The conventional wisdom is that the financial crisis has claimed yet another casualty in the form of meaningful action in the next year on climate change. According to this argument, putting a price on carbon in a down economy is a non-starter. What's more, collapsing oil prices have taken at least one reason for major action off the table. And lower oil prices, combined with difficulty in getting financing, may take its toll on the entire renewables sector. The argument runs like this: while the presidential candidates are still talking about action on energy, the most likely scenario is for the status quo to continue as the new President and the Congress cope with a recession next year. Today, for example, the Financial Times and the New York Times have articles on the collapse of the biofuels industry. And even Thomas Friedman writes in his column that he's seen this movie before in the 1900s when lower oil prices led to an abandonment of alternative fuels and the re-addiction to foreign oil.
However, this conventional wisdom is wrong. A downturn does not mean that action on energy efficiency must end or make it more difficult. In fact, the reverse is true. A downturn is more reason than ever to move forward on clean energy investments. Moreover, as long as the climate continues to warm (and last year was the warmest on record), climate change will remain an issue, and this urgency is reflected in the timetable of the Copenhagen process. Accordingly, the United States not only should, but must, move forward on a whole range of climate and energy related issues.
First, with a recession likely, with interest rates already at low levels and banks impaired in their ability to lend, fiscal policy will have to play a much larger role than in the last few cycles in getting the economy back on track. Any stimulus package, as I have argued and as Friedman endorses today, must have a major green component. That includes support for grid modernization, mass transit, weatherization and green construction. But it also might include a tax credit for the purchase of energy efficient appliances, a tax credit for energy efficient vehicles and, to help the beleaguered American auto industry, as suggested by Jack Hidary and Alan Blinder, a trade-in tax credit to take old gas guzzlers off the road.
Whether or not a stimulus package is accomplished, government needs to create the machinery to retire our energy inefficient infrastructure and replace it with low-carbon infrastructure. In this regard, it is vital that Congress move forward on proposals to create a clean infrastructure bank such as those put forward by Senators Dodd and Hagel and the New Democrats with respect to energy.
Second, while oil prices have fallen precipitously, the volatility of gas prices itself is unacceptable for a healthy economy. The long-term trend not only for oil, but for gas, coal and electricity is up. And remember that the OPEC cartel always has the ability to restrain production if prices drop too low.
Third, low energy prices mean that in some ways, it will now be easier to put a price on carbon than it was this summer when the market alone seemed to be raising prices. A carbon credit or tax regime will quantify the social cost of carbon emissions, improving on signals that vary with the gyrations of the market.
Fourth, Copenhagen is coming in early 2009 and the United States needs to develop a coherent position on how to address climate change before then. The Wall Street Journal recently castigated Jason Grumet for suggesting to Bloomberg Radio that the EPA may, by default, end up regulating carbon. But this very well may happen if Congress does not address the climate issue.
Ambassador Richard Holbrooke recently made an interesting suggestion that the United States should negotiate directly with China to reduce carbon emissions. Together, the two countries account for 60% of the total carbon emissions. Given the high level of complementary interdependency between the United States and China, a bilateral framework may prove more effective than a multilateral one in moving China off its dime. This is an avenue for action that would not require comprehensive cap and trade legislation.
Congress should also move forward on a renewable electricity standard, accelerated depreciation for clean energy investments by corporations and by families
Most importantly, all of these actions on energy are vital to a comprehensive strategy to create a true 21st century economy, raise incomes and get America moving again. Call it a "Clean Deal." We can't (and don't want to) compete with the emerging economies on wages. Rather, the United States needs to lead the world in innovation and the development of clean energy technologies. This issue has emerged as a vital challenge of the 21st century.
Far from slowing down, action on climate and energy is heating up. Next year we need to roll our sleeves up and get to work to begin building the low carbon, but high economy of the future.
Cross-posted at the NDN Blog.