Tuesday, October 09, 2007

Obama's Energy Proposal

Obama has released his Energy Proposal and it looks really good. Climate Progress and Grist list the highlights:

  • Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions to the level recommended by top scientists to avoid calamitous impacts. [Obama will require carbon emissions to be “80 percent below 1990 levels by 2050” through cap & trade (with 100% allowance auction!) starting with a mandate “of reducing emissions to 1990 levels by 2020.”]

  • Invest $150 billion over the next ten years to develop and deploy climate friendly energy supplies, protect our existing manufacturing base and create millions of new jobs.

  • Dramatically improve energy efficiency to reduce energy intensity of our economy by 50 percent by 2030.

  • Reduce our dependence on foreign oil and reduce oil consumption overall by at least 35 percent, or 10 million barrels of oil, by 2030

  • Make the U.S. a leader in the global effort to combat climate change by leading a new international global warming partnership.

  • 100% auction of cap-and-trade credits. This is a home run, a real act of standard-setting boldness (the kind that Obama always promises but rarely delivers). The green community should immediately use it to push Clinton and Edwards into making the same commitment, insuring that it's the new baseline for any cap-and-trade program.

  • Smart investment. The revenue from auctions will be considerable, up to $50 billion a year, and Obama's smart about putting it to work, dividing it between energy R&D, protections for low-income workers, and market deployment of existing clean tech.

  • A focus on efficiency. Clearly Obama gets that efficiency is the easiest route to emission reductions, and he's got a set of thoughtful, detailed initiatives to make it work.

While I think a carbon tax is simpler and less likely to be gamed than a cap-and-trade program, this is pretty good, especially because it is auctioned off rather than given away. I wonder how much revenue that will bring in? I think I read somewhere around $30 billion which then could be used to pay for the R&D he is proposing.

This proposal is similar in many respects to my Gas Tax + Grand Challenges in Renewable Energy Bold Idea.

I like his idea to create a Clean Tech Deployment VC Fund.
The Clean Technologies Deployment Venture Capital Fund will be modeled on the highly-successful Central Intelligence Agency In-Q-Tel program. In-Q-Tel is a non-profit, independently-managed venture capital fund led by seasoned venture capital professionals to develop new intelligence technologies for the CIA. The first five years of In-Q-Tel funding led to 22 new technologies being used in 40 government programs.
While the proposal is good, I wonder if Obama is elected and this were to go to congress, just what kind of legislation would get passed and whether the parts I like about this would make it through.


Audacious Epigone said...

"Invest $150 billion over the next ten years to develop and deploy climate friendly energy supplies, protect our existing manufacturing base and create millions of new jobs."

Uh, how does he intend to impose these massive additional costs that fall more heavily on the manufacturing sector than the service sector and still keep them here? That seems infeasible to me.

Shin Liu said...

Sounds pretty naive to me. Wonder if Obama ever worked in the real world?

Fat Knowledge said...


What about the plan makes you think it is naive?


Good question on the impact of the manufacturing sector. I don't have any numbers on this, you wouldn't happen to would you?

Since I don't have any numbers, I will just give you some thoughts instead.

First, even from an environmental standpoint this is an issue, if companies move to India or China where they will manufacture products in a way that emits more fossil fuels than if they stayed in the US.

Second, from an economic standpoint, manufacturing is 14.2% of US GDP. So don't think there would be a big impact if some manufacturing did move off shore as people would switch to service jobs.

Third, I am not sure how large this tax/additional costs would be on companies. I really should figure this out, but at $150 over 10 years, that is $15 bil a year. A $15 bil increase in a $13 trillion economy doesn't seem like a major factor. I don't know what this cost would translate to in terms of a carbon tax, maybe $30/ton of CO2? If so that would be an extra $.30 a gallon of gasoline and $.03 a kWh of coal electricity.

I am not sure how big of an impact that would have on manufacturing, but I don't believe it would be major enough to see massive offshoring. I remember people being concerned that NAFTA would cause companies to go to the country with the worst environmental regulations, but as far as I know that hasn't been the case.

There is more health care in automobiles than steel now, so I don't see auto manufacturers going overseas (or the Japanese manufacturers returning home). Steel manufacturing is energy intensive, but there are so many subsidies and tariffs put on it by various countries that I bet if the cost did go up, someone would subsidize it back down.

High tech is still doing some manufacturing in California which has the highest energy costs already, so I don't think this will make them change. And they are already manufacturing a lot abroad in Taiwan, Ireland and other locales. I don't think that decision was based on energy costs, but I am not 100% sure on that.

Then there is the manufacturing of all the stuff that Wal-Mart sells. But I get the feeling that most of it is already manufactured in China already.

Forth, one option that I have read on a couple of blogs is to add an import tax to add the costs of this carbon tax onto those importing into the US. This would keep the playing field level. I like this idea, except I think it will be pretty tough to determine how much CO2 was emitted to create various products at the moment. Maybe 5-10 years down the road this would be more feasible.

To summarize, from an economic standpoint I am not concerned if more manufacturing goes overseas as the share of GDP and % of jobs in the US from manufacturing has been going down for decades while the economy has been growing. From an environmental standpoint it is an issue and should be addressed. I would not think energy costs would be a huge factor in determining manufacturing location (Fuel costs are only 5% of UPS's budget).

But, I really have no numbers to back this up so let me know if you have something.

Audacious Epigone said...


Thanks for the thoughtful response.

No, I don't have numbers on that, either. I would expect that at some point Obama would present them, as the paragraph I excerpted needs to be expounded upon. As it stands, it sounds inherently contradictory and comes off as quixotically utopian--we'll make it more expensive for businesses to operate and we'll get them to operate here in greater numbers!

I like the idea about a tariff on imports to offset the domestic disadvantage. That seems to be a minimal requirement if the net effect isn't going to be an even more lopsided trade imbalance, just as it's showing small signs of 'correcting' itself with the dollar's drop.

Fat Knowledge said...


I took a look at some numbers at carbontax.org, and it looks like there are 6 billion metric tons of CO2 emitted by fossil fuels each year. So a $2.5/ton carbon tax would raise $15 billion a year. That is not much, as it would only raise gasoline prices 2.5¢ and coal electricity by .25¢. I think industry could adapt to that without much problem.

The other thing I should mention is that I think part of his argument is that we would be able to create new manufacturing jobs for the creation of clean power technologies like solar panels and windmills. While I think spending $15 billion is likely to create these jobs, it doesn't seem to me to be the right rational, as I think you could create many more jobs spending $15 billion if that was your only goal.

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