Friday, February 27, 2009

Green Stimulus Spending and Republican Opposition

In the US, Republicans are gearing up to continue their fight against legislation like the $787 billion American Recovery and Reinvestment Act of 2009. The bill's spending and tax cuts emphasize public-works projects and Green initiatives like a new energy infrastructure focused on renewables. The US government has provided $700 billion to bail out the financial sector. In all the Fed has guaranteed $7.7 trillion dollars in loans, while taking over an insurance group, two loan agencies, and a few banks. The White House's 10-year budget outlook includes federal spending of $3 trillion a year.

President Obama's budget seeks to renew confidence, provide jobs and make America more sustainable. Wednesday's budget outline sees significant government support for efficiency, renewables and a smart electric grid. More money was also being directed towards highly questionable cleaner coal-fired power plants. Although some have dismissed capture technology for coal-fired power plants as nothing more than a myth used by the coal industry to greenwash the public.

The original bill proposed by Democrats contained $144 billion for energy, transportation and environment related projects including, $32 billion “to transform the nation's energy transmission, distribution, and production systems.” $22.6 billion to retrofit and weatherize public and “modest-income” homes to make them more energy efficient. $30 billion for highway and bridge repair/construction. $31 billion to “modernize federal and other public infrastructure with investments that lead to long term energy cost savings.” $19 billion for clean water, flood control, and environmental restoration. $10 billion has been set aside for mass transit and rail and $100 billion of the infrastructure stimulus has already been earmarked for upgrading America's electric grid with 3,000 miles of new transmission lines.

What was truly interesting is the announcement that these massive projects will be paid by a cap-trade-system. A market-based cap* on carbon pollution drives the production of more renewable energy, raising the price of carbon dioxide is the only way renewables can gain ground in a fossil fuel driven energy marketplace. As reported in CNNMoney.com, the White House's cap-and-trade law is expected to generate $79 billion a year in 2012. Making companies pay to emit carbon dioxide will generate $15 billion a year for investments in clean energy. Under the Presidents plan, cap-and-trade revenues will also provide $64 billion in tax cuts for the middle class. An analysis by the Energy Information Agency indicated that cap-and-trade would raise the price of gasoline by about 41 cents a gallon and the price of electricity by about 11% by 2030. This is a small price to pay for reducing carbon dioxide by about 30% from 2006 levels (according to EIA estimates)

Some Republicans in Congress disagree suggesting cap-and-trade will actually result in less government revenue, as it will drive U.S. business overseas. Congress hopes to pass a budget plan by early April but they should not expect support from Republicans who appear to be in a pugnacious mood as they are committed to resisting the democrats efforts to heal the economy.

The President's stimulus bill passed in the house on January 28, but without much support from Republicans who appear unwilling to consider the logic of stimulus spending. Although most economists agree that spending is crucial to head off an even bigger economic disaster. House Republican leader John Boehner said Washington should institute "a spending freeze so we can get our budget in order." Even efficiency measures that save taxpayers money are under assault as Republican's are grasping at straws in a bid to discredit the Democrats. US Senator Mitch McConnell recently called Obama's plan to modernize the fleet of federal vehicles' "wasteful spending."

Obama's $825 billion Green stimulus represent the biggest construction project in U.S. history dwarfing Eisenhower's interstate highway system in the 1950s and President Roosevelt's $11.4 billion in the Works Progress Administration (WPA) during the Great Depression ($175 billion in today's dollars). And despite the 25% unemployment rate, that WPA investment created 8.5 million jobs between 1935 and 1943. By some estimates 35,000 jobs will be created for every $1 billion invested in infrastructure. If this number proves accurate, the 28.9 million jobs created would have a major effect on the larger economy.

The backing of President Obama is sure to positively impact renewable energy in the form of tax breaks and credit for renewable energy companies and their clients. This will guarantee a market for products like solar panels and wind turbines. The stimulus bill intends to double the production of renewable energy in three years and this will spur innovation in energy efficiency and renewable energy.

There will be considerable benefit to industries associated with infrastructure (concrete, roads, bridges) and those that manufacture renewable energy sources like wind turbines. Other industries will not fare as well under the stimulus. Certain oil industry tax breaks will be repealed and this is projected to generate $2 billion in revenues by 2011. An additional revenue increase of over $1 billion will come from reinstating a requirement that corporations help clean up toxic industrial sites through funding the Environmental Protection Agency's Superfund program. Not every company will or should be saved, many will be purged or transformed. The American auto industry is already undergoing a radical transformation.

America has fallen far behind the world's renewable energy leaders and even some developing countries. America simply cannot afford to remain so hopelessly inefficient and be competitive in the international marketplace.

An effective economic stimulus will positively impact the GDP and improve peoples lives in ways the GDP cannot measure. The government stimulus will increase the corporate tax base and help pay off the debt incurred by the financial stimulus.

The Republican response to the most disconcerting crisis of our times, is to resurrect the failed policies of fiscal conservatism that helped create this crisis in the first place. Rather than begin the work that needs to be done, Republicans appear intent on framing issues in the context of old ideological divides while ignoring the fact that government spending, if well placed, can be remarkably helpful in a recession.

As Bush has said, we need to abandon "free market principles to save the free market system.” President Obama's new energy economy contains credible infrastructure investments that will create jobs, make America more competitive and reduce harmful emissions. Just as a lack of confidence is the root of the problem, injecting confidence is the solution. This is the President's job, part hardball economics, part theatrics, both of which coalesce to make mere mortals into great leaders.

If the stimulus jump-starts the stalled economy as predicted, consumers and business stand to benefit. Sensible people find it hard to disagree with a government stimulus and history should judge harshly those who play politics during a time of crisis.

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*In a market-based cap or a cap-and-trade program, companies must initially buy permits from the government to emit carbon dioxide, the main greenhouse gas. Then, the number of permits are reduced each year. Companies trade these permits among themselves, which are expected to get more expensive as the number of them decreases. Companies can either pay to install cleaner equipment, or buy permits from other companies that have them.

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