(2009-09-01) Elusive Green Economy

Joshua Green on the challenges of building a Green Economy. (Learning from Jimmy Carter's failures.) Shortly after the inauguration, a friend up for several jobs in the new administration confessed that he yearned to wind up at the Department Of Energy. "It's like NASA in the '60s," he told me. "All the best and brightest want to be there." Barack Obama's choice of Steven Chu, the Nobel laureate physicist, as Secretary Of Energy only heightened the allure. In the early Obama era, romantic notions about making one's mark on history tend to take the form of helping recast America's economy, and by extension the world's, in a way that will head off global catastrophe. So we're back at the old crossroads, only with less time and more urgency to act.

But Clean Tech takes a seemingly endless array of forms, and a useful way to think about them is by their proximity to commercial readiness. On the supply side, wind and solar-thermal are the most advanced.

Aside from the Tesla and a few other electric cars, demand-side cleantech lacks supply-side sex appeal. Not much of it would make the cover of Popular Mechanics . But measures like efficiency improvements hold the greatest potential for immediate impact. For instance, slightly more than half of the energy consumed in the United States goes to buildings: 12 percent for constructing them, and 39 percent for heating, cooling, and lighting them. "The easiest, fastest, most effective way to reduce energy demand is to hit buildings," Marc Porat, a serial entrepreneur in the "built environment" sector, told me. Porat's SeriousMaterials makes high-efficiency windows and low-energy drywall; Cal Star Cement uses fly ash to make low-carbon bricks and cement; ZetaCommunities puts up town houses with minimal carbon footprints... Mundane though they may seem, improvements in commercial lighting, programmable thermostats, televisions, and refrigerators could yield enormous savings in cost and carbon. Modest improvements in auto fuel efficiency could save as much oil as we import annually from the Persian Gulf.

The boundless optimism in Silicon Valley recalls the early days of the Internet (DotCom) boom. "Think of the smartest guy you've ever met and then imagine 50,000 more just like him innovating all at once," Mike Danaher, a partner and cleantech specialist at the law firm Wilson Sonsini Goodrich & Rosati, told me. "Just as they did with telecom in the '90s, they're attacking every component of every kind of alternative energy to improve it."... Exhilaration over clean energy has so thoroughly swept Silicon Valley that it has transformed the local Culture. Conspicuous Consumption has given way to Conspicuous Conservation. The favored status symbol is no longer the giant yacht or the sprawling mansion but the home designed to be so ruthlessly energy-efficient that it generates its own power and produces a surplus that can be selflessly fed back into the grid.

Just outside Palm Springs, California, where the mountains part to create the San Gorgonio Pass, cool Pacific air sweeps toward the inland desert through acre after acre of rusting, derelict wind turbines that stretch to the horizon in orderly columns like soldiers in formation. They're remnants of Jimmy Carter's attempt to go green. Adherents of clean energy usually explain its evolution in terms of technological advancements. But a better way to see the full picture is through the lens of Bankruptcy. The corporate histories of the major manufacturers of clean technology--companies like Vestas, GE, and Bright Source--are littered with bankruptcies, sometimes several in succession, and most can trace their lineage to a specific act (or inaction) of government.

Wind and solar didn't die when the tax credits dried up. They moved overseas. Denmark offered robust government support, and came to dominate the wind industry. Germany and Spain found success with solar energy by requiring utilities to pay hefty "feed-in tariffs"--above-market rates--to anyone who sent electricity to the grid. Japan also built a vibrant solar market... 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.

The nut of the problem traces all the way back to Jimmy Carter's choice of Tax Credit-s 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 is that in order to make use of them, you must owe taxes, and most start-ups struggling toward profitability do not.

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. The Energy Department research (R And D) budget has never recovered from Reagan's cuts. And the private industry that would seem to have the most at stake in finding and controlling clean-energy advances--electric utilities--has never seriously pursued them, since a century of government policy has made the hard path so easy. 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. Here, too, the stimulus fills a gap. For years, Silicon Valley dreamed that government would cultivate nascent but potentially transformative energy ideas by creating an equivalent of the Pentagon's famous Defense Advanced Research Projects Agency ( DARPA ), which pioneered such things as the Internet and GPS. With an eye toward similar breakthroughs, the stimulus allots $400 million to the Department of Energy for just such an agency. But the Internet came to fruition only after the right conditions were in place. Its rapid growth and innovation followed from the telecommunications reforms of the 1990s, a consequence few predicted at the time.