Friday, November 07, 2008

President-elect Barack Obama's New Energy Mandate, Part 2

Part 2: Dos and Don'ts

Cross-posted from the Breakthrough Institute and WattHead - Energy News and Commentary

This is the second post in a continuing series delving into Barack Obama's opportunity to capture this political moment and provide a direction for energy policy and economic growth in the 21st century. Part 1 is here.

As Barack Obama assumes the mantle of President-elect of the United States of America, we are witnessing an historic realignment of the American political landscape. With the election of our nation's first African-American president, record voter turnout, and a dramatically redrawn electoral map, it seems that anything is possible now.

However, while Obama clearly has a new mandate to lead our nation, electoral mandates are fickle and even this one could fade in time. President-elect Obama has just 76 days to prepare for his inauguration. Then the real work of governing will begin, and what Obama decides to do in his first 100 days will either cement or erase the wave of popular support the President-elect rides today.

His job won't be easy. On January 20th, President-elect Obama will inherit the White House along with a plethora of pressing challenges all competing for his attention. There will be no time for baby steps, and President Obama must show bold and effective leadership right out of the gate. Furthermore, while the economic crisis will remain his top concern in the short-run, Obama cannot afford to ignore longer-term challenges and must develop synergistic solutions that can tackle multiple problems at once.

Thankfully, Barack Obama has stated that building a new energy economy will be his top priority upon assuming office. If he fully integrates this effort with his shorter-term economic stimulus plans, Obama could effectively tackle several priorities - economy recovery, energy security, and global warming - simultaneously. And getting this job done right could cement Obama's electoral mandate and pave the way for a truly transcendent presidency.

With the all the frantic focus on economic stimulus these days, it's easy to forget that Obama really faces two economic challenges. Yes, we need quick, effective, short term stimulus to pull our nation out of recession. But we also face a longer run economic revitalization challenge that is critical to ensuring our nation's prolonged prosperity.

For too long, we have neglected to invest in our nation. We've let or infrastructure crumble, our schools and universities want for funding, and we've neglected the once-solid pipelines of technological innovation that made us the envy of the world. Blinded by an era of cheap credit and unrestrained consumer spending and bound by a dominant and dogmatic market fundamentalist philosophy of governance, we've seen the light go out of our once vibrant economy. Rekindling the flame of American prosperity will no doubt be the defining task of the Obama administration.

Obama has already made it clear that he believes a new energy economy will be America's next engine of growth. That's smart. There are few (if any) other major growth sectors waiting to be spurred, and building a new energy economy knits together his central economic challenges with other national priorities. And if Obama makes the right decisions in the coming months, his short-term stimulus agenda can be an effective bridge to the longer-term investments necessary to build a new energy economy and secure prolonged American prosperity.

To get it right there a few things President-elect Obama should avoid doing:

  • DON'T be afraid of deficit spending. Obama should ignore the counsel he will no doubt receive from deficit hawks and Clinton-era small-government Democrats to avoid deficit spending and stick to pay-go. And he should not listen if Greens council him to use a full-on cap and trade program to fund all of the spending for his new energy economy agenda. As the spender and lender of last resort during times of economic crisis, reining in government spending would be just as bad for the economy as raising taxes.

    The fact is, deficit spending is necessary for effective stimulus and it's smart for longer-term investments that will net returns for the U.S. Treasury. And with so much demand for U.S. Treasury Bonds, yields on two-year bonds are just 1.3%. After factoring in inflation, that means the government can borrow money essentially for free. All this means that President Obama shouldn't be afraid to borrow and invest if it helps get our nation out of today's recession and lay the groundwork for a new energy economy.

  • DON'T focus on short-term stimulus only. That being said, Obama also cannot afford a myopic focus on stimulus alone or rely solely (or even at all) on cash rebate checks.

    While quick-acting, cash rebate checks are not a particularly effective form of stimulus. In fact, initial studies find considerable evidence that most of the 2008 stimulus checks were put into savings or used to pay down debt. Furthermore, when they do work, rebate checks significantly under-perform investments in infrastructure and direct aid to state governments.

    Perhaps most importantly, if Obama relies on rebate checks to stimulate the economy, he will miss the golden opportunity to make his stimulus investments a bridge to longer-term priorities, like sparking a new energy economy. Given the many challenges he faces as president, Obama cannot afford to miss that opportunity.

  • DON'T propose policies that raise energy bills. While a carbon price would be an important accelerator of clean energy investment and innovation, offering policies that raise energy prices at a time of economic insecurity is a risky political venture (to say the least). Instead, Obama should make the development of clean, affordable energy sources the explicit focus of his policies. To the degree that carbon pricing plays a role in his new energy agenda, President Obama must be clear that the revenue raised will be directly invested in programs that reduce the cost of clean energy alternatives and in energy efficiency programs that will slash the energy bills of households and businesses.

  • DON'T promise short-term fixes to high gas prices. There simply aren't any, and Obama would be smart to use his new bully pulpit and impressive communication skills to make that fact clear to the American public.

    The false promise of "Drill Baby, Drill!" is a disingenuous myth that President Obama should put to rest for good. Oil prices are set in a global commodity market, and the United States simply lacks sizable enough domestic production capacity to have a significant moderating effect on oil prices. If we want to moderate oil prices, we can't do it with a focus on the supply side of the equation, a fact Obama has correctly emphasized by repeatedly saying, "We can't drill our way out of our energy crisis."

    If we want to expand domestic oil production, it shouldn't be motivated by false promises of lower gas prices. To the extent that we do expand drilling operations, it should be to raise revenues for public investment in a new energy economy, or to (modestly) enhance our trade deficit.

    Obama also should make good on his promise to speak openly and honestly to the American people about the challenges we face: the American public needs to hear their President say that while gas and oil prices are low today, they will not remain so for long. According to the International Energy Agency, oil prices will rebound to well above $100 per barrel as soon as the global economy recovers, adding dead-weight just as our economy struggles to stand again. That means that today's temporary relief from $4.00/gallon gas is exactly the time to invest in new, affordable alternatives and efforts to sever our dependence on oil. If he's clear and honest about the challenge of oil dependency, Obama will have further reason to invest in a new energy economy and launch the critical, long-term effort to electrify transportation and create the clean, cheap energy sources we need. If implemented, this strategy will finally free our nation from the volatility of oil prices and the havoc gas price spikes wreck on our economy.

  • DON'T: separate out his clean energy and economic agendas. For too long, clean energy policy was the domain of a relatively isolated environmentalist agenda. Despite it's widespread impacts on issues of national security, economic prosperity and public health, clean energy failed to take it's rightful place as a core progressive issue.

    Now, Obama has successfully transformed clean energy into a bread and butter economic issue. During the closing weeks of the campaign, Obama's clean energy agenda became fully intertwined with his economic recovery plans, and that's exactly where it should stay. A clean energy program will be most effective when fully integrated with the President-elect's economic recovery plans and it should remain a core component of his vision for renewed, long-term prosperity. Clean energy is an economic not environmental issue now, and that's exactly right.
In Part 3 of this ongoing series, we will outline several principles for smart investments in our nation's recovery and the birth of a new energy economy.

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