The economic news keeps getting worse. The unemployment rate jumped to 6.5 percent in October from 6.1 percent in September, hitting its highest level since March 1994. The 240,000 jobs lost last month bring the total decline for 2008 to 1.2 million. New housing construction in August 2008 was nearly one-third lower than a year ago. The Washington Post reports that the auto industry is “struggling with the sharpest decline in two decades.”
There is a growing consensus that a second stimulus package would help stave off the worst effects of the economic downturn. Federal Reserve Chair Ben Bernanke testified before Congress that, “With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture is appropriate.” And at his first post-election press conference, President-elect Barack Obama also endorsed a stimulus program. “A fiscal stimulus plan that will jump-start economic growth is long overdue,” he said.
A stimulus program is a vital step toward economic health, but it is not the only one. The four steps needed to achieve long-term economic health and prosperity are stabilization, stimulus, recovery, and growth. The stabilization and stimulus efforts would achieve immediate relief with a prompt injection of funds into auto loans and existing energy programs. The recovery and growth phases would launch new programs and expand existing ones to achieve medium- and long-term growth. Investing in a cleaner, renewable, and more efficient energy system must play a key role in such a comprehensive economic rescue and revitalization effort.
The average clean energy investment generates nearly four times as many jobs compared to spending on fossil fuels, according to "Green Recovery," a recent study by the Center for American Progress and the Political Economy Research Institute at the University of Massachusetts. CAP and PERI determined that a $100 billion investment in clean energy policies would yield 2 million jobs in two years. Clean energy policies should be key elements in the broader plans for stabilizing, stimulating, restoring, and growing our economy.
Stabilization: A more efficient auto industry
The auto industry is suffering from an extended, steep sales slump, and it requires immediate stabilization. Currently General Motors Corp., Ford Motor Co., and Chrysler can apply for direct loans from the $25 billion Congress appropriated to help auto companies retool their plants to make vehicles that are 25 percent more fuel efficient.
Even Treasury Secretary Henry Paulson seems to recognize the importance of helping the car companies through their current financial difficulties. He told Congress that he may use part of the $700 billion financial rescue package to help companies making auto loans package and sell those loans to institutional investors in the secondary market—perhaps a good idea if preference is given to loans extended to buyers of fuel-efficient cars.
But more direct measures are clearly needed. The three U.S. auto companies believe that these retooling loan funds are inadequate to address their dire straits. They want an additional $25 billion “bridge” loan under the Troubled Assets Relief Program created by the Emergency Economic Stabilization Act.
The federal government should grant this loan request. The auto industry is a bedrock of the economy, with “one in 10 American jobs related to auto manufacturing.” Its survival is essential for the future of advanced clean vehicle and energy manufacturing. What’s more, this extra help is imperative to preserve jobs.
The loans must also include safeguards to protect the taxpayers’ investments by preventing excessive executive compensation. The auto companies must honor commitments to provide health care and retirement security for their employees. And they must continue their research and development of advanced fuel-efficiency technology. The auto companies should also embrace the transition to less polluting vehicles, beginning with the California motor vehicle greenhouse gas emission standards
In addition, the overall success of efforts to unfreeze credit markets through stabilization policies is essential to the growing renewable energy industry. The credit collapse has hurt the ability to raise capital for major wind and solar projects, adding to the uncertainty created by the delay in the extension of renewable tax credits. The transition to clean energy needs a thriving capital market to progress.
Stimulus: Fund existing efficiency and green job programs
An effective stimulus would immediately put funds into programs with an existing and effective delivery mechanism so that businesses or households could promptly spend the money. The Center has identified many existing programs that meet this criterion. These proposals include the following:
- Fully fund the Weatherization Assistance Program to weatherize low-income households. WAP currently receives only one-third of its authorized funds. The full funding amount of $900 million would increase efficiency in 400,000 households.
- Provide $2 billion in assistance to transit agencies to reduce transit fares and expand services, and begin construction on ready-to-go rail and other projects.
- Increase appropriation to $6 billion for block grants to states, cities, and counties for clean energy projects.
- Fully fund the manufacturing extension partnership program that helps small- and mid-sized industrial plants increase their energy efficiency.
Recovery: New spending and clean energy programs
Confronting mounting energy and global warming problems presents an extraordinary opportunity to reinvigorate the economy through investment in clean, sustainable, low-carbon energy technologies. Unlike the stimulus program, recovery efforts can include a mix of existing and new programs, and could extend beyond a few months.
- Create a “Clean Energy Corps” to train young people for the clean energy jobs of the future, such as installing solar panels, weatherizing homes, and retrofitting other buildings.
- Offer “Cash for Clunkers” rebates to purchase and scrap older, more polluting cars, with the cars’ owners committing to purchasing more fuel-efficient vehicles, thus protecting some auto industry jobs.
- Invest $1.1 billion to demonstrate carbon capture-and-storage technology at coal-fired power plants.
- Invest in installing solar electricity in federal buildings.
These and other programs would sustain and increase employment in the renewable, manufacturing, and construction industries. They would also reduce oil and energy use, making our economy more efficient, and they would cut global warming pollution and its associated costs.
Together, the clean energy stimulus and recovery programs could be accomplished for $50 billion to $100 billion, which is small relative to the $700 billion financial rescue program.
Growth: Reduction in greenhouse gases to spur long-term prosperity
A federal global warming program that caps and reduces emissions would benefit the economy in two ways. First, it would help the United States avoid the enormous costs of unchecked global warming, including damage from fiercer storms, and more illnesses, drought, and floods. A carbon cap-and-trade program would also spur significant new investment in clean energy technologies including renewables, energy efficiency, and carbon capture and storage.
A cap-and-trade program that auctions all pollution allowances would yield significant revenues for investment in clean energy industries. For instance, Rep. Ed Markey’s (D-MA) iCAP bill, H.R. 6186, would generate an estimated $200 billion a year from the auction of pollution allowances. The bill would grant four out of five American households a share of half this revenue to offset any short-term increase in energy costs. The remaining revenue would be invested in clean energy technologies, creating millions of permanent well-paying jobs.
Many opponents of a cap-and-trade program argue that its costs would slow economic growth. In fact, McKinsey & Company determined that investments in energy efficiency would save money while reducing greenhouse gases. “Almost 40 percent of abatement could be achieved at ‘negative marginal cost,’ meaning that investing in these [efficiency] options would generate positive economic returns over their lifecycle,” stated the report. These returns would be invested in clean energy technologies.
Several other programs would also help spur long-term growth and a reduction in oil and energy use, among them:
- A Renewable Electricity Standard so that utilities generate 20 percent of their electricity from wind, solar, geothermal, and other renewable energy sources. Twenty-eight states have similar programs, and the House of Representatives twice passed a 15 percent Renewable Electricity Standard in the 110th Congress.
- An Energy Efficiency Resource Standard to require utilities to achieve a certain reduction in electricity use. Eighteen states have such programs.
- A long-term extension for all of the renewable energy and efficiency tax credits. The Emergency Economic Stimulus Act provided just a one-year extension for some of them. An extension until 2014 would increase investments in new projects and advanced technology due to greater certainty about the tax incentives.
Clean energy: Delivering stabilization, stimulus, recovery, and growth
These short-, medium-, and long-term investments in energy efficiency, renewable energy, and global warming abatement would create millions of well-paying jobs. They would also move the country toward the low-carbon future necessary to increase our international competitiveness, improve our national security, and avoid the devastating social, economic, health, and environmental effects of global warming. Adopting and implementing these programs is the clear path forward at this critical time.
Special thanks to Michael Ettlinger.