Obama's Energy Plan (Part 1): Venture Socialism?

I want to like Obama. I really do. He's young, dynamic, eloquent. Many of my best friends and nicest relatives support him. He sounds like he might be a "New Democrat," looking for innovative, market-oriented, small government solutions.

But he is just not.

Take a look at his energy plan. The most striking aspect of the Obama plan is what it does NOT include: not a single kind word for all the various existing tax incentives that have spurred along the development of hybrid cars, solar power and other clean technologies. These incentives have been hugely successful in convincing millions of Americans to buy cleaner, more efficient hybrids, or put solar panels up on their roofs. Expanding these successful programs is key to moving America over to green energy. But not a single mention of these in the Obama plan. No commitment to either expanding or even maintaining these policies.

That omission should be profoundly disturbing to any serious environmentalist.

Anyone interested in keeping government lean and efficient should also be disturbed, because these tax incentives are the one extremely effective solution that does not require new taxes, spending or regulation, that does not grow the government.

By contrast, McCain's energy plan is way ahead of Obama's in his support for a wide array of existing and new tax incentives for green energy. We will take a look at that later -- McCain does not go as far as he should in supporting complete tax freedom for green energy -- but for now, back to Obama.

Obama should be applauded for the few incentives he does propose: incentives to encourage cellulosic ethanol, E85 pumps at gas stations, and retooling of auto plants to produce more fuel efficient cars. But those three narrow incentives are nowhere near enough... and smack of government bureaucrats trying to pick winners and losers in the green energy universe for political reasons. For instance, ethanol may not be the best solution out there for a transportation fuel, compared to say, plug-in natural gas hybrids. Ethanol does not reduce carbon emissions or dependence on foreign oil, while natural gas vehicles do both, dramatically. But ethanol has a very powerful farm lobby behind it. Green energy development should not be driven by such politics. Green energy tax cuts should be broad based, across the board, letting the market pick the winners among the most cost effective, carbon neutral/negative technologies available.

So if Obama does not support existing and successful green energy tax incentives, what does he support? Unfortunately, most of his solutions are typical Big Government initiatives, based on increasing taxes, spending and regulation. I will come back to the new taxes and regulations in my next post. But the worst aspect of Obama's plan is the new spending, which Mr. Obama calls "investment."

Obama proposes $150 billion investment over ten years for a variety of green energy technologies, plus an additional $50 billion over five years for a "Clean Technologies Venture Capital Fund." In addition, he plans to double federal energy R&D budgets, and proposes unspecific amounts for investment in "clean coal," clean tech worker re-training, and clean tech manufacturing conversion.

So you may ask, what is wrong with all that? After all, this blog proposes that we need massively more green energy investment. Well the research part of it is good, very good. We need good solid research on these technologies, both private and public. No problem there. The problem is with the various investment schemes.

Obama is proposing to launch the very first federally-funded venture capital firm ever. Sounds exciting, sure. The problem is, when you do that, it is no longer venture capitalism. It is venture socialism. And that -- state investment in and ownership of key industries (i.e. socialism) -- carries a host of pitfalls that true (i.e. private) venture capitalism avoids.

1) It fosters corruption, and can easily turn into a protection/payola racket. We absolutely do not want to train our green CEO to come clamoring to politicians for their personal access to the public teat. Politicians should never be able to wield that kind of power -- it is incredibly corrupting. Companies end up being given investments for political payback reasons -- because they gave the right campaign contributions and other perks -- not because they are the most efficient green energy company. Bureaucrats and politicians start picking winners and losers based on the size of their lobby, not the competitiveness of their technology. All such investment decisions should be strictly private, and NEVER EVER put into the hands of politicos.

While Obama and the people around him may have the best of intentions, one has to wonder how many of his contributors are wealthy green entrepreneurs who have done the math and figured that, for their $25,000 contribution, they get a favored spot in the line for the $25 billion a year that B.O. plans to "invest." If so, it stinks. We need to close the doors on all payola schemes, not create new ones.

2) State funding becomes a crutch for inefficient businesses that never bother to learn how to be independent because they have political connections. Many state owned businesses, like Amtrak, lose money continuously, and become dependent on state financing to survive. The best way to avoid that fiasco with green energy is to never let such companies become dependent on state financing in the first place. Making green energy tax free avoids that pitfall, because, even with such tax advantage, such companies still must be profitable to survive and keep their (private) investors happy. State funding allows favored companies to operate indefinitely at a loss; tax exemption does not.

Lastly, Obama's state-funded investment schemes are simply not enough to do the job that needs to be done. We need way, WAY more new investment than $25 billion a year, and the only way we can get the investment numbers we need is to massively motivate private investors and consumers.

Look at the numbers: Last year, world investment in renewable energy technologies was $148 billion. If we want to reach the point where clean, renewable energy accounts for 50% to 100% of the US and global market in 10 - 20 years, we need to raise global green energy investment by about 500%, from the present $150 billion annually, to $750 billion. $25 billion is really peanuts . You are only going to get the kind of numbers we need through the free market, by radically changing the economic picture, by making the entire green energy sector tax exempt on account of the good it does our nation and the planet.

If the US does that, we will certainly hit our annual $750 billion globally in the next president's first term, and most of it will be invested through the tax-advantaged US markets, making the US the world leader in in green energy, supplying both US and international needs. Obama's plan won't get us there, can't deliver those numbers, and will cause our green energy sector to fall behind Europe, China, South Asia and Latin America.

The crying shame of all this is that Obama really should be backing green energy tax cuts, and NOT these quasi-socialist state investment schemes. Not only because the former policy will actually jump start a green energy revolution and the later will not. But also, because, doing so would certainly burnish his image as a "New Democrat" favoring innovative small government, free market solutions. Instead, it seems he is being ill-served by his advisors, who would rather have a scheme that allows the future Obama administration to write multi-million dollar checks to outstandingly rich green entrepreneurs (and potential donors) who may give a few thousand to the campaign right now.

Sadly, these advisors are leaving Obama open to some very serious criticism, and give McCain the opportunity to put himself forward as the truly green candidate. However, it is not too late for either Obama or McCain to step forward and seize the initiative on this issue.

To be continued soon re Obama's energy taxes and regulations, and then the McCain plan. T. Boone Pickens plan next week. Stay tuned.

Tax Nudge versus Tax Free?

An anonymous comment on the last post speculated that a "tax nudge" might be sufficient to solve our present problems, rather than the complete tax elimination that is here proposed on green energy. While a "nudge" is certainly a step in the right direction, it is not enough. Here is my reply to anonymous explaining why:

I doubt a mere tax nudge is sufficient. If we want to reach the point where clean, renewable energy accounts for 50% to 100% of the US and global market in 10 - 20 years, we need to raise global green energy investment by about 500%, from the present $150 billion annually, to $750 billion. The only way to do that is with a massive reallocation of private investment, which will need to be driven by some major incentives such as proposed here. If the US makes green energy 100% tax exempt, I have no doubt that not only will we reach those investment goals in a few short years, but that most of global green energy investments will funnel through the US, making us the leader in a new era of prosperity driven by clean technology. If we do less than that, the leadership will be taken by others, the transition will take many more decades, while global warming and our national foreign oil addiction proceed apace.

Remember, the incentives must be of sufficient magnitude to persuade the carbon industry to diversify, happily and without backlash, to carbon-free sources.

I will explore this point more in future posts. NickName, commenting on the first post, made an excellent point about the need to define green energy. I will flesh that out a bit more in future posts.

If any of you have information of interest regarding green energy or proposals to promote it and end global warming, please post them in the comments, and I will try to explore them, in future posts.

Coming later this week: analysis of the energy proposals of John McCain and Barack Obama.

Al Gore: The Good, The Bad & The Unsustainable

Yesterday, former Vice President Al Gore made a speech which his staff at wecansolveit.org describe as "inspiring," issuing "a powerful challenge: producing 100 percent of our electricity from renewable energy and truly clean carbon-free sources within 10 years." Clearly, this speech was intended to be a watershed event, setting the bar high with respect to energy/environmental policy for the coming election. Here is the low down:

The Good: In the first 75% of his speech, Mr. Gore truly is inspiring. He makes the case for switching to renewable, clean energy more powerfully and eloquently than could most. Anyone who has seen "An Inconvenient Truth" will find familiar territory here, but updated, with strong insights into the current fever pitch of the fossil fuel mess. What can be said: he is right, I agree completely, and he says it so dang well.

Further, Mr. Gore is deliberately setting the bar high. Even if it is not realistic that we can do away with fossil fuels in just 10 years, as many commentators seem to think, it is great that Gore is calling for a goal that pushes politicians to take the issue seriously.

The Bad: Buried 80% of the way through his speech, in one short paragraph, is what Mr. Gore himself identifies as the very crux of his policy proposal. How strange that it is almost hidden, given such short treatment, as though he knows this part is going to go over like a lead balloon. Hear the heart of what he proposes:

"America's transition to renewable energy sources must also include adequate provisions to assist those Americans who would unfairly face hardship... We should guarantee good jobs in the fresh air and sunshine for any coal miner displaced by impacts on the coal industry. Every single one of them.

Of course, we could and should speed up this transition by insisting that the price of carbon-based energy include the costs of the environmental damage it causes. I have long supported a sharp reduction in payroll taxes with the difference made up in CO2 taxes. We should tax what we burn, not what we earn. This is the single most important policy change we can make."

Unfortunately, even though Mr. Gore is right that carbon-based energy is getting a free ride, the core solution he proposes would be incredibly and unnecessarily painful. Frankly it would be disastrous for America, and unsustainable to boot. Gore does not say it directly, but if you read carefully, there can be no doubt that Al Gore proposes to bankrupt the coal industry, and probably oil too, within 10 years. (Which is why he proposes aid for coal miners: "Every single one of them.") But the damage may go way beyond that. The US economy is already reeling from the shock of skyrocketing oil prices. To add a carbon tax on top of that would be to effectively jack up the price of oil and coal even further. Doing so could well trigger an even more severe recession that we are already in, if not a global depression. All of us would suffer. Maybe that is part of the plan: reduce carbon emissions by collapsing the world economy.

Further, slashing payroll taxes would effectively collapse the social security, medicare and unemployment systems funded by those taxes -- at a time when Gore proposes government aid to tens or hundreds of thousands of laid-off carbon industry employees. Now, social security and medicare are off-topic for this blog, but it is no secret that these systems are approaching insolvency. To propose that these systems now be funded by a tax on industries that Mr. Gore plans to destroy is obviously unsustainable and dangerously irresponsible.

Whether or not reducing carbon emissions by collapsing the economy is the actual plan, there can be no doubt that this kind of ultra-painful shock-therapy -- which will only increase the financial hardship ordinary Americans are already feeling -- is totally unnecessary. There is more than one way to solve the dirty energy problem quickly, some painful, some painless. Hiking taxes abruptly on dirty energy is the painful approach.

Making clean, green energy 100% tax free is the painless alternative -- and far more effective to boot.

Rather than hiking the price of oil and coal, and dragging down those industries and the entire US and world economy with them, simply give a huge boost to the green energy sector until such time as renewable and carbon-free energy dominate the market. That way, instead of causing pain and depression, one is sparking a green energy revolution, creating new industries, hundreds of thousands of new jobs and a new era of prosperity based on clean, green technology. (See the post "Houston, we have lift off!" below for the basic argument for green tax cuts.)

Mr. Gore is actually 100% right about the need for a tax differential between clean and dirty energy to account for hidden social costs. He is merely wrong about the safest and easiest side of the equation to adjust.

The Unsustainable: Mr. Gore, despite the wonderful work you have done to fight global warming, you can't propose bankrupting entire industries, destabilizing social security and medicare, hiking prices and throwing the world economy into a downward spiral, and expect that such a policy will actually be adopted... or if it is adopted, that people will actually stick with it as the suffering gets worse and worse. It is an unsustainable policy. It will produce an ENORMOUS political backlash that will make it fail.

Sustainability has become an increasingly important concept for both environmental sciences and economics. It should also be a key consideration when crafting policy and legislation. Will a policy be sustainable? Or will it produce so much hardship and pain, and such a backlash of opposition, that it will be doomed to fail? We need effective policies, but especially ones with minimal backlash.

Too often, environmental reformers seem to be stuck in an outdated ideological groove that makes it far more important for them to punish and coerce what they see as corporate evil doers than boost entrepreneurial do-gooders. Bashing the bad guy is emotionally satisfying to be sure, but it is a behavior that is more appropriate to comic books than economic policy: ultimately, it causes fierce political backlash that finally kills the policy. It has happened time and again -- look at the collapse of California's well-intentioned attempt to coerce the automobile industry into producing electric cars. It is far better policy -- much more sustainable and easier to implement, provoking much less backlash and hardship -- to help the good guys win, than to coerce and punish everyone else.

Any policy that is going to solve the carbon problem can't outright kill the carbon industry in a few years -- or create massive national hardship and economic chaos -- because the backlash will simply be too severe for the policy to be implemented or sustained.

Rather, we need to give the carbon industry a way to profitably transform itself: to move the carbon industry to ever cleaner methods, to replace the dirty old technology and ultimately to diversify from carbon to carbon-free energy. Simultaneously, we need to give completely clean, green, carbon-free technologies the greatest possible advantage with complete tax freedom, so that these become the dominant energy sources.

If we do that, rather than triggering a depression, we can insure a new age of prosperity, with minimal backlash. It seems just insane to see Mr. Gore, who is so rational and has done so much for the green energy revolution, make proposals that will cause massive suffering and blowback -- and so ultimately fail -- when far more effective, sustainable, prosperity-inducing alternatives exist.

Mr. Gore's current thinking seems, apparently, a bit too stuck in the old school, comic book bash-the-bad-guys brand of politics. Which is a shame... one hopes that a "New Democrat" would be a bit more open to unleashing a creative explosion of green entrepreneurship by tax cutting (versus tax hiking) solutions. Maybe he just hasn't considered all the possibilities. His heart is in the right place, bless him, and the problem he wants to solve is very, very real. He is really so close to the right answer, he's just focused on the wrong side of the equation. My hope and expectation is that he will soon rethink this and get it right.

R. R. Richardson

Houston, we have lift off!

Welcome to the launch of the Green Energy Tax Cuts blog! You are in at the birth of an idea that could change the world -- every bit as ambitious and doable as the Apollo Missions to land men on the moon -- but what we need, here and now, is a feasible plan to jump start the Green Energy Revolution in the US and around the world. The idea is simple but powerful: given the perfect storm of crises facing our nation at this time -- skyrocketing petroleum prices, global warming, insanely expensive oil-related wars and geopolitical quagmires -- ALL green energy technology should be tax free at all levels of government. That means free of all sales, income and capital gains taxes. That one policy would do more to encourage the extremely rapid development of green energy technology in this country and abroad, and break our nation's dependence on foreign oil, while lowering energy costs overall. It would spur the creation not only of hundreds of thousands of new jobs, but of whole new industries, and insure that the US becomes the world leader in these new technologies.

Think of it: no sales tax on green energy cars, powerboats, airplanes, appliances, machinery or heating and cooling systems. No income tax on revenue from those products, or on energy produced from green energy sources: wind, solar, hydro, geothermal, etc. No capital gains tax on the stock of green energy technology companies, and pro rata capital gains tax breaks for companies that are partly devoted to green energy. Such a simple straightforward policy will lead to massive new investment in these technologies, and massive consumer demand for them.

All we need to do is unleash the free market and level the playing field. Level the field? Currently the playing field is NOT level, because petroleum leads to many HUGE unintended costs (think pollution, global warming, Katrina, foreign wars, terrorism). These costs are mostly NOT borne by the oil industry, but by the American taxpayer. Green technologies do not carry these costs, and in fact will help America escape these costs. So Green Energy deserves to be tax free because it can save the taxpayer trillions in petroleum subsidies and cleanup costs. That tax break is the most painless cost our country can pay in order to escape our addiction to foreign oil, and all the massive extra costs that addiction brings.

This simple but radical idea is not yet on the radar of any presidential campaign that we know of, which all seem to be sadly ineffective when it comes to energy and environmental policies. We do not need government spending boondoggles disguised as "investment," as Mr. Obama now proposes. We don't need piecemeal tax incentives or inventor prizes for this or that technology, as Mr. McCain proposes. Government should not be in the business of promoting one green technology over another, but should make all of them tax free, and let the market choose the best. We need one simple clear policy that will massively bootstrap green energy, in all its forms: making ALL green energy technology tax free across the board is it.

This blog will consider the energy and environmental proposals of all major candidates and think tanks, applauding the worthy and hopefully improving the rest. We will offer online petitions and other tools for activist promoting green energy and green energy tax cuts. Readers will also find a section here devoted to cool green energy innovations, products and investments. You will see a lot of changes: this is just the first post.

And we want to hear from you: can you help? Are you the person that can introduce this idea to Barack Obama or John McCain? Do you know of any think tanks promoting a similar idea, or that should take up the cause of green energy tax cuts? Do you have any thoughts for the blog -- or technical abilities to contribute to online advocacy for our cause?

Hopefully, the Green Energy Tax Cut proposal will transcend left and right, and have an appeal across party lines. The idea combines the best of both the right and the left, to create what could be called Supply-Side Environmentalism. Supply-side economics holds that, if you want more of something (either prosperity or a clean environment) just tax it less. It will be a great accomplishment if we can motivate both the tax cutters of the right and the environmentalists of the left to drop the dogma and mutual suspicion to come together to solve the greatest challenge facing out nation today.

R. R. Richardson