Henry Farrell has an interesting account of a discussion session Bill Clinton held with a group of bloggers. This jumped out:
Clinton's basic argument was that the [financial] crisis was one of an overleveraged Wall Street system which emphasized the volume of transactions, and in which people were rewarded for chasing risky deals, and in which there were too few good investment opportunities. Money ended up being funneled into real estate that shouldn't have been. Clinton furthermore argued that if there had been a real clean energy policy, it would have created alternative investment opportunities in dealing with climate change -- because there wasn't such a policy, the money was "misspent." This last bit of the argument doesn't seem entirely plausible to me -- would there really have been enough investment opportunities generated by clean energy to suck up the loose cash sloshing around? -- but I'll leave it to those with more specific expertise to evaluate properly.
If there had been more clean energy investment opportunities, investment capital would have gone that direction instead of into dodgy housing, housing mortgages, mortgage-backed securities, mortgage-backed-security derivatives, derivative double-mortgage security flux capacitors, etc.
Hmm.
... as long as there was a consensus on Wall Street that housing prices would rise indefinitely, and at such a rate that people without a whole lot of money could finance a home with increased equity, people were going to invest in the idea that the housing bubble wasn't a bubble. And then that bubble was going to burst.
If there'd been smart energy policy in place for 10 years -- if, say, the Clinton administration had put some in place -- R&E would have scaled up and there would be a ton of clean energy investments around. But those investments don't just spring up immediately in the wake of policy. Even now, there's more money than good investments in that sector. Energy startups require lots of money, time, and patience.
And as Brian says, even with those investments available, I doubt they could compete with the Magic Money that's been available to investors these last few years. So maybe smart energy policy could have taken some of the sting out, but the rot on Wall Street would still have been ... rotten.
Gore on the Daily Show: extended dance remix
Blowing up our clean energy future
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Sean Casten Posted 11:49 pm
23 Sep 2008
I will grant that in the biggest sense, if other asset classes become more attractive, money shifts towards it. But that is generically true of damn near everything - not just energy. If T-bills had a higher yield / if copper futures were trading higher / if the lawn-care industry suddenly had inflated stock prices... then it would have pulled money out of other investment opportunities. Is it also true of energy? Sure. But it's a heck of a logical stretch to therefore conclude that the mortgage crisis was caused by bad energy policy. (Indeed, if we really want to connect cause and effect, more blame can be placed at the foot of a monetary policy that kept interest rates low, thereby creating a boom market for mortgages. But be careful how broadly that sword gets swung, as you'll also lop off the heads of lots of folks who have homes today that wouldn't have but for cheap 30 year mortgages.)
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Jon Rynn Posted 12:36 am
24 Sep 2008
What he's basically implying, it seems to me, is that the government should have either somehow made alternative energy investments attractive, or should have just done it via government spending, because that's the only way it could have happened. Clinton mentioned the dot com bubble, and seemed to try to turn it into something that actually accomplished something - and it did -- vs. the mortgage bubble, which has alot of illusory financial gains involved. But I don't know that government had anything much directly to do with the dot com bubble, it was simply the working out of a new set of technologies.
On the other hand, as Sean mentions, the mortgage bubble was certainly given a huge push by low interest rates -- although, that was partly an attempt to deal with the dot com bubble bursting -- and also, not to Clinton's credit, the passage of several bills (such as revoking Glass-Steagel) that put in place the conditions for the bubble.
So had those things not happened, the question is, would people have invested more in alternative energy? Maybe Sean can answer that question better than I -- for instance, would the returns on investment needed for a project been closer to 5% instead of over 10%, and would that have led to more alternative energy investments -- or would much greater government intervention have been necessary.
Obviously, had the Republicans been in control of Congress, such intervention would not have been possible. Which leads to an interesting question: Would a Democratic President and Congress do something a little more "radical"?
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Sean Casten Posted 12:56 am
24 Sep 2008
But back to the core issue. If the feds want to open up the market for alternative energy investments, the obstacle is not throwing money at the problem, but rather removing the barriers to deployment. These things can be fixed regulatorally rather than fiscally, but that requires (a) energy expertise and (b) political cohones.
To wit:
The Clean Air Act penalizes energy efficiency. I don't care what return you have to get - if investing in energy conservation puts your existing air permit at risk, you won't invest in efficiency.
Every state in the country makes it a felony offense for anyone but a regulated utility to run a private wire across a public thoroughfare. As a result, many energy projects are undersized to serve only the local load, imposing economy of scale penalities (since smaller jobs cost more per installed kW) and reducing total revenue. Which makes it that much harder to reach investment thresholds.
13 states make it illegal for anyone but the regulated utility to sell a kWh as a third party. So if I want to deploy capital in one of those states to install a sexy new power gen technology, I can't sell the power back to the host, even if they are behind the fence. The host can do it themselves of course, but this is beyond their expertise and non-core.
Most states allow rate structures for utilities wherein if you install a power plant on-site, you must pay the utility for the money they're no longer getting from you, effectively removing the economic incentive to install the plant in the first place. These range from standby rates (where - in theory - your payment is to the utility to compensate them for their cost of "standing by" in the event that your generator goes down) to exit fees (where you simply must pay the utility to exit the system) to outright anti-cogen tariffs (many utilities provide discounted rates to any industrial who agrees never to cogenerate.) In all cases, the net effect is to kill the emergence of any competition.
I could go on...
These things can be fixed. But not only do they not require throwing money at the problem - they also remain in place no matter how much money you throw at the problem. (All the tax credits in the world don't fix this.) But they require political cohones because at $400 billion in annual revenues, the regulated electric industry is a mighty force, doling out campaign contributions on both sides of the aisle.
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Jon Rynn Posted 1:37 am
24 Sep 2008
It's hard to know what exactly Clinton is thinking, but judging from what he's actually doing with his foundation, he might be thinking about cities getting together to collectively buy things cheaper than if they buy it individually -- that's what he's doing, concretely. And that would involve cities doing a lot of spending.
And that would all work even more smoothly if there were municipal utilities and CCA's, because the cities could direct spending directly into alternative energy (contracting with private firms). But obviously that doesn't exist (no utilities are going belly up?). So other than that, I don't know what Clinton would be thinking.
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amazingdrx Posted 1:49 am
24 Sep 2008
Can you run a power line from one home or business to the next across a lot line?
How would anyone go about getting regulatory reform? Would the new law have to be written by lobbyists, as other laws are?
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Biodiversivist Posted 2:57 am
24 Sep 2008
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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Sean Casten Posted 3:32 am
24 Sep 2008
The rules prohibit running lines across any public right of way - so lot lines are OK (as are privately owned roads) but public highways, railroads, etc. are off.
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Sean Casten Posted 3:38 am
24 Sep 2008
It's why you often hear me say that we haven't remotely begun to deregulate the electric sector, because even the so-called unregulated providers still have their access to market limited by their competitor. This has opened up on the transmission system via FERC order 888, but remains firmly in place on the distribution network, which are all regulated at the state level and largely exempt from federal jurisdiction. Since the highest efficiency projects are located at the load, this effectively creates the biggest barrier to the most societally beneficial projects.
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senor75 Posted 8:50 am
24 Sep 2008
There's a great opportunity right now to address our energy needs. Paulson has earmarked $700 billion for junk. Unfortunately the debate seems to be moving away from whether or not it should be deployed at all to this sector to 'how' it will be deployed to this sector (punitively, etc.). We need more people like Clinton to stand up and demand to be heard instead of insinuate this. Heck, even Ron Paul should on this bandwagon simply from a moral hazard standpoint.
With a more modest $420 billion, we could jump start our energy independence as well as create new jobs and still have $280 billion left over. The Wall Street shadow economy is not what made this country great.
I'm not in total agreement that smart energy policy alone could have avoided this meltdown, but certainly good private opportunities, made available by massive public investment in say energy, medicine, education or other R&D possibly could have.
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amazingdrx Posted 12:44 pm
24 Sep 2008
Or send pressurized steam, from waste heat, under the highway and run a turbine generator on the other side. Weird ideas, but just maybe these laws could be defeated with this sort of distributed generation.
Did you see my ethanol plant speculation? basically just applying the fuel cell biogas systems some breweries are using to increase efficiency with energy from the waste stream.
Plus using a vacuum pump to lower the BP of the ethanol coupled with a heat pump that recycles the condensor heat back into the ethanol distiller. Don't do it though. No way we want cheaper ethanol, hehey.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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