Tuesday 15 April 2008

Errata in RFK's Energy Manifesto

Vanity Fair recently published Robert F. Kennedy’s Opinion piece The Next President’s First Task [A Manifesto] in its May 2008 edition. This article, which I copy below, purports to establish why renewable energy should be a centerpiece of energy policy in the next administration.

I’m all in favour of renewable energy, and favour government intervention (e.g. through carbon-capping and trading schemes, higher fuel standards, higher energy efficiency in cars and buildings) as a public good which, over time, will be cost-effective. However, there are so many inaccuracies or misleading statements in this "Manifesto", I'm surprised there has been such a muted reaction. We are not going to craft a better energy policy by ignoring the facts.

With this in mind, here are my comments:

1. The article states that 25% of Great Britain’s economy was based on slave labour in 1808. Unless we count 100% of Britain's colonial economic output at the time as slave labour (which it was not), there is no mainstream economic research to prove this statement. If there is, the source should be cited. Furthermore, there are no serious studies of the Industrial Revolution which maintain that its cause was the abolition of slave labour: According to most economic historians, the Industrial Revolution started in the mid-1700s, long before the abolition of slavery in 1808. Simply repeating over-simplifications that may or may not have been made by Lord Puttnam may be comforting, but ultimately inaccurate.

2. No one is "borrowing a billion dollars each day to buy foreign oil", and this is not the reason the US dollar is falling. If this figure refers to the trade deficit, the amount spent by the United States on importing foreign energy is about 10 million barrels per day of crude oil alone (over $ 1 bln), while in January 2008 we imported 380,635 million cubic feet, at an average price of over 5.8 $/tcft. Energy imports are largely consumed by industry and individuals, and has nothing to do with US government spending: it's not the US government paying for energy imports. The reason the US dollar is falling is because of the total trade deficit, total public debt and low interest rates: roughly speaking, the lower the interest rate goes, the lower the USD will fall under prevailing trade and budget deficits in the face of international currencies with better economic policies. While energy imports are an important component of the trade deficit, they have nothing to do with either public debt or low interest rates. In fact, the value of the energy trade deficit is low compared to the US merchandise trade deficit.

3. Sweden's growth rate has never, since 1990 at least, been 3 times the American growth rate: in many years, US GDP growth outstrips Sweden's. The following table of Swedish and US GDP growth rates is provided by Statistics Sweden based on Eurostat data:

4. Using Swedish energy policy as an example for American policy ignores actual conditions. According to the Government of Sweden, petroleum accounts for about 30% of total energy supply; 50% of electricity supply is from hydropower, the rest is nuclear and renewable energy. Sweden has abundant water resources: the US cannot emulate 50% of total energy supply from hydropower even if it wanted to.

5. According to the Energy Authority of Iceland, 20% of total electricity power is from geothermal sources, while 80% comes from hydropower. Iceland’s terrain, climate and geology (a volcanic island on the mid-Atlantic ridge) make this combination of energy sources possible: similar ratios are not possible in the United States, and holding up Iceland as a model of emulate may be attractive, but hardly practical for policy considerations. Don’t forget that Iceland’s population in 362,000 living in a relatively small area: the US population tops 300 million, living on a continent.

6. The fact that California is the largest state economy has nothing to do with energy efficiency per se: to state that energy efficiency is somehow the reason for California’s economy is wrong. By this same logic, the United States, with the largest GDP in the world, would have to be the most energy-efficient.

7. The problem with energy efficiency will not be solved solely by regulatory or distribution sytem changes. A large share of greenhouse gases are the result of automotive emissions, and right now there is no comparably efficient fuel source (at least, not one that can be readily stored) to petroleum. Entrepreneurs burning woodchips aren't going to hack it on this one - at least not in the next 5-10 years based on current technology. Similarly, the science of heating and powering a city is very different from heating and powering individual homes and businesses: we simply don't have the technology today to power NYC, LA, or any other large metropolis in the United States through renewable energy with current technology.

I agree with the goal of developing a balanced energy policy, based on future needs, and emphasizing a mix of renewable energy, nuclear power and carbon-based fuels. However, this has to be fact-based, and include policy prescriptions which will work in the specific American economic, resource-based and social context.

The Next President’s First Task [A Manifesto]
by Robert F. Kennedy Jr. May 2008

Last November, Lord (David) Puttnam debated before Parliament an important bill to tackle global warming. Addressing industry and government warnings that we must proceed slowly to avoid economic ruin, Lord Puttnam recalled that precisely 200 years ago Parliament heard identical caveats during the debate over abolition of the slave trade. At that time slave commerce represented one-fourth of Britain’s G.D.P. and provided its primary source of cheap, abundant energy. Vested interests warned that financial apocalypse would succeed its prohibition.

That debate lasted roughly a year, and Parliament, in the end, made the moral choice, abolishing the trade outright. Instead of collapsing, as slavery’s proponents had predicted, Britain’s economy accelerated. Slavery’s abolition exposed the debilitating inefficiencies associated with zero-cost labor; slavery had been a ball and chain not only for the slaves but also for the British economy, hobbling productivity and stifling growth. Now creativity and productivity surged. Entrepreneurs seeking new sources of energy launched the Industrial Revolution and inaugurated the greatest era of wealth production in human history.

Today, we don’t need to abolish carbon as an energy source in order to see its inefficiencies starkly, or to understand that this addiction is the principal drag on American capitalism. The evidence is before our eyes. The practice of borrowing a billion dollars each day to buy foreign oil has caused the American dollar to implode. More than a trillion dollars in annual subsidies to coal and oil producers have beggared a nation that four decades ago owned half the globe’s wealth. Carbon dependence has eroded our economic power, destroyed our moral authority, diminished our international influence and prestige, endangered our national security, and damaged our health and landscapes. It is subverting everything we value.

We know that nations that “decarbonize” their economies reap immediate rewards. Sweden announced in 2006 the phaseout of all fossil fuels (and nuclear energy) by 2020. In 1991 the Swedes enacted a carbon tax—now up to $150 a ton—and as a result thousands of entrepreneurs rushed to develop new ways of generating energy from wind, the sun, and the tides, and from woodchips, agricultural waste, and garbage. Growth rates climbed to upwards of three times those of the U.S.

Iceland was 80 percent dependent on imported coal and oil in the 1970s and was among the poorest economies in Europe. Today, Iceland is 100 percent energy-independent, with 90 percent of the nation’s homes heated by geothermal and its remaining electrical needs met by hydro. The International Monetary Fund now ranks Iceland the fourth most affluent nation on earth. The country, which previously had to beg for corporate investment, now has companies lined up to relocate there to take advantage of its low-cost clean energy.

It should come as no surprise that California, America’s most energy-efficient state, also possesses its strongest economy. The United States has far greater domestic energy resources than Iceland or Sweden does. We sit atop the second-largest geothermal resources in the world. The American Midwest is the Saudi Arabia of wind; indeed, North Dakota, Kansas, and Texas alone produce enough harnessable wind to meet all of the nation’s electricity demand. As for solar, according to a study in Scientific American, photovoltaic and solar-thermal installations across just 19 percent of the most barren desert land in the Southwest could supply nearly all of our nation’s electricity needs without any rooftop installation, even assuming every American owned a plug-in hybrid.

In America, several obstacles impede the kind of entrepreneurial revolution we need. To begin with, that trillion dollars in annual coal-and-oil subsidies gives the carbon industry a decisive market advantage. Meanwhile, an overstressed and inefficient national electrical grid can’t accommodate new kinds of power. At the same time, a byzantine array of local rules impede access by innovators to national markets.
There are a number of things the new president should immediately do to hasten the approaching boom in energy innovation. A carbon cap-and-trade system designed to put downward pressure on carbon emissions is quite simply a no-brainer. Already endorsed by Senators McCain, Clinton, and Obama, such a system would measure national carbon emissions and create a market to auction emissions credits. The supply of credits is then reduced each year to meet pre-determined carbon-reduction targets. As supply tightens, credit value increases, providing rich monetary rewards for innovators who reduce carbon. Since it is precisely targeted, cap-and-trade is more effective than a carbon tax. It is also more palatable to politicians, who despise taxes and love markets. Industry likes the system’s clear goals. This market-based approach has a proven track record.

There’s a second thing the next president should do, and it would be a strategic masterstroke: push to revamp the nation’s antiquated high-voltage power-transmission system so that it can deliver solar, wind, geothermal, and other renewable energy across the country. Right now, a Texas wind-farm manager who wants to get his electrons to market faces two huge impediments. First, our regional power grids are overstressed and misaligned. The biggest renewable-energy opportunities—for instance, Southwest solar and Midwest wind—are outside the grids’ reach. Furthermore, traveling via alternating-current (A.C.) lines, too much of that wind farmer’s energy would dissipate before it crossed the country. The nation urgently needs more investment in its backbone transmission grid, including new direct-current (D.C.) power lines for efficient long-haul transmission. Even more important, we need to build in “smart” features, including storage points and computerized management overlays, allowing the new grid to intelligently deploy the energy along the way. Construction of this new grid will create a marketplace where utilities, established businesses, and entrepreneurs can sell energy and efficiency.

The other obstacle is the web of arcane and conflicting state rules that currently restrict access to the grid. The federal government needs to work with state authorities to open up the grids, allowing clean-energy innovators to fairly compete for investment, space, and customers. We need open markets where hundreds of local and national power producers can scramble to deliver economic and environmental solutions at the lowest possible price. The energy sector, in other words, needs an initiative analogous to the 1996 Telecommunications Act, which required open access to all the nation’s telephone lines. Marketplace competition among national and local phone companies instantly precipitated the historic explosion in telecom activity.

Construction of efficient and open-transmission marketplaces and green-power-plant infrastructure would require about a trillion dollars over the next 15 years. For roughly a third of the projected cost of the Iraq war we could wean the country from carbon. And the good news is that the government doesn’t actually have to pay for all of this. If the president works with governors to lift constraints and encourage investment, utilities and private entrepreneurs will quickly step in to revitalize the grid and recover their investment through royalties collected for transporting green electrons. Businesses and homes will become power plants as individuals cash in by installing solar panels and wind turbines on their buildings, and by selling the stored energy in their plug-in hybrids back to the grid at peak hours.

Energy expert and former C.I.A. director R. James Woolsey predicts: “With rational market incentives and a smart backbone, you’ll see capital and entrepreneurs flooding this field with lightning speed.” Ten percent of venture-capital dollars are already deployed in the clean-tech sector, and the world’s biggest companies are crowding the space with capital and scrambling for position.

The president’s final priority must be to connect a much smarter power grid to vastly more efficient buildings and machines. We have barely scratched the surface here. Washington is a decade behind its obligation, first set by Ronald Reagan, to set cost-minimizing efficiency standards for all major appliances. With the conspicuous exception of Arnold Schwarzenegger’s California, the states aren’t doing much better. And Congress keeps setting ludicrously tight expiration dates for its energy-efficiency tax credits, frustrating both planning and investment. The new president must take all of this in hand at once.

The benefits to America are beyond measure. We will cut annual trade and budget deficits by hundreds of billions, improve public health and farm production, diminish global warming, and create millions of good jobs. And for the first time in half a century we will live free from Middle Eastern wars and entanglements with petty tyrants who despise democracy and are hated by their own people.

Environmentalist Robert F. Kennedy Jr. is president of the Waterkeeper Alliance, a non-governmental organization that promotes clean water throughout the world.


  1. Hey Philip, i hadn't read this piece, but it stood out to me b/c i had bought that Vanity Fair you're referencing recently (though haven't gotten to check it out yet). There's a lot of economics there i haven't been exposed to, so it's interesting to read about, though seems like some inaccuracies based on what you point out...you didn't get a chance to send a response into the mag. did you?

    A question related to it though--if US industry/others did not participate in importing foreign oil, what would that do for the economic picture? Ie, for the value of the dollar? It's an honest question based on something that made me wonder with the piece and your response, as my understanding like i said, is about zero of this stuff.

    With the energy comparison to Sweden and Iceland, it seemed to me in the article that the guy was not saying that we can emulate their exact uses, but that, like he said, "The United States has far greater domestic energy resources than Iceland or Sweden does." Does that seem like a fair statement?

    Neat to see the article and response though, lot of stuff i wouldn't have known, particularly with some of the seeming errors in the article (like, if what you said is correct, the idea that the slave trade didn't launch the Ind.Revolution).

    As a last thought, it seemed like some reasonable suggestions he made at the end of the piece, even if they wouldn't solve things entirely, where if there was a more efficient power grid that many had full, open access to, it could be used to create a big surge in use...be something i'd be interested to learn more about though...

  2. Hi Brendan,

    I did send a response to Vanity Fair, but of course haven't heard from them. I'm not sure they are as committed to facts as they are to impressions.

    The value of the dollar would rise if the current account and trade balance of the US improved. In other words, if the US could remove the $ 1 billion plus spent per day importing energy, and not replace this with something else (like Chinese toys or Japanese cars), then the trade balance would improve.

    However, for the dollar to rise, there would have to be additional factors involved:

    - The Federal Reserve benchmark interest rates would have to rise (why invest in the dollar as a reserve currency if interest rates are so low - below inflation and the dollar is devaluing?)

    - The government would have to reduce public debt, reassuring investors about its ability to honour its debt.

    The US does have greater energy resources: it's geographically larger than Sweden or Iceland. However, it has a larger population; population centres are much greater (NYC contains more than the entire population of Sweden); the sites of renewable energy resources are far removed from most population centres, etc.

    Furthermore, it's doubtful that the US would achieve the same energy mix the RFK maintains, i.e. geothermal and hydro. The US simply does not have the same geological structure and resources, and the distances to transmit energy to major population centres is much greater. It's technically possible, but at what price?


  3. Thanks for the thoughts back Phillip, i'll take a good econ lesson whenever i can get one.

    Have to say though, i'd still be interested to see what could happen with some of the geothermal, wind, solar possibilities he discusses, if they were tapped into more by more people, and then, as he says, hooked up to a more efficient grid without some of the state regulations he mentions...