America’s urgent need for new job creation may be the driver that pushes the Senate to pass a jobs and energy bill this year. After the loss of 8.4 million jobs in the current Great Recession, Congress is searching desperately for any means to create new jobs.
Unemployment vs. deficit “conundrum”
As former Treasury Secretary Henry Paulson said Saturday on National Public Radio, “we as a nation save too little and we borrow too much, both individually and the government.” In Paulson’s new book On the Brink, he argues that Americans’ relative lack of savings helped to propel the financial crisis.
However, Paulson acknowledged to NPR host Scott Simon, the “conundrum” is that to spur the economy, we now need to spend more and create more jobs. Paulson did not offer a solution to this impasse.
Indeed, this contradiction is now paralyzing the nation’s political life, as Americans are worried about both high unemployment and record deficits. The Obama administration and Congress are now walking a tightrope between these anxieties.
Investment as solution
The solution to this jobs vs. savings conundrum is to invest money now, into projects that when completed will help us individually and as a nation to save more.
For instance, an investment now into energy efficient buildings would create desperately needed construction jobs, but pay for itself with increased energy savings.
Investments in an advanced electric grid using renewable energy will create the engine to power the economy, without skyrocketing fuel costs.
Investments to wean our cars and trucks off imported oil can stop the transfer of wealth of trillions of dollars from the U.S. economy that is now building the economies of oil exporting nations, many of them hostile. These dollars can instead remain in the U.S. to build our own economy.
Measures which spur investments that help us to save thus meet both the urgent need for more jobs and make structural changes to help America thrive through thrift.
Private sector key
It is neither desirable nor possible for government to put everyone back to work with public works projects. While some investments must be made to make government operations more thrifty, the biggest savings must come in the private sector. More efficient operations will help the entire economy to thrive and compete.
The challenge, then, is to find ways to spur these private investments.
Cap-and-trade in jeopardy
The mechanism favored by economists to spur private investment in a more efficient economy is the cap-and-trade approach. A “cap” on emissions is set, but polluters can “trade” by paying someone else to cut their emissions if it is cheaper. The overall emissions limits spur investment in new technologies, and those investments create jobs. This approach is the centerpiece of the House energy and climate bill.
However, very effective “cap-and-tax” media campaigns by large polluters and Tea Party-style activists, have placed the cap-and-trade concept in serious jeopardy. cap-and-trade is not a tax but in fact is the lowest-cost means to set a pollution limit. Opponents have nevertheless loudly condemned cap-and-trade as a tax-like economic levy. Both Democrats and Republicans remember well the 1994 mid-term election debacle after Bill Clinton proposed what was deemed a “BTU Tax.” Republicans have vowed to use cap-and-trade as a hammer against its supporters in this November’s elections.
Climate bill “lite”?
Some Senators are now pushing an approach that would accomplish only a handful of key measures. For instance, one proposal would require action only by electric utilities. While any progress is welcome, the failure to achieve significant greenhouse gas emissions reductions would doom the ability of the U.S. to negotiate with other countries for a world climate deal. As global warming is by definition a worldwide problem, the failure to achieve agreements with other countries would mean the U.S. would still suffer the effects of catastrophic worldwide climate changes.
As global warming is by definition a worldwide problem, the failure to achieve agreements with other countries would mean the U.S. would still suffer the effects of catastrophic worldwide climate changes.
While Kansas might install efficient wind farms, it would be of little help if worldwide global warming proceeds unabated and turns Kansas into a region stricken by a Dust Bowl style permanent drought, destroying its agriculture.
Five key energy and jobs measures
If we assume for the sake of discussion that a limited jobs and energy bill this year won’t include either cap-and-trade or new taxes, what measures are are critical? Could substantial greenhouse gas emissions cuts still be achieved? What must proponents of a good bill insist be included? The following five key measures could begin to spur investments in private job creation and greenhouse gas reductions across multiple sectors of the economy:
1. Better energy building codes: Buildings account for almost 50 percent of total U.S. energy use and 70 percent of our electricity use. This makes new energy building codes the single most effective energy saving and emissions reductions measure available. The jobs created would be in the severely distressed construction industry.
The group Archictecture 2030, comprised of the nation’s most prominent architecture and building firms, has estimated the new energy building codes contained in the House jobs & climate bill would save six times more greenhouse gases than could be saved by a fleet of 100 new nuclear reactors. By the year 2050, the new energy building codes would by themselves reduce building sector CO2 emissions by 49 percent below 2005 levels. Since the building sector accounts for almost half of total U.S. energy use, the new building codes could achieve a reduction of almost one quarter of total U.S. energy-caused greenhouse gas emissions.
The new building codes adopt standards whose cost as part of a mortgage payment must be less than the cost of the energy saved — so they cannot be required unless they save money.
Building better buildings also creates more construction jobs. Doing the things needed to make buildings more efficient — better caulking, insulation, etc — are low tech and highly labor intensive.
If builders had a way to move most of the money consumers are spending on utility bills, and instead buy better houses with this same money, they would shift those monies tomorrow. Better energy building codes accomplish this.
We already know how to build more efficient buildings. It just makes sense to stop building things wrong so we don’t have to go back and fix them later.
2. Energy saver home tax credit for new and retrofit homes: To provide an immediate jobs boost to the construction industry and ease the transition to more energy efficient homes, Congress should revise the Homebuyer Tax Credit. The current Homebuyer Tax Credit expires April 30, 2010. As the housing industry is still severely depressed, it is a sure bet there will be calls to extend it.
However, studies have shown the current Homebuyer Credit is not creating many jobs. Simply selling homes does not require hiring construction workers. Homes need to be newly built, or retrofitted, to create new construction jobs. An Energy Saver Home Credit could implement an effective requirement for job creation. As it would be more targeted, it could pay for itself through economic multiplier effects.
Architecture 2030 has estimated that a similar measure to promote new and retrofit home energy efficiency would create 4.5 million job years if only 2.2 percent of homes participate.
To receive a credit for purchase of a new home, the new Energy Saver Home Credit would apply when the new home meets energy standards at least 20 percent better than energy building codes. For instance, if mandatory energy building codes require a 30 percent savings compared to 2006 codes, the new Energy Saver Home Credit would require a 50 percent savings. This would reward builders who do the extra work (and hire the extra workers) to make the home more efficient than required.
To receive an Energy Saver Home Credit for the purchase — or refinancing — of an existing home, an energy retrofit achieving at least a 20 percent energy reduction would be required. Thus, as existing homes are purchased, or refinanced, there would be a strong incentive to bring those homes up to more efficient energy standards.
3. Economy-wide new equipment and transportation efficiency standards: Another key provision to stop building things wrong is to enact improved energy efficiency standards for lighting, appliances, and heavy trucks and transportation equipment. The House energy and climate bill contains these provisions to require cost-effective changes to how new equipment is built.
These new lighting, appliance, and equipment standards would bring into effect savings across all sectors of the economy — industrial, commercial, residential, agricultural and the critically important transportation sector. As new energy efficient technologies are available that become cost-effective, new equipment would need to be manufactured to these more efficient standards.
This provision would create jobs by helping the U.S. economy run more efficiently and competitively. It would also create a significant export opportunity for the U.S. to design and manufacture energy-efficient equipment to the world market.
4. Renewable Energy and Efficiency Standard (REES) for electric utilities: Energy Information Administration modeling [PDF] of the House energy and climate bill has indicated that under that bill’s provisions, over 80 percent of the actual reductions in U.S. greenhouse gas emissions by 2030 would be implemented by electric utilities. This is because, as shown in the EPA chart below, electricity generation accounts for the lion’s share of U.S.direct CO2 emissions. Most importantly, conversion of electric utilities to low-carbon sources is readily workable, whereas other sectors of the economy such as transportation may take longer to reduce emissions.
A majority of states now require increasing percentages of kWh’s to be generated by renewable energy. California has a 33 percent by 2020 standard, and Colorado is now moving to adopt a 30 percent by 2020 standard. (Colorado is particularly noteworthy as it began with over 2/3 of its electricity generated by coal in 2005) Overall, 29 states have adopted minimum requirements [PDF] for renewable generation and 4 have adopted “goals.”
The public has embraced this approach as it focuses on adoption of new technologies rather than economic measures.
The House climate bill contains a flexible Renewable Energy and Efficiency Standard (REES) requiring utilities to obtain 20 percent of their kWh’s from a wide selection of energy efficiency and renewable energy sources by 2020. That standard also gives credit to utilities who choose to meet part of their kWh’s using Carbon Capture & Sequestration (CCS), new hydro, or new nuclear power.
A report [PDF] prepared by the Chicago consulting firm Navigant has recently estimated that a standard requiring 25% of the nation’s electricity to be supplied by renewable sources by 2025 can create 274,000 new jobs. The report’s sponsors noted that meaningful requirements for renewables are critical for the U.S. to compete with China in attracting renewable industry manufacturing facilities.
While the House bill’s REES standard stopped at only 20 percent, the bill ultimately used cap-and-trade to require electric utilities to achieve much greater reductions in emissions — roughly 50 percent by 2035 and over 80 percent by 2050. If cap-and-trade is not adopted, however, a continuing “ratcheting upward” of REES levels might instead be used to achieve similar electric utility emissions reductions.
If a REES requirement at high levels is adopted, it should also include power plant efficiency conversions. Natural gas power plants and efficiency tune-ups can also help utilities lower emissions. To allow more flexibility at lower cost than a strict renewables-only requirement, REES levels above 20 percent should include improvements to generator efficiencies (e.g. fuel-shifting to natural gas from coal, or overall efficiency upgrades) as a qualifying REES energy efficiency measure.
To complement a Federal REES, the bill must include strong Federal transmission siting measures to insure needed transmission lines from new renewable power plants can be built.
5. Agricultural and Local Governments Offsets programs: The House climate bill creates a special “offsets” program to allow polluters subject to its cap-and-trade measures to instead pay to help farmers reduce greenhouse gas emissions. These USDA-administered programs might include carbon sequestration through better pasture management, conversion of crop residue (straw) to biochar, or paying for a dairy farmer to install a methane generator.
While technically this program is something like a “trade” provision in a “cap-and-trade” bill, its separate administration by USDA would allow it to be included in a new bill even without an overall “cap-and-trade” scheme. For instance, electric utilities might be allowed to purchase some agricultural offsets from USDA as one means of meeting their REES levels.
If the USDA program proves successful, another special-purpose Offsets program might also be developed, for local governments. For instance, EPA might advance a program to fund methane capture and usage at municipal waste treatment plants and landfills.
Some measure of success
The inclusion of the above five measures in a jobs and energy bill this year would accomplish many of the job creation and greenhouse gas emissions reductions that might have been included in a more comprehensive jobs and climate bill. Almost all sectors of the economy would be touched, but directly rather than through cross-funding mechanisms.
Nothing to call a “tax”
A limited jobs and energy bill enacted this year might not include any requirements for oil refineries or natural gas distributors to meet “caps” on their sales or purchase “allowances,” and “offsets.” Hence, it is unlikely voters would see such a bill as imposing any kind of levy that opponents could label a “tax.”
No new money raised
None of the above measures require adoption of major new funding mechanisms. (The Energy Saver Home Credit requires funding, but it is proposed as a more effective replacement to an existing Homebuyer Tax Credit.) All other measures are regulatory in nature and only require administration. They are funded by the private sector (e.g. electric utility bonds, and home mortgages) and adopt measures which will pay for themselves through lower fossil fuel costs.
Many programs not possible
With no new funding mechanism, no new money would be raised. Therefore, measures which require significant funding might not be adopted. These include proposed funding for new state energy office programs, increases in low income weatherization, funding of advanced automobile research and development, rebates to impacted electric and gas local distribution companies, funding of international projects that reduce greenhouse gas emissions, funding of loan defaults to investment bankers by utilities who build new nuclear power plants, or a proposed $60 billion in new funding for carbon capture and sequestration (CCS) technology.
Many of these additional programs might also create jobs and significantly reduce greenhouse gases. Some may be critically necessary to achieve an international climate agreement. Many are demanded by regional lobbies to ease the perceived costs of converting to cleaner energy. Some are simply demanded by powerful lobbies who want Federal funding.
However, they are not included in the five measures above, because there would be no way to pay for them.
Trading may yet come
If Congress wishes to fund these additional efforts, adoption of a more comprehensive bill including cap-and-trade is likely to be required. Such an act, if structured as economists recommend such as in the House bill, would require all polluting industries such as oil refineries, factories, and natural gas distributors to purchase pollution allowances if they wish to continue to emit greenhouse gases or to sell to end users who would burn their fuels. Industries could choose to reduce their emissions, or pay for allowances and offsets for someone else to reduce emissions. Prices for such fuels as gasoline, diesel fuel, and natural gas would rise slightly if consumers do not reduce total usage below the emissions “caps.”
Polluters would not pay one dime for any allowance or offset, however, unless it was cheaper to buy than to reduce their own emissions. Many industries will ask Congress for this option, so a “trade” may yet come to pass in any climate pollution-capping bill.
Sen. Lindsey Graham (R-S.C.) has maintained his strong support for a comprehensive jobs and climate bill, because he sees the need for enacting many of these other efforts. He has recently been quoted as saying anything less than a comprehensive bill is “half-ass..d”.
Ultimately it will not be sufficient to adopt just the five measures above. Global warming is real. China is racing ahead of us now, and we need strong action to compete. In other words, in many ways Sen. Graham is right.
Enacting any kind of bill without the five measures above, however, is also “half-ass..d.” To fund nuclear power loan defaults, CCS, and offshore oil drilling and not do the measures that create the most jobs would ignore our best opportunities. Other countries will move ahead and steal the lead.
America’s jobless deserve better than that. Congress needs to move now to adopt a jobs and energy bill that will put Americans back to work.