Green Tax Code?

Thanks to The Atlantic’s July-August edition, I took a brief walk through the US political-environmental history of my adult life.

For me, it started with President Carter’s much-derided “sweater address” to the nation, in which he suggested we lower our thermostats.  I recall vaguely the buzz about the White House’s unsightly solar panels. Even as a high schooler I paid attention to the news.

What I didn’t understand at the time was how much reliance this country puts on the tax code to affect behavior — individual,  corporate and regulatory.   Hence today’s post and writing prompts for bloggers & newsletter publishers.

Saw-blade growth

Quoting the article: “Plotted on a graph, the history of clean-energy production in the United States resembles the blade of a saw, rising and falling each time subsidies came and went. Japan, Germany, Spain, and Denmark show smooth, upward-sloping yield curves, a reflection of consistent government policy.”

Reliance on venture capital

Long excerpt:

The nature of venture-capital investing, which involves placing many bets in the hope that a few pay off, helped create today’s array of clean technologies. But venture capitalists have been unable to replicate the explosion of growth in the Internet sector, because they aren’t big enough to compete in the $5 trillion U.S. energy market. Google required only $25 million in venture capital to become the company it is today. A large wind or solar facility can cost upwards of $500 million just to get started. “When you’re talking power infrastructure, you’re talking thousands of tons of steel and glass and giant turbines,” says Peter Le Lièvre, the co-founder of Ausra. “All the investors in Silicon Valley combined cannot put $500 million into a project.”

This poses a problem. Venture capitalists can bring an idea from the lab to pilot scale. But sooner or later the limitations of their balance sheets kick in. Many start-ups have made it this far only to die searching for additional financing. Venture capitalists have a term for this. They call it the “Valley of Death.”

The nut of the problem traces all the way back to Jimmy Carter’s choice of tax credits as the vehicle for subsidizing renewable energy. Direct grants would have been simpler. But Congress had recently changed the federal-budget process to keep closer track of how much money was being spent. It suddenly became easier to spend indirectly, by manipulating the tax code. Although no one realized it at the time, Carter’s decision to use tax credits lit the very long fuse on a bomb that detonated last fall and nearly took down the entire renewable-energy industry in America.

The trouble with tax credits (my emphasis added) is that in order to make use of them, you must owe taxes, and most start-ups struggling toward profitability do not. So while a company looking to build a wind or solar facility would qualify for valuable benefits, it had no means of realizing this “tax equity.” The work-around was to partner with someone who did, someone large enough to finance a $500 million facility and profitable enough to incur a large tax bill. Having witnessed two decades of busts and bankruptcies, traditional U.S. banks wanted no part of this. European banks, going by their more positive experience, were comfortable funding large renewable projects, but didn’t qualify for U.S. tax credits. The perversity of the government’s incentives demanded a big balance sheet, huge profits, and an indifference to risk. Enter Wall Street.

Investment banks and hedge funds stepped in to fill the void, engineering tax-equity vehicles with suspiciously complicated-sounding names, like “partnership flip structure” and “inverted passthrough lease,” to exploit the tax benefits. These deals amounted to financing agreements for large infrastructure projects, given in exchange for tax credits, often worth hundreds of millions of dollars, that could be applied against profits earned primarily on other investments (like mortgage-backed securities). For renewable-energy companies, tax-equity deals meant life or death: the combination of credits could offset two-thirds of the capital cost of a project. Companies like Lehman Brothers, Wachovia, and AIG became an integral part—even the integral part—of the renewables industry, because the utility-scale projects they financed produce the overwhelming majority of clean energy in the United States.

Basing the entire system of federal incentives on tax equity had two weaknesses, one that has always been clear and another that became clear only recently. Forcing renewables companies to route government support through Wall Street, thereby sacrificing a portion of it, was needless and inefficient. But it also tied the industry’s fate to that of the financial world’s most aggressive players. Just as Wall Street bankers bet that housing prices could never fall and got wiped out when proved wrong, Congress seems never to have imagined that Wall Street might someday have no profits and need no tax equity. Early last year, the multibillion-dollar tax-equity universe consisted of 18 providers. After September’s record carnage, the number dropped to four. Credit froze, and most projects ground to a halt. All of a sudden, not just a few start-ups but the entire renewable-energy industry was staring into the Valley of Death.

Financial and Environmental Writing Prompts

• Do you agree with Raj Atluru, managing director of the venture-capital firm Draper Fisher Jurvetson, when he claims that the stimulus bill save renewables?  Here’s The Atlantic:

“To fill the tax-equity gap, the stimulus provides $32.7 billion in direct grants and another $134 billion in loan guarantees to attract new investors to large projects. To impose stability, it extends a variety of tax credits by anywhere from three to eight years. Most striking of all, it instructs the Department of Energy to invest directly in promising cleantech companies (though the payoff comes in jobs and environmental gains, not equity). By a stroke of his pen, President Obama made a federal agency the world’s largest venture capitalist. When the official in charge of the program appeared at a Santa Barbara energy conference in March, he was mobbed by eager CEOs.”

• Is it inefficient to force renewable companies to route government support through Wall St?
• What do you think about the Department of Energy now essentially becoming the world’s largest venture capitalist?
• Comment on this claim: “American capitalism—even when it’s working—is not without its limitations, one being that promising ideas rarely get funding if their commercial potential lies beyond venture capitalists’ 10-year investment horizon.”
• Do you agree that The Energy Department research budget has never recovered from Reagan’s cuts?
• Do you have statistics to back up or dispute this claim? “People in cleantech circles often point out that the electric utilities spend a smaller portion of revenue on research and development than pet-food companies do. “

Greenfinger?

Gas the Planet Strategy

With the G8 coming to agreement on climate change, The Atlantic’s article “Moving Heaven and Earth” is timely.  In it, I learned a new vocab word, “Anthropocene,” coined in 2000 to describe the period of time when humans began changing the world’s climate and ecosystems.

I also learned about large-scale projects that are designed to “deform the Earth intentionally, as a way to engineer the planet either back to its pre-industrial state, or to some improved third state.”  These projects fall under the term “geo-engineering”and give me the creeps.

Following is a brief overview of the strategies followed by writing prompts for bloggers and newsletter publishers (but they can also be used for conversation starters at the neighborhood pool party).

Gas the planet

For those who saw Blade Runner, the red skies envisioned by this strategy will be familiar.  Imagine factories whose sole occupation is pumping out sulfur dioxide.  During the day all that aerosolized pollutant would shield the planet from the full blast of the sun and would often redden the sunsets.  Cost estimate: $100billion compared to an estimated annual $1t to cut carbon emissions through traditional means.

Churn the seas

The National Center for Atmospheric Research’s plan calls for a fleet of 1500 ships constantly churning sea water and spraying it high enough for the wind to carry it to the clouds, making them whiter and fluffier, which in turn enables them to better reflect the sunlight. Cost: $600m up front plus $100m annually.

Frisbees

An astronomy and optics professor at the University of Arizona proposes shooting Frisbee-sized ceramic disks at the gravitational midpoint between Earth and Sun to provide a huge sunshade and keep the planet in a perpetual state of annular eclipse.  Cost: Several trillion (the technology doesn’t exist).

No international treaty needed

The trouble with treaties is the incentive to cheat, but with geo-engineering any one country could act alone.  “Instead of a situation where any one country can foil efforts to curb global warming, any one country can curb global warming on its own.  Pumping sulfur into the amosphere is a lot easier than trying to orchestrate the actions of 200 countries  — or for that matter, 7 billion individuals…”

The article contemplates a possible “Greenfinger” who might implement geo-engineering with the single minded focus of  the James Bond villain, Goldfinger. “There are now 38 people in the world with $10b or more in private assets…theoretically, one of these people could reverse climate change all alone.”  Even a poor country like Bangladesh could afford to take unilateral action to reduce the chance their low-elevation coastal zones would wash away in global-warming-induced rising seas by pumping out sulfur dioxide.

Cut carbon emissions

There is almost universal agreement by climate scientists that we’re better off reducing carbon emissions than going into geo-engineering.  Lots of ideas there too, including capturing emissions in giant cooling towers, but the problem is where to put all that captured carbon.  One idea is to inject it into the “right kind of geological structure” that would be deep enough to keep it there.

Another reduction strategy for reducing the carbon dioxide we currently produce is blooming plankton, which thrives on it.  Some envision offshore plankton forests to replace those no longer on land.  Problem is, the dead algae would produce methane, a greenhouse gas that’s 20 times stronger than carbon dioxide.

The article concludes with the suggestion that we “keep investigating geo-engineering solutions but make quite clear to the public that most of them are so dreadful that they should scare the living daylights out of even a Greenfinger.”

A note on language

As I wrote in May, people don’t respond as well to negative as they do positive language.  For example, the founder of ecoAmerica observed “When someone thinks of global warming, they think of a politicized, polarized argument. When you say ‘global warming,’ a certain group of Americans think that’s a code word for progressive liberals, gay marriage and other such issues.”

Further, in another Atlantic Monthly article by Yale psychologist Paul Bloom, “Although it might be hard to think about the person who will occupy your body tomorrow morning as someone other than you, it is not hard at all to think that way about the person who will occupy your body 20 years from now. This may be one reason why many young people are indifferent about saving for retirement; they feel as if they would be giving up their money to an elderly stranger.”

Bottom line for environmental communicators: find a way to couch messages in positive language; ground them firmly in the present.

Environmental and Financial Writing Prompts

• If you have working knowledge of these or other geo-engineering strategies, please leave a comment with links.  You might consider comparing and contrasting those you know with those in The Atlantic’s article.
• Refer to the post I wrote about Prince Charles’ Rainforest Bond proposal. Given what one rogue nation could do to gas the planet with sulfur dioxide, perhaps it makes sense to pay rainforest countries for the services their natural resources offer to the health of the planet and every living being.
• Given the state of venture capital, by what means can environmental entrepreneurs fund their work?  Is there something between governmental support and venture capital?  With so many unemployed financial mathemeticians looking for something to do, this seems a worthwhile problem to ponder.
• How can funding and regulation work together to protect the entire world from a Greenfinger or rogue state?

Global Defense Bonds?

I’m no weenie peacenik.  Thugs must be taken out. But please, let’s rethink our military expenditures.

What if we killed two birds with one stone?   First bird, the precarious US treasury.  Second bird, the unsustainable global arms race.  The stone?  A global peacekeeping collective powered with the existing world’s arsenal, most of which the US built.

We built it, so I’m in favor of being compensated for it

The world needs a police force.  But I’m not in favor of the ever-escalating arms race or the US being the de facto world’s police force.

What if we paid down our massive foreign debt by selling our portfolio of defense weapons to a global defense bond fund?  I got the idea from a white paper published by the Prince’s Rainforest Project which I covered in the May blog.  The basic logic of the proposed Rainforest bonds and my proposed global defense bonds is the same: those who add value must be compensated for what they bring to the table.

Rainforest bonds, hence global defense bonds

Here’s what I said about Rainforest bonds: Rainforests cool the planet, regulate the water cycle and provide a home to countless species.  To preserve the world’s ecosystem functions and avoid catastrophic climate change, we must reduce tropical deforestation. The world should provide funding to Rainforest nations to help them address the drivers of deforestation and embark on alternative economic development paths.  Since the rainforests provide “services” essential to planetary life, justice dictates that those services be compensated.

Similar argument for global defense bonds: The world needs the threat and capability to enforce swift justice to keep the wolves from devouring the lambs.  The countries that have sacrificed mightily to build armaments (see graphic above) should be compensated by the beneficiaries — the entire world.

OK, maybe the bond mechanism isn’t ideal, but isn’t this a great conversation starter/brainstorming prompt?

Writing prompts for all professions:

I don’t claim to have the answers, but I thoroughly enjoy seeding the wellspring for your blogs, articles and newsletters:

• Financial analysts:  what’s a fundamental analysis say about the efficiency a dollar invested in defense compared to other sectors?   How would this change if there were a different marketplace for weaponry?
• Consultants: Technology transfers from weapons to medicine and IT (and visa versa).  Do you know of any breakthroughs in medicine or elsewhere that would have come to light sooner if the threat of national security hadn’t kept a weapons technology classified?
• Finance professionals/venture capitalists:  Speculate on what might happen if weapons technology was a global defense asset that followed the model in place with universities’ technology transfer programs. Is there a parallel?
• Environmental:  Weapons sites decomissioned so far require  significant environmental cleanup. Anticipate the impact to the environment of having fewer global weapons sites.
• Services: Reflect on how military bases and weapons plants have been repurposed so far what that portends on a global scale.
• EVERYONE:  1.26b is a lot of money.  How would you reallocate it?

Straight Talk on Compensation

Interesting piece in Sunday’s NYT on financial planners based on the news that James Putman and another employee of Wealth Management took $1.24 million each in kickbacks related to certain investments they were making for clients and fraudulently allocated $102 million in client funds.

The Times’ reporter said to “Check the legitimacy of planners’ credentials, and ask them to sign a fiduciary oath, promising to act in your best interests at all times. And read every word of every account statement. If you see something, say something. You should never be confused by jargon, strange numbers or anything else on your statements.”

Who can disagree with that advice?  A lot of planners, brokers and advisers, from the sounds of things.  As I’ve written before, my first career was financial services.  I know earnest professionals and I know snakes in the grass.  If ever there was a time for proactive client communications, this is it.

Financial & Consulting Writing Prompts

Financial advisers aren’t the only professionals with compensation conflicts.  What about the IT firm that also sells the license to the software they’re installing…these prompts work for a variety of circumstances.

• If you own your firm, tell your clients why you decided to structure your compensation as you did.   If you work for a broker or agency, tell your clients why you believe the comp structure you work under is fair to you and to them.
• Explain how you balance the competing interests of your financial future and theirs.
• Have an up-front discussion about how they can challenge your ethics.
• Do you belong to a professional organization that requires credentialing?  Tell your clients about the credentialing process and how your preparation and credentialing benefit them.
• Publish your continuing education plans for the year.
• Solicit feedback from clients: what topics do they find most confusing?

Compassion Fatigue

As a ghostwriter with financial services clients, I stay abreast of developments in their professional publications. Ran across an article in Investment News on consumer-focused financial planners’ mental health challenges during this Great Recession.

Hard to be a Zen Master during the Great Recession

The article says mental health professionals coined the phrase “compassion fatigue” to describe a syndrome experienced by caregivers of  individuals facing a terminal illness. “Instead of empathizing or ‘feeling bad’ for someone, the caregiver essentially tunes out the patient in an effort to prevent himself or herself from being drawn into a pit of despair.”

The article goes on to say that “many advisers are experiencing a phenomenon known as ‘shared trauma,’ which develops when an adviser has been as victimized by the financial crisis as much as his or her clients” and says this causes some advisers to avoid client contact.”

Jeffrey Goldbert complained about that in an Atlantic Monthly article I blogged about — said he fired his broker because his broker had de facto fired him by not communicating. Perhaps his broker was suffering compassion fatigue or shared trauma, but the article gave me the impression that his broker had simply gone under a tidal wave of corporate compliance.

The Investment News article quoted Patricia Smith, the founder of the Compassion Fatigue Awareness Project in Mountain View, CA as saying advisers “need to start with the fact that [the bear market] isn’t their fault.”

Hmmm, I have mixed feelings on that point.  No, it wasn’t entirely the fault of financial advisers, but  most of them signed on to work in an environment where they’re expected to toe the company line, including pushing instruments at the direction of their firms.  If I called my Merrill Lynch broker to ask about X fund, he would be obliged to tell me what his research department’s position is on it.  Maybe his entire knowledge of fund X is limited to the firm’s position.  Firms go to great lengths to assure compliant client communications.

Because it’s difficult to set up shop as an adviser without the broker dealer infrastructure, is the best conclusion that system really is rigged?

Writing Prompts:  Financial Services

• With so many people trying to cast a wide net for blame, how much should be shouldered personally by advisers?  Are advisers equal victims?  Well-compensated pawns in the larger game?
• Should advisers pull on their big girl panties and consider this stress an occupational hazard for which they were pre-compensated during the boom?
• Do these findings give the investing public room to empathize with their advisers?
• What reforms do you anticipate between firms and their representatives?
• Will the ill will between client and adviser push investors to instruments like index funds?

Royal Whitepaper

When people take the time to read my b-card they’ll sometimes ask “What’s a whitepaper?”  I quote the verbiage on my site, which turns on the lights for about 2% of people.

With Google-driven marketing everyone should know what a white paper is and how they can use one.

Follow treebanker on Twitter

I had an “aha moment” this morning.  I decided to build a repository of white papers I like in different categories for general perusal.   First up, The Prince’s Rainforests Project Report, which I thank my Twitter follower, Dan Tefft for bringing to my attention.

Three-purpose post

This post suggests changes to the paper that would make it more engaging, discusses its core idea of Rainforest Bonds, and then offers writing prompts for professionals in environmental and financial services.

Reading like an editor

Professionally, I prefer minimizing passive voice and maximizing design to help the reader navigate a dense document such as this (52 pages).  Certain professions prefer passive voice (government and academia top the list) so I suppose a report on behalf of  a Cambridge-educated Royal conforms to expectations.

The summary as written: “Reducing tropical deforestation will be vital if the world is to avoid catastrophic climate change and preserve important ecosystem functions. An Emergency Package is needed to provide substantial funding to Rainforest Nations to help them address the drivers of deforestation and embark on alternative economic development paths. Rainforests cool the planet, regulate the water cycle and provide a home to countless species; it is right and essential that the world pays for these services.”

I’d rewrite: Rainforests cool the planet, regulate the water cycle and provide a home to countless species.  To preserve the world’s ecosystem functions and avoid catastrophic climate change, we must reduce tropical deforestation. The world should provide funding to Rainforest nations to help them address the drivers of deforestation and embark on alternative economic development paths.  Since the rainforests provide “services” essential to planetary life, justice dictates that those services be compensated.

Writing Prompts for Environmental, Financial Services

The Prince’s Report outlines a plan for “Rainforest Bonds,” a fixed-income security, issued in private capital markets.  Such bonds typically offer investors a fixed rate of return, normally an annual coupon, together with the repayment of the principal on maturity. Over US$400 billion of Sovereign, Supranational and Agency Bonds were issued in 2008. The Project has held discussions with pension funds and the insurance sector (through The Prince of Wales’ P8 and ClimateWise initiatives) which indicate that there would be significant demand for AAA-rated bonds with long-term maturities.

“Rainforest Bonds could be issued by the World Bank, or by an independent entity with support from the World Bank. The bonds would be guaranteed by developed country governments, which would be responsible for payment of the coupon and repayment of the principal.

“However, it may be possible to mitigate the financial calls on these governments, for example by channelling some of the money into green investments that would generate financial returns – this would have the added benefit of supporting broader clean development goals. Private sector bonds provide a way to raise large amounts of finance for tropical forests in the nearterm, while allowing underwriting governments the time to generate revenues for repayment from clean development investments, domestic carbon permit auctions or other schemes. The Prince’s Rainforests Project is working with the World Bank to develop this bond concept further.”

• Is the World Bank the right entity?  Or the only entity?
• In light of current global financial priorities, how would these bonds perform financially?
• Environmentally, are these bonds a powerful incentive to change economic development and human behavior?
• Any better options on the table?

The System is Rigged

Cover Story May 2009

“Jane”  is a Bank of America SVP and a friend of twenty years. I jumped at her invitation for a weekend on the North Carolina coast with her family.  She drove while I read from May’s Atlantic Monthly, featuring a couple of excellent articles on the economy.

Any time we go on a road trip there’s about thirty pounds of reading material in the car “just in case.” Over breakfast she’ll grab one section of the paper and I another, or we’ll take different magazines and debrief each other when something gets our back up.  We pass hours like this on the beach every summer. Everyone should have a Jane in their life — the mental stimulation will surely keep Alzheimer’s at bay.

In The Atlantic’s feature article, “Why I Fired My Broker” Jeffrey Goldberg got my attention right out of the gate with this statement  “…my crucial mistake was believing that the brokers and wealth managers and cable-television oracles who make up the financial-services industrial complex actually had my best interests at heart.”

Jane and I are an interesting duo.  I couldn’t be more committed to self-employment and she’s been committed to the same company her entire career.  I tell her I love that phrase “financial-services industrial complex” and Jane shudders, then reminds me of a tour of duty she did in BofA’s credit card division  after it acquired MBNA and how slimy it made her feel going to work everyday.  My skin crawls. Jane doesn’t appreciate the potshots being taken at bankers these days, but she’s clear eyed about the evils of credit card marketing.

She says, “Keep reading.”

The article routinely skewers Merrill Lynch and other so-called financial advisors who really can’t give financial advice anymore.  Jane, who had reason to believe until very recently that she could fund part of her childrens’ college educations through BofA stock options, couldn’t disagree with this observation by Larry Gellman:

“If the head of Merrill Lynch and every other investment firm had their way, no individual broker would ever recommend an individual stock or bond to a retail client again. They have essentially gotten out of the brokering-and-advising business and gone all in on the ‘wealth management’ business. The new model is to gather assets from wealthy people and then place those assets with a whole bunch of managers who will manage different pieces of it in diversified styles so you don’t lose it all at once. And by the way, people with less than $10 million need not apply. People like you are in a sort of purgatory because no one would ever come out and tell you that he doesn’t want your business anymore,” he said. “You had to figure that out by yourself.”

We chewed on that for a bit. Jane’s worked in just about every division of the bank, including wealth management.  She’s a sort of corporate MacGyver who moves from implementation to implementation, always delivering  on impossible deadlines and defying handwringers.  She’s familiar with the next fellow  interviewed,  Seth Klarman, whom Goldberg says turned $27m into $14b, and quotes as saying “The average person can’t really trust anybody. They can’t trust a broker, because the broker is interested in churning commissions. They can’t trust a mutual fund, because the mutual fund is interested in gathering a lot of assets and keeping them.  And now it’s even worse because even the most sophisticated people have no idea what’s going on.”

Jane snorts, “No shit.”

At a certain point in Goldberg’s article the expert who makes the most sense is a guy who runs a survivalist camp that teaches people to live off the grid.  Cody Lundin says  “ Wall Street has always been an illusion. Now it’s an illusion that’s crumbling. Wall Street is like someone who’s having heart trouble. It’s in constant need of resuscitation, but after a while, it just doesn’t work anymore. People think that Bernard Madoff was unique, that he was an illusion, but he’s just an extension of the same illusion, the same con game.”

Jane’s been quiet for awhile now, most unusual.  So when I’m done with the article  I don’t forge on to the next one as is our custom.  I have people skills.

She sighs and says, “I’m gonna turn on the radio for awhile.” Game Over.

Financial Services Writing Prompts (aside from the obvious)

• Are people better off putting their money in an index fund than relying on the “financial-services industrial complex”?
• Will the deflated 529 plans  lead to a different scheme for funding higher education?
• Where are all those financial advisors going to work now?  All those financial mathematicians?
• At what point did you realize the (financial) emperor wasn’t wearing clothes?  What steps did you take?  Are you taking?

“Cap and Cash Back” — The Power of Positive Language

We can thank ecoAmerica for the “Cap and Cash Back” headline, which I gleaned from this weekend’s NYT story about how environmental communications are being framed by both “sides” of each environmental debate, from “clean coal” to “safe nuclear power.”

It certainly is catchier than “Cap and Trade” and coming from a jargon-jammed business background, I’m grateful when people use words that both insiders and outsiders readily grasp.  Your politics will determine whether you agree with the substitution of “cap and cash back” for “cap and trade” but my point about the need for clear communications stands.

Environmental and Financial Services Writing Prompts:

• The NYT article quotedRobert J. Brulle of Drexel University, an expert on environmental communications,  as saying “ecoAmerica’s campaign was a mirror image of what industry and political conservatives were doing. “The form is the same; the message is just flipped,” he said. “You want to sell toothpaste, we’ll sell it. You want to sell global warming, we’ll sell that. It’s the use of advertising techniques to manipulate public opinion.” Do you have evidence that either side is entirely in command of the facts about global warming/climate change?   Or is this simply a war of words driven by savvy PR pros?
• Mr. Perkowitz, who started ecoAmerica, said the reason environmental issues consistently trail issues like addressing moral decline and reducing the influence of lobbyists, is “When someone thinks of global warming, they think of a politicized, polarized argument. When you say ‘global warming,’ a certain group of Americans think that’s a code word for progressive liberals, gay marriage and other such issues.” Do you have reason to agree or disagree with Mr. Perkowitz?  Support your view with an anecdote or case study.
• A summary of ecoAmerica’s latest findings and recommendations was accidentally e-mailed to a number of news organizations before the formal paper was published, which raises the question, Have you or your organization authorized talking points or key words for use in environmental communications? If so, can you speak to the immediate and longer-term effects of using prescribed language (or avoiding proscribed langugage) on your organization’s objectives?

Krugman v Samuelson on Green

Krugman: We Need Green Investments

In today’s NYT, Nobel Laureate Paul Krugman weighs in on climate change with the terse observation that “just as denials that climate change is happening are junk science, predictions of economic disaster if we try to do anything about climate change are junk economics.”

“Right now, the biggest problem facing our economy is plunging business investment. Businesses see no reason to invest, since they’re awash in excess capacity, thanks to the housing bust and weak consumer demand.”  Krugman outlines how a commitment to greenhouse gas reduction would give businesses a reason to invest in new equipment and facilities even in the face of excess capacity.

He concludes, “given the current state of the economy, that’s just what the doctor ordered.”

Samuelson: Re-run Your Scenarios

On the other side, reporter, author and Washington Post columnist Robert Samuelson says “The trouble is that these models embody wildly unrealistic assumptions: There are no business cycles; the economy is always at “full employment”; strong growth is assumed, based on past growth rates; the economy automatically accommodates major changes — if fossil fuel prices rise (as they would under anti-global-warming laws), consumers quickly use less and new supplies of “clean energy” magically materialize.”

Writing Prompts:  Financial Services, Environmental

• What’s more important, getting started on a global climate change or getting the right global environmental policy in place?
• Krugman admits “Yes, limiting emissions would have its costs. As a card-carrying economist, I cringe when “green economy” enthusiasts insist that protecting the environment would be all gain, no pain.”  Do green enthusiasts over-state their case?
• What about Krugman’s claims on overcapacity?

Green Investments and the US Labor Market

Soon-to-be-Relic?

A new white paper released by the Economic Policy Institute (EPI) reminds that the U.S. economy lost 5.1 million jobs over the past 15 months.

With a nod to the Obama administration’s commitment to a cap and trade plan for carbon emissions, the paper warns that, nevertheless, new federal investments are needed to provide economic benefits that “go beyond the primary one of emissions reduction.”

Promising Conclusions

The EPI concludes  that a commitment of $100 billion annually in new public investments over the next decade would yield:

• Approximately $160 billion in additional output annually for the next two years, which translates  into approximately1.1 million net new jobs created.

• An increase in the relative wages of those 70% of U.S. workers without a four-year college degree by almost 0.5% each year that the increased commitment to green investments persists. While modest, this amount does represent a wage increase for high school graduates that is roughly 40% as large as the entire increase this group has seen since 1979.

• An increase of approximately 100,000 in the number of unionized jobs in the United States (even in the unlikely case that all of the jobs supported through this new spending merely displaced currently existing jobs).

Writing Prompts:  Financial, Environmental, Services, Consulting

• Respond to this EPI conclusion based on your own data and experience:  “In the short run, any investment that can be done quickly to help meet the challenges of undertaking serious carbon emissions abatement will have welcome near-term macroeconomic impacts. And over the longer-term, these investments will provide a payoff in the form of climate change mitigation, energy independence, and economic gains from energy efficiency.  In the longer run, dedicating more resources to ameliorating global climate change will actually lead to a mix of industry employment that nudges back against the forces that have generated ever-greater wage inequality for most of the past 30 years.”
• Support or refute this EPI claim: “Each dollar of infrastructure investment—broadly defined—provides on net about $1.59 in additional economic growth, making it about 33% more effective than generic tax cuts and literally 10-15 times more effective than most business tax cuts. In short, infrastructure spending, including ‘green’ investments, is about as good economic stimulus as there is.”
• This week the cap and trade debate drew comparisons to the earlier Acid Rain Trading Program, which was established in 1990 under the Clean Air Act.  The administration said it “delivered huge benefits—to the tune of $120 billion a year—with an annual cost of only $3 billion a year. The acid rain program is a trading system comparable to a carbon cap-and-trade program.”  If you were in business during that time, reflect on the similarities and differences between the Acid Rain Trading Program and cap and trade.
• A new project of the Sierra Club, National Resource Defense Council and others, called “The Reality Coalition,” takes on the premise that there is such a thing as clean coal.  Is there such a thing as “clean coal”?
• Reflect on how the administration’s proposed Green Investments and cap and trade plans would directly affect your business or that of your customers.

« Previous Page — Next Page »