy can tap into the inherent self-interest of communities in a new energy economy. Decentralized energy generation creates local jobs, keeps money in the local economy and creates a pool of homegrown expertise that can be exported to other parts of the country and globe. The number of jobs created by rooftop solar are similar to the number of jobs created by centralized solar thermal power systems, but the former are local jobs that strengthen the local economy while the latter largely consist of imported labor with little if any lasting impact on the local area.

A bottom-up energy policy can avoid the pitfalls of a one-size-fits-all energy policy that is inappropriate for a nation characterized by such a diversity of climates, population densities and renewable energy sources.

A bottom-up energy policy is not only helpful but it is also essential because much of what needs to be done to reduce our dependency on fossil fuels must be addressed using local and state authority. This includes authority over energy facility siting, building codes, land use, and traffic patterns.

Ultimately any federal energy policy must be implemented at the local and state level. This will be done successfully and quickly only if communities become active and sympathetic partners in shaping that energy policy and the resulting infrastructure. A federal policy that emphasizes centralization and preemption (e.g. preempting state and local authority over new high-voltage transmission lines or over liquefied natural gas terminals) will burden and possibly undermine that working relationship.

• An informed and engaged citizenry

Decentralized energy generation can make households and businesses, schools, and institutions producers of energy. The more this occurs, the broader and stronger the constituency for renewable energy becomes. The advent of consumers-as-producers fosters a useful energy and economic dynamic. When people own a part of their energy supply, they tend to work to maximize the value of that supply. One way is by maximizing their overall energy efficiency because the less energy one consumes, the more independent one becomes. The other is to seek out valuable non-household uses for that energy supply. For example, those with solar rooftops are major supporters of electrified vehicles while those with electrified vehicles are major supporters of decentralized electricity.

• Greater flexibility in future decision making

An emphasis on dispersed energy generation and maximum energy efficiency could avoid unnecessary investments in centralized energy systems, long-distance high-voltage transmission networks, and costly transportation systems. It will give us time to better understand and integrate the remarkable technological advances now occurring in the energy field. Dramatic improvements in lighting, motor, and building-envelope efficiency allow us to gain increasingly amounts of useful work from a given unit of energy, significantly reducing our need for new power plants. At the same time engineers are learning how to extract ever-more energy from slower moving air and water molecules from the earth’s heat and sunlight. Rapid advances in energy storage technologies, just in the last 12 months, could have a profound impact on the potential for intermittent renewable fuels. Smart grid systems are coming online that enable a two-way grid system and a more intimate relationship between the energy customer and the grid.

We shouldn’t rush into potentially spending hundreds of billions of dollars to build a centralized renewable energy future when technological developments may eventually strand that investment.

Five steps to a democratic energy system

1. Require all existing and new federal buildings to be net-zero energy or carbon neutral buildings.
Cost: $15-30 billion

Buildings consume more than 40 percent of all energy. The federal government owns some 450,000 buildings. Virtually every town has scores of federal buildings nearby. These buildings would be required to use no more energy on an annual basis than is provided by on-site renewable energy sources. They would become models for all communities and the training ground for the nation’s architects, engineers, and builders to gain an expertise in efficient and energy self-reliant construction.

2. Upgrade the existing grid system rather than build a new network of extra high voltage transmission lines.
Savings: $60-100 billion

Sufficient capacity is available on existing subtransmission and distribution lines to interconnect potentially hundreds of thousands of additional MW of distributed renewable power. Building a new transmission network would enable new coal-fired power plants and undermine an effective working relationship with local and state governments by generating widespread popular opposition. Focus on upgrading the existing grid into a network that can integrate hundreds of thousands of new small power plants and create a more intimate relationship between energy consumers and producers.

3. Finance distributed generation and energy efficiency projects.
Cost: $20 billion

The most important stumbling block to renewable energy systems (wind, solar, geothermal) is their high initial cost. The federal government can overcome this obstacle by offering long-term loans at low but unsubsidized rates. Such financing would allow communities to maximize rather than optimize energy savings and capital-intensive renewable energy technologies to compete with fossil-fueled generators that have lower initial costs but higher lifetime costs. Federal financing should be extended only to communities that commit themselves to a bringing on a significant volume of renewable energy and/or energy efficiency and should be matched by local or state financing.

4. Foster local ownership.
No Additional Cost

Local ownership gives a community a real stake in renewable energy generation. It also generates three to 10 times more local economic benefits than absentee ownership. The federal government should eliminate its current bias against locally-owned energy projects. One strategy would be to convert the current renewable energy production tax credit into a refundable tax credit. All states should be required to seriously explore the use of Feed-in Tariffs, long-term premium priced contracts for renewable energy projects interconnected with local utilities.

5. Electrify the transportation system.
Cost: $25 billion

The combined storage capacity of millions of electrified vehicles can also enable intermittent, distributed renewable power to become a much greater percentage of our future electricity system. Aid to car companies should be conditioned on the majority of funds being used to make cars with a minimum electric-only driving range. Pledge to make electrified vehicles at least half of all federal vehicle purchases in 2012. The $7,500 tax credit for new electrified vehicles should be extended to retrofits.

Respectfully,

David Morris
Institute for Local Self-Reliance

Some 30 years ago NASA came up with another big idea: assemble vast solar electric arrays in space and beam the energy to earth. The environmental community did not dismiss NASA’s vision out of hand. After all, the sun shines 24 hours a day in space. A solar cell on earth harnesses only about four hours equivalent of full sunshine a day. If renewable electricity could be generated more cheaply in space than on earth, what’s the problem?

A number of us argued that the problem was inherent in the scale of the power plant. Whereas rooftop solar turns us into producers, builds our self-confidence, and strengthens our sense of community as we trade electricity back and forth with our neighbors, space-based solar arrays aggravate our dependence. By dramatically increasing the distance between us and a product essential to our survival, we become more insecure. The scale of the technology requires a global corporation, increasing the distance between those who make the decisions and those who feel the impact of those decisions. Which, in turn, demands a global oversight body, itself remote and nontransparent to electric consumers.

NASA and most of the environmental community were impervious to arguments about scale and community. But environmentalists soon turned against the orbiting solar satellites when they concluded the microwave beams used to transmit the solar electricity to earth would wreak havoc on birds flying through their path. Ronald Reagan cut NASA’s budget, and the prospect of solar arrays dimmed.

My experience with distant solar came to mind when I read James F. McWilliams’ recent column in the New York Times about food miles. McWilliams, a “passionate” advocate of “eat local,” discussed new studies that conclude local is not always environmentally superior. One study he cites found the life-cycle impact of a lamb raised in New Zealand and shipped to the United Kingdom was lower than a lamb raised and consumed in the U.K. Another more comprehensive study by University of Wales professors Ruth Fairchild and Andrea Collins found that transporting food from farm to store accounts for only 2 percent of the overall environmental impact of food systems. Food grown locally could have a considerably bigger footprint than food flown halfway around the world.

“I’m a bit worried about the food miles [debate], because it is educating the consumer in the wrong way. It is such an insignificant point,” says Fairchild.

McWilliams’ column comes as the U.K. Soil Association (the certification agency for U.K. organics) proposes stripping the organic label from foreign-produced certified organic goods that are flown in. Some food stores in Europe have announced they will label products that have been transported by air.

McWilliams thinks the new studies are beneficial, even for locavores, because they force us to adopt a more sophisticated and nuanced approach. He begins with the proposition, “[I]t is impossible for most of the world to feed itself a diverse and healthy diet through exclusively local food production — food will always have to travel.” Then he concludes, “[W]ouldn’t it make more sense to stop obsessing over food miles and work to strengthen comparative geographical advantages? And what if we did this while streamlining transportation services according to fuel-efficient standards?”

For McWilliams, globally efficient food systems trump local food systems. “We must accept the fact, in short, that distance is not the enemy of awareness.”

A few days later the Times published six letters to the editor ($ub. req’d) in response to McWilliams’ article. All disagreed with him, on environmental grounds. But none mentioned the word “community,” which, to me, is the most important reason to prefer local food. Distance kills community.

Buying and using local food creates a tight-knit interconnection between producers and consumers. It makes us more intimately aware of the impact of our buying and producing decisions on our neighbors. I live in Minneapolis, a few blocks away from a shallow lake. My neighborhood has learned that what we put on our lawns ends up in the lake. We see the impact in increased algae blooms and reduced fish that results from our own individual obsession with perfect lawns. This has led more and more people to grow nonpolluting gardens rather than manicured lawns. That same awareness leads us to frown upon local farmers who use pesticides and fertilizers that run off into our water table, and support those who don’t.

Purchasing locally grown food, as Maiser observes, “is fodder for a wonderful story. Whether it’s the farmer who brings local apples to market or the baker who makes local bread, knowing part of the story about your food is such a powerful part of enjoying a meal.” Buying local builds relationships, almost organically forcing the consumer to become aware of the plight of the producer and the producer to become familiar with the needs of the consumer.

A local food economy enables accountability; distance disables accountability. As we have recently discovered, food shipped across the planet, from jurisdictions and by corporations that do not view safety as their highest priority, is virtually untraceable. Or it requires global inspection agencies that themselves become unaccountable.

Still, a growing number of voices, especially from southern countries, criticize advocates of local food on equity grounds. Many developing countries rely on agricultural exports to generate foreign currency to buy products and services essential to their survival and growth, they argue. If the developed world suddenly stopped importing its food, southern farmers would be further impoverished. This could have profound environmental consequences. Poverty is the single biggest factor driving problems like deforestation, biodiversity loss, soil depletion and the endangerment of wildlife. Export earnings — from food flown to Europe and the United States — allow southern farmers to invest in more environmentally friendly agriculture.

I find the equity argument more compelling than the environmental argument against local foods. Yet the equity argument also ignores the dynamics of dependence. The globalization of food has rarely enriched small farmers in the South. For 200 years, the food crops of the New World were cultivated by slaves. When the Spaniards brought bananas to the Caribbean, they needed to get the natives to do the backbreaking work of harvesting them in large plantations. But the natives were food self-sufficient and had little or no need for money. Thus, the Spanish outlawed personal gardens. By destroying food self-sufficiency, they created a workforce for growing exported food.

Today the dynamic of globalization and dependence is more nuanced, but no less important. Countries are shifting land use and growing crops for export instead of local consumption. This may enrich some farmers, but forces many others into poverty and increases hunger. The developing countries subsidize commodity export practices, such as dumping grains on poorer countries, that impoverish small farmers. Just a few days ago, CARE, a nonprofit that works to fight global poverty, refused tens of millions of dollars in federal money for food aid to Africa. CARE argued that the program was counterproductive. By supplying free food, the United States was undercutting domestic farmers, and poverty and hunger was increasing, not decreasing.

Local resources processed by local businesses for local consumption is the ideal. We will never live up to the ideal. But we can always be guided by the need to foster community here and abroad. We will never be completely food self-sufficient on the local or even regional level. Much of our food will come from elsewhere. And when it does, we should use the principles of fair trade. We should, whenever possible, contract directly with cooperative producer organizations. In return for paying a slightly higher price, we can require them to raise their crops in the most environmentally benign way as possible.

But the environmental benefits of fair-trade agreements are far less important than the benefits that come from strengthening communities in rural areas of the world: new educational and health networks, local innovation and invention, the preservation of extended families, and the continuation of cultures hundreds and thousands of years old.

Which leads to an odd but comforting conclusion: Just as strengthening community is the most important benefit of buying locally, it is also the most important benefit of buying distantly. Public policies should be designed to maximize the use of local resources for local consumption here and abroad while trade rules should be designed to make trade less destructive to, and more supportive of, strong communities here and across the globe.

Each month, my phone bill carries alerts that urge me to take action on a specific issue or two. Recent Citizen Actions suggest the gravity of the issues chosen: "Save Our Constitution," "Impeach Dick Cheney," "Close Guantanamo."

This month Working Assets urged me to "Say No to Ethanol."

How did the use of ethanol end up alongside tyranny and torture as an evil to be conquered?

A couple of years ago, I was waiting my turn to speak to a well-attended California conference on alternative fuels. For this gathering, alternative fuels included natural gas, clean diesel, fossil fueled derived hydrogen, coal-fired electricity, as well as wind energy and biofuels. The leadoff speaker, from the California Energy Commission, spoke warmly about all the alternative fuels under discussion. Except one. When it came to ethanol, he visualized his perspective with the metaphor of a giant hypodermic needle from Midwest corn farmers to California drivers. For him and, I suspect, most of California’s state government, ethanol belongs in the same category as heroin.

In the late 1990s, the nation discovered that MTBE, a widely used gasoline additive made of natural gas and petroleum-derived isobutylene was polluting ground water. The environmental community largely defended its continued use and vigorously opposed substituting ethanol. One well-respected New England environmental coalition raised the possibility that ethanol blends could cause fetal alcohol syndrome. Fill up your gas tank with 10 percent ethanol and your baby could be alcoholic, their report warned.

In the last few years, the environmental position has shifted from an attack on ethanol from any source to an attack on corn and corn-derived ethanol. The assault on corn comes from so many directions that sometimes the arguments are wildly contradictory. In an article published in the New York Times Magazine earlier this year Michael Pollan, an excellent and insightful writer, argues that cheap corn is the key to the epidemic of obesity. The same month, Foreign Affairs published an article by two distinguished university professors who argued that the use of ethanol has led to a runup in corn prices that threatens to sentence millions more to starvation.

Ethanol is not a perfect fuel. Corn is far from a perfect fuel crop. We should debate their imperfections. But we should also keep in mind the first law of ecology. "There is no such thing as a free lunch." Tapping into any energy source involves tradeoffs.

Yet when it comes to ethanol, and corn, we accept no tradeoffs. In 30 years in the business of alternative energy, I’ve never encountered the level of animosity generated by ethanol, not even in the debate about nuclear power. When it comes to ethanol, we seem to apply a different standard than we do when we evaluate other fuels.

When California discovered MTBE in its groundwater, it petitioned the federal government to be allowed to phase out MTBE without using ethanol. It wanted to substitute a 100 percent petroleum-derived fuel. The environmental community was strongly supportive of that request.

I can’t but think that the environmental community, as currently constituted, would have supported the use of lead over ethanol as its no-knock additive of choice for gasoline in the early 1920s.

When President George W. Bush first embraced the hydrogen economy, most environmentalists applauded, even though they conceded that for the first 10-20 years, hydrogen would be derived from fossil fuels. Indeed, so eager were they to jump-start hydrogen that Minnesota environmentalists helped enact a bill that defines hydrogen made from natural gas as a renewable fuel.

When it comes to ethanol, reporters appear obligated by some unwritten rule of the profession to talk about whether ethanol uses more energy in the cultivation and processing of the crop than it contains. In the hundreds of interviews I’ve had with journalists about ethanol over the years, I can count on the fingers of one hand the number of times the net energy issue did not come up.

Articles about hydrogen in the mainstream, or alternative press, on the other hand, rarely talk about net energy. This despite the fact that while the net energy of ethanol may be debated, there is no debate about the energetics of hydrogen. Made from fossil fuels, hydrogen is a net energy loser.

While we’re on the net energy issue, a few words about the ubiquitous David Pimentel. No article about ethanol is complete without a negative comment from Pimentel. David is a distinguished professor who believes corn ethanol uses more fossil fuels in its production than it displaces. It’s certainly fair to quote him. He is a highly credible source.

But in 2005, a scientific journal published a new study by Pimentel and his collaborator, Tad Patzek. The study concluded that while corn-derived ethanol was a slight net energy loser, the energetics of biodiesel and ethanol made from cellulose were far worse.

The conversation about net energy went on as if nothing new had been added. The enemy was still corn. Pimentel and Patzek’s conclusion that other crops were much worse than corn as sources of transportation fuels, was filtered out. My old psychology professor called this process cognitive dissonance. We screen out what doesn’t gibe with preconceived notions. We hate corn. We don’t hate soybeans or grasses. Therefore the negative things Pimentel and Patzek said about corn we consider authoritative. Their negative comments about soybeans and grasses we ignore.

I hope in the future we might engage in a more productive conversation and balanced discussion about the role of plants in a future industrial economy. To that end, I offer six propositions. I look forward to a debate on all or any one of these.

1. Sustainability requires molecules. Wind and sunlight are excellent energy sources, but they cannot provide the molecular building blocks that make physical products. For that we must choose minerals or vegetables (I’m lumping animals with vegetables for obvious reasons).

Minerals will always be an important source of molecules, in part because hundreds of billions of tons are already in existing products and these products have a very high recycleability potential. But ultimately we must increasingly rely on biological resources for our industrial needs if we are to achieve sustainability.

2. Wind and sunlight can only be harnessed for some form of energy (thermal, mechanical, electrical). Plants, on the other hand, can be used for many purposes: human nutrition, animal feed, pharmaceuticals, chemicals, clothing, building materials, fuels. The challenge for public policy is to design rules that encourage the highest and best use of our finite land area (and sea and lake areas).

Few would argue that human nutrition is the highest use of plants, followed by medicinal uses and possibly clothing. After that we might differ. My organization has argued that we should first use biomass to substitute for industrial products that use fossil fuels rather than for the fuels themselves. We make this argument in part because while there is insufficient biomass to displace a majority of fuels, there is a sufficient quantity to displace up to 100 percent of our petroleum and natural gas-derived chemicals and products. And these are much higher value products.

Thus vegetable oils should be used to make nonmineral motor oils and lubricants as a higher priority than being used to displace diesel. Plant sugars should be used to make plastics and other biochemicals as a higher priority than being used to displace gasoline. If we offered the $1 per gallon biodiesel incentive to biolubricants, would it significantly expand that market? If we offered the 51-cents-per-gallon ethanol incentive to bioplastics, would it significantly expand that market?

3. Corn is a transitional energy feedstock, but it has played a crucial role in creating the infrastructure for a carbohydrate economy. We are moving beyond corn, to more abundant feedstocks like cellulose. But a carbohydrate economy, where plants have an industrial role, would have been delayed by 20-30 years if not for corn.

As the nation’s largest agricultural industry, with politically powerful corporate players like ADM, the corn industry had the clout to play with the big boys(e.g. coal, oil, natural gas) when federal incentives were liberally distributed in 1978 and 1980.

Federal incentives made ethanol blends competitive with gasoline at the gas pump. That was a necessary but wildly insufficient step toward getting biofuels into the gas pump. To accomplish that the embryonic biofuels industry had to persuade its competitor, the oil industry, to use ethanol instead of its own product. As the same time the ethanol industry had to convince car companies, which had designed their engines hand in glove with the oil companies for 60 years, to allow ethanol into their gas tanks.

For the first decade after the federal ethanol incentive was passed, a majority of ethanol was distribution through cooperatively owned and independently owned gas stations in the Midwest. Only in the late 1980s did car company manuals stop advising owners not to use ethanol blends.

Today a national biofuel distribution network exists. Some 30 percent of all cars use ethanol blends. The corn-derived ethanol industry has lowered per-gallon in-plant energy use by 75 percent since the early 1980s. And enzymatic research has been the foundation for new developments in bioplastics and other bioproducts.

We are nearing the end of the corn-to-ethanol era. Ethanol production has doubled since 2005 and promises to double again by 2010. It is unlikely any new corn to ethanol plants will be built beyond those currently in the construction pipeline. Even the National Corn Growers Association expects ethanol demand to exceed the capacity of the corn crop when all the new ethanol plants come online. All congressional bills that would increase the biofuels mandate also cap the amount of corn-derived ethanol at 15 billion gallons. After 2012, all additional ethanol capacity must be based on noncorn crops.

Cellulosic materials will be the prime feedstock. Some, like Vinod Khosla, a major proponent and investor in cellulosic ethanol plants, argues that his first plants, to be online by 2010, will produce ethanol competitively with $4 a bushel corn.

4. Electricity, not biofuels, will be the primary energy source for an oil-free and sustainable transportation system. But biofuels can play an important role in this future as energy sources for backup engines that can significantly reduce battery costs and extend driving range.

Even when we move from corn to cellulose, we likely lack sufficient arable land to cultivate enough biomass to displace more than about 25 percent of our transportation fuels (diesel plus gasoline). This is not an unimportant amount, but we need to accept that biofuels will not play the primary role in eliminating our dependence on oil. That role, as I’ve discussed in my 2003 report, A Better Way to Get From Here to There, will be played by electricity.

Miles traveled on electricity are oil-free miles because we use very little oil to generate electricity. Traveling on electricity means getting over 100 miles per gallon equivalent, triple the increased fuel efficiency standard under debate in the U.S. Senate. Traveling on electricity generates no tailpipe pollution and costs 1-2 cents per mile compared to 10-15 cents per mile for traveling on gasoline or biofuels. The electricity would initially come from a grid system almost 50 percent powered by coal, but given the renewable portfolio standards in place, an increasing percentage of our electricity would come from renewable resources like wind or sunlight.

The Achilles’ heel of all-electric cars is the cost and weight of batteries and the need for recharging every 100 miles or so. A backup engine overcomes that shortcoming.

If the backup engine powers the car 25 percent of the time, we will have enough biomass to displace 100 percent of the petroleum used in the engine. Coupled with oil-free electricity, this can lead us to reduce by 80-100 percent our reliance on oil for transportation.

5. Approach biofuels as an agricultural issue with energy security implications, not as an energy security issue with agricultural implications. Design policies to maximize the benefit to rural areas of using plant matter for industrial and energy uses. The key is local ownership of biorefineries.

A 25 percent displacement of transportation fuels by biofuels will have an important, but not a determining or primary impact on energy security. But it could have a determining impact on the future of agriculture and rural communities. That’s where we should focus our attention.

A 25 percent displacement of diesel and gasoline would require the cultivation and harvesting of more, perhaps far more, additional plant matter than is currently harvested for all purposes — food, feed, chemicals, textiles, energy, paper, construction. That prospect affords us the opportunity to devise farm policies that dramatically restructure agriculture both here, and perhaps even more importantly, globally, where agriculture and rural villages still account for anywhere from 25 percent to 50 percent of the population.

The two key problems with agriculture are: (1) millions of farmers compete to sell their raw material into increasingly concentrated markets and (2) farmers sell raw materials and buy back finished goods, falling further and further behind. For almost two centuries, governments have devised programs to deal with this. The United States has two core farm strategies.

One is called supply management. Quotas keep domestic prices high. This is the way the sugar program works. The other more prevalent strategy involves farm payments when prices fall below a target level. The farmer sells his or her crop at prices below the cost of production. The government, via the general taxpayer makes up the difference. The price of food is lower.

It is unclear, if and when we shift to cellulosic biofuels, that farmers will avoid the core problems currently confronting grain farmers. This year’s farm bill likely will offer money to farmers to cultivate cellulosic crops like grasses. Quite likely this initial payment program will evolve into a target price program similar to that now used for commodity crops.

In 2015, cellulosic farmers may be selling their crops to biorefineries at prices below the cost of production and receive government payments to make up the difference. Fuel costs will be modestly lower, just as food costs today are modestly lower because of government programs.

However, we can devise policies that enable a different future, one in which farmers, and other rural residents, own the value added biorefinery. Agricultural materials, by their nature, are bulky and costly to transport long distances. Thus processing tends to be local and regional. Biorefineries, unlike petroleum refineries, can be small in scale and thus enable local ownership.

Local ownership benefits farmers in a number of ways. It allows them to hedge against crop price declines. If their crop price goes down, the input costs of the biorefinery also decline and all things being equal, profits will be higher and they will receive a higher dividend check at the end of the year. Studies by the Institute for Local Self-Reliance and other organizations have found that farmers can earn up to five times more per bushel by co-owning a biorefinery rather than simply selling to it.

Local ownership benefits rural areas, as many studies have documented, because a much greater portion of the dollar generated by the biorefinery stays within the community. Local ownership benefits state economies because it generates more taxable income.

Local ownership and the scale of biorefineries have never been a consideration of the environmental movement. That may be changing. Until recently, the organic agriculture movement, for example, focused on the biological health of the soil, not the economic health and security of the farmers and rural communities. Now in several states, organic certification takes into account ownership and place. A new slogan is "Local is the new organic."

A priority on rootedness and local ownership should be included in initiatives proposed by the environmental community regarding biofuels. They should not only lobby for sustainable crops but also sustainable rural communities and a sustainable income for cultivators.

In the late 1980s and early 1990s, Minnesota led to the way in devising policies to encourage modest scaled biorefineries and farmer and local ownership. The movement caught on. Whereas in 1988 ADM accounted for 75 percent of ethanol output, in 2002 it accounted for about 35 percent. In that year, farmer owned biorefineries produced almost as much ethanol, collectively as did ADM’s giant plants. Eighty percent of all new ethanol plants built or proposed that year were majority farmer or locally owned.

The current ethanol boom has changed the structure of the industry. Today, over 90 percent of all new ethanol plants are absentee-owned. The typical new plant has a capacity of 100 million gallons or more, almost triple the average size plant built in 2002 and making it very difficult to have majority local ownership.

In the 2005 Energy Act, Congress did direct the Department of Energy to give a priority to farmer ownership and rural development when it disbursed funds to accelerate cellulosic ethanol. DOE ignored the congressional directive. Congress made no fuss. All the attention is on getting more cellulosic ethanol, not getting better cellulosic ethanol, at least in its impact on farmers and rural communities.

Nothing in the current farm bill or current energy bills under consideration addresses the ownership and scale issue.

6. Support performance, not prescriptive standards.

Performance standards specify outcomes. They specify an end result, but not how that result is achieved. They focus on ends and leave the design of means to entrepreneurs. Performance standards foster competition and innovation. Renewable electricity portfolio standards, now in place in two dozen states, are performance standards. A variety of renewable fuels qualify — wind, solar, biomass, hydro, geothermal, landfill gas, ocean or tidal power.

Prescriptive standards are like a recipe. They prescribe exactly how to achieve a specific result. The 2005 federal renewable fuel standard for transportation fuels and the new standard under debate in the U.S. Senate are prescriptive standards. They mandate the use of a single renewable fuel: ethanol.

Congress should transform the renewable transportation fuel standard into a performance standard, not only for internal consistency, but also because of the coming convergence of electricity and transportation.

California is developing a performance standard. Theirs is based on carbon emissions. Under that standard, natural gas derived hydrogen would probably not qualify as better than gasoline. Nor would corn ethanol produced in coal fired biorefineries. Cellulosic ethanol would rate higher than corn ethanol. Wind electricity likely would rate higher than cellulosic ethanol but perhaps lower than sugar cane derived ethanol where the cane cellulosic byproduct is used to power the processing plant.

For the next 5-15 years, the difference in the on-the-ground impact of a renewable transportation fuels standard rather than a biofuels mandate would be small in the same way as the on-the-ground impact of a renewable electricity standard versus a wind energy mandate has been small.

Wind energy accounts for 80 percent to 95 percent of the renewable electricity generated under the renewable portfolio standards. Because of their head start, national delivery systems and drop in capability to existing engines, ethanol and biodiesel would comprise at least as high a proportion of a renewable transportation fuel performance standard in the near future.

But in the longer term, a performance standard is superior public policy. It mandates ends, not means. It encourages diversity and flexibility and innovation, and provides a level playing field for entrepreneurs.

© 2007 Independent Media Institute. All rights reserved.

Biofuels won’t single-handedly solve the climate crisis, nor will they deliver energy independence. But a base of widely dispersed, farmer- and citizen-owned biofuel plants can displace significant amounts of fossil fuels — while also building local economies.

What follows is a strategy for tweaking existing federal energy and farm policy to create such an energy landscape. Before getting to that, though, given the scorn heaped on biofuels by many well-intentioned and not so well-intentioned commentators, I’ll make the case that biofuels have an important role to play in any realistic sustainable-energy vision.

First, a truly sustainable materials foundation demands that we use plants for more than food and feed. We can extract energy from the wind and sun, but where will the molecules needed to make physical materials come from? We have two choices: vegetables or minerals. Maximizing the reuse and recycling of existing materials can minimize our need for new materials. But raw materials will eventually be needed, and when they are, I suggest we rely on biology, not geology.

Second, the planet lacks the arable land area necessary to grow biomass in quantities sufficient to displace more than a minority of fossil fuels, let alone all minerals. There is more than enough existing plant matter to make biochemicals that displace all organic and inorganic chemicals. But there is only enough land available to grow plant matter sufficient to displace 25 to 35 percent of our ground transportation fuels. And under virtually any scenario, we can’t grow enough biomass to satisfy more than a tiny portion of electricity requirements.

Third, and following from proposition two, any initiative to aggressively increase the production of biochemicals and biofuels should be viewed as an agricultural strategy with energy-security implications. This is the opposite of the way policy makers currently approach the biomass issue. To them, expanding bioenergy is an energy-security strategy with agricultural implications.

Today, policy makers ignore the farmer because they assume a rising tide will lift all boats. Expand biofuels production, the logic goes, and rural areas and farmers will automatically benefit.

But farmers have learned from over 100 years of bitter experience that increased demand for their raw material does not automatically translate into higher personal incomes.

Before the recent jump in corn prices, the cash price of corn in mid-2006 was no higher than it was in 1974. Indeed, in 1974, a bushel of corn could buy about 5 gallons of gasoline. Today, even after the recent price rally, a bushel of corn can buy only about a gallon and a half of gasoline.

A recent study by the Institute for Local Self-Reliance concluded that the increase in ethanol production from about 1.5 billion gallons in 1990 to over 4 billion gallons today has had little or no statistically significant effect on corn prices at the national, state, or even county level. The recent run-up in corn prices reflects the enormous increase in plant construction, amplified by speculation in the futures markets. But traditionally, farmers have a collective way of undermining their own prosperity.

Most observers expect that high corn prices will result in about 8 million additional acres of corn cultivation in 2007, which would produce about 1.2 billion bushels, which could produce all by itself over 3 billion gallons of ethanol. Unless Congress dramatically increases the mandated level of ethanol production next year, we can expect corn prices to come back down by the end of next year, if not sooner.

On the other hand, if farmers own the bio-refineries, they do profit handsomely and possibly enduringly. Their annual return on their investment is often in the range of 30 to 75 cents per bushel. The data is skimpy and largely secondhand, but over the last 15 years, the average farmer investor in an ethanol plant probably earned annual returns of over 15 percent.

To date, public policy, at least at the federal level, has ignored the ownership structure of renewable-energy production facilities. That may be because until very recently America’s biofuels industry was largely locally owned. In 2003, some 50 percent of all existing ethanol refineries and perhaps 80 percent of all proposed plants were majority-owned by farmers. But in the last two years, that ownership equation has been reversed. Today, 80 percent or more of new ethanol production is coming from absentee-owned plants.

Congress should give locally owned bio-refineries a boost. If the national biofuels mandate were increased, as many expect it will be, there would be less justification for financial incentives that simply encourage consumption. Congress could then turn its attention to fashioning incentives to encourage the most beneficial kind of production.

You can get there from here

How might that occur?

One step is to transform the federal biofuels incentive from a pump credit — that is, an incentive that goes to the blender of ethanol and gasoline — to a direct payment to the ethanol producer, with higher rewards accruing to locally owned plants. Minnesota did something similar to this with its state ethanol incentive in the mid-1980s, to good effect.

Taking a page from Minnesota’s playbook, Congress could redesign the federal incentive this way. An absentee-owned plant could be paid 15 cents per gallon for the first 20 million gallons produced each year for 10 years. A majority locally owned plant might receive 25 cents per gallon.

Such incentives might be expected to encourage communities to raise money internally to build biofuel plants. To produce enough biofuels to satisfy 30 percent of our transportation fuels and 75 percent of our chemical needs would require about 2,500 bio-refineries. Assuming 500 investors per plant with an average investment of about $25,000, we would have about 1.2 million local investors, each with a direct stake in a biologically fueled future.

These local investors need not be farmers. But if the majority were, the number would exceed the total number of commodity farmers in the nation — which is why an aggressive and community-oriented rural energy policy could serve as the foundation for a dramatically redesigned agricultural policy.

We may be able to displace only 25 to 35 percent of our ground transportation fuels with plants, but to achieve that objective would require harvesting more plant matter than is used today for all purposes, including food, feed, textiles, paper, structural materials, and energy. That is, sufficient plant matter to supply over 2,500 bio-refineries. And as the transition to cellulosic production progresses, there’s no need to focus on any single dominant feedstock such as corn. Feedstocks can become region-appropriate, and bio-refineries can be widely dispersed, with at least one in virtually every state.

With an energy policy in place to encourage local ownership of bio-refineries, Congress should make locally owned rural energy production an integral component of farm policy when the Farm Bill comes up for reauthorization in 2007.

Consider the numbers. In 2005, the nation’s commodity farmers (cotton, rice, soybeans, cotton, wheat) had sales of about $50 billion. Commodity farmers received about $15 billion in government payments. Over the years, this level of support has fluctuated, depending on the market price of the commodities, from $5 billion to $25 billion.

Wholesale revenues from biofuels in 2006 will be about $8 billion, and could reach $14 billion by 2009, with a net income of more than $3 billion. Wind energy sales will be a little less than $1 billion in 2006 and could reach $2 billion by 2010.

If the farm program were redesigned to help farmers become owners of value-added processing and manufacturing facilities, it could change the very structure and dynamics of American agriculture. For farmers, a share in a bio-refinery acts as a hedge against a possible fall in the price of their crop. If the price of corn falls, so does the input costs of producing ethanol and, all other things being equal, the profits from that plant will increase, generating a higher dividend check to the farmer. The same dynamic would occur when cellulosic ethanol is introduced.

Just $5 billion — or a third of last year’s commodity-support outlay — could enable farmers to become owners in some 500 additional bio-refineries producing an additional 20 billion gallons of ethanol.

When Congress reconvenes in January, it will have the opportunity to fashion a far-reaching Farm Bill that marries agricultural and energy goals, and aligns rural prosperity with energy security. But it will only take advantage of that historic opportunity if it accepts a basic proposition: ownership matters. The ownership structure of agriculture, not the demand for agricultural products, will decide the future of rural America, and perhaps the future of world agriculture. And bioenergy can be the lever that stabilizes our farms, even as it helps wean us from fossil fuels.