Category: Government vs private sector roles

A Call to Arms Re Investing In Our Energy Future

The attached article by Steven Ratner appeared in the March 27, 2018 issue of the New York Times. It raises important questions about how the U.S.is preparing for future economic competition with other countries, particularly China. The questions are not new, but Ratner’s article is a timely reminder that our national leaders need to look forward and make and faciilitate investments now that will benefit us in the future. A dysfunctional and short-sighted Congress in recent years, and now a dysfunctional and short-sighted presidential Administration, are putting the nation’s long-term economic position and leadership role in jeopardy.

I say this for the following reasons: the world is in the early stages of an inevitable transition from dependence on fossil fuels (80% dependence today) to steadily increasing reliance on renewable energy in its various forms. After several decades of development triggered by the OPEC-imposed Oil Embargo of 1973-74, solar and wind energy are now rapidly joining hydropower as significant contributors to global electricity supply. Other forms of renewable energy – geothermal, biomass, ocean – are also experiencing active development. As global populations and water and energy demands increase as we move further into the 21st century, and there is greater attention to reducing the threat of global warming, the markets for renewable technologies will grow significantly. In the past the U.S. has led the movement toward greater use of renewable energy, and had expectations that it would lead the resulting market opportunities. This is no longer true: the U.K. and other European countries lead the world in the development and deployment of offshore wind, and China leads the world in production of solar PV panels and wind turbines. China has clear ambitions to take full advantage of rapidly emerging renewable energy markets, and is now well positioned to soon take the lead in offshore wind deployment. Less impressively, the U.S. only recently placed its first offshore wind turbines in Rhode Island.

The long-term economic consequences are clear: unless the U.S. takes a more aggressive stance toward achieving a major share of these emerging markets, there will be reduced U.S. economic growth and loss of jobs that will go overseas. What is lacking is a clear national commitment to facilitating and expediting a transition to a renewable energy future. This requires action by the U.S. COngress and leadership from the Executive Branch, both of which are now lacking. The GOP-controlled Congress and the U.S. President are still in the thrall of the fossil fuel industry and renewable energy in the U.S. Is not getting the support it deserves. Chinese and European governments are taking a long-term, economically sensible view. Ratner’s article points out that, at this point, the U.S. is not.

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Is China’s Version of Capitalism Winning?
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Steven Rattner MARCH 27, 2018

President Trump’s attacks on Chinese trade practices may be garnering the headlines, but underpinning that dispute lies a more consequential struggle, between liberal democracy and state-directed capitalism.

Of late, it’s a competition in which the Chinese approach has been delivering the more robust economic result. Indeed, implicit in the ferocity of the Trump administration’s attacks on China’s protectionism is the success of that nation’s economy.

Skeptics notwithstanding, China’s model, which has brought more people out of poverty faster than any other system in history, continues to flourish, as I’ve seen firsthand in a decade of regular visits. Meanwhile, liberal democracy — the foundation of the post-World War II order — is under pressure, most significantly for having failed in recent years to deliver broadly higher standards of living.

Here’s one stark example: Last week, Congress finally managed to pass appropriations legislation for the current fiscal year — six months after the budget year began. The 2,232-page bill was cobbled together in a frenzy, without any discussion of national priorities or careful examination of the expenditures.

In contrast, China is driving hard toward its “Made in China 2025” plan, an ambitious set of objectives to upgrade Chinese industry so that, among other things, it can manufacture its own high-value components, like semiconductors. And while we retreat internationally, China’s One Belt One Road Initiative will physically connect China to more than 65 percent of the world’s population.

If you think we have trade problems with China now, just wait.

To be sure, China is a long way from overtaking the United States. Its gross domestic product per person is just $9,380, compared with $61,690 in the United States. Less visible than the sleek modern skyscrapers that now dominate China’s cityscapes are the 700 million people — about half of China’s population — who still live on $5.50 per day or less.

And China’s mercantilist trade practices are indefensible, particularly its use of non-tariff barriers to discourage foreign companies from coming to China, its insistence that non-Chinese companies share their technology, its outright theft of intellectual property and on and on.

That said, I’m confident that China’s mixed system would have produced formidable growth even without these predatory practices. As China marches forward, Washington feels like it’s standing still.

Perhaps the only policy area on which President Trump and the Democrats agree is the need to fix the nation’s crumbling infrastructure. And yet, 14 months after the president was inaugurated, nothing has happened (except for the release of a plan that was quickly derided).

For its part, China continues to build airports, subway systems, renewable-energy facilities and the like at a torrid pace. Even its longstanding pollution problem is being addressed. In the past four years, China has succeeded in cutting concentrations of one pollutant — fine particulates — by 32 percent, roughly what it took the United States 12 years to achieve after passage of the Clean Air Act in 1970.

Next up, artificial intelligence. In mid-2017, China announced a plan to become a global leader in artificial intelligence by 2030, sending shudders through American policy circles. One research report estimated that A.I. could add 1.6 percentage points to China’s growth by 2035.

At the moment, the United States remains the world leader in A.I., and our scientists are working hard to achieve further advances. But from the Trump administration: silence, notwithstanding a parting warning and a call to arms from President Barack Obama’s team.

As a capitalist, I’ve never believed in excessive government intervention in the economy. One of America’s greatest strengths has always been its flourishing private sector. But in a complex, global economy, the public sector should play an important role, and ours just isn’t.

China, despite its Communist heritage, understands the benefits of incorporating a robust free-enterprise element. Beijing bustles with internet entrepreneurs. Venture capitalists are pouring vast sums into a dizzying array of start-ups, including in prosaic industries like retailing. And an increasing number of “national champions” are expanding beyond China’s borders.

Don’t get me wrong. I’m not suggesting that we rewrite our Constitution to emulate China. And I certainly understand the loss of freedom and civil liberties under the Chinese system. But that doesn’t mitigate the need for us to get our government to perform the way it did in passing the New Deal and Lyndon Johnson’s Great Society.

When Russia launched its first Sputnik satellite in 1957, our response was to redouble our efforts and win the race to the moon. While the merits of punishing China for its unfair trade practices are strong, that’s hardly the most important reaction to its extraordinary economic success.

Steven Rattner, a counselor in the Treasury Department under President Barack Obama, is a Wall Street executive and a contributing opinion writer.

Carbon Capture and Sequestration: Is It a Viable Technology?

As mentioned in my previous blog (‘What I Took Away From the Doha Clean Energy Forum’): “three speakers made a strong case for carbon capture and sequestration (CCS) as a means of addressing global warming and climate change, especially in heavily carbon emitting industries such as cement production. Lots of questions remain, and will be discussed in a future blog.” This is that future blog on a well trod but still controversial subject.

Wikipedia defines CCS as “..the process of capturing waste carbon dioxide (CO2) from large point sources, such as fossil fuel power plants, transporting it to a storage site, and depositing it where it will not enter the atmosphere, normally an underground geological formation.”

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Considerable literature exists on CCS, exhibiting a wide range of opinions on its viability as a technology to reduce carbon dioxide emissions. The principal argument for CCS is that the world today is fueled largely by coal, oil and natural gas and that this situation is not likely to change any time soon. In fact, as many developing nations industrialize and emerge from poverty, the demand for energy increases steadily and it is argued that only fossil fuels can meet that demand in coming decades. It is also argued that while solar and wind and other renewable energy technologies can eventually replace electricity from coal and natural gas power plants this will not occur quickly and people will need fossil energy during the long transition. In addition, some industries like steel and cement are not so easily ‘fixed’ and will continue to use fossil fuels in increasing amounts as global industrialization grows.

These points raised in support of CCS are countered by the following arguments:
– CCS is expensive, whether added to an existing power plant or industrial carbon dioxide source, or included in newly constructed facilities. The energy penalty for operating CCS is also high, requiring a fair amount of parasitic energy that reduces efficiency and revenues.
– When operating, CCS systems require large amounts of water.
– captured carbon dioxide must be liquified and stored for indefinite periods of time in such a way as to avoid leakage and large ‘burps’ that can be toxic. This requires identification and development of storage sites (depleted oil and gas wells, coal mines, underground aquifers), infrastructure to transport liquid CO2, adds additional costs and raises questions of liability if something goes wrong and stored CO2 is accidentally released.
– the time required for development, demonstration and large-scale deployment of CCS technology that can have a meaningful impact on global warming is too long compared to other options.

Proponents of CCS (see http://www.globalccsinstitute.com) argue that CCS costs can be brought down significantly with a sufficient number of demonstration projects and economies of scale associated with large-scale deployment. Nevertheless, at the recent Doha Clean Energy Forum even one of its supporters admitted that an impactful global CCS system will cost an estimated 3.6 trillion USD (and I did say trillion). My immediate reaction was that for $3.6 trillion I can deliver an awful lot of renewable energy that will replace coal, oil, and natural gas use in power generation and transportation. Nevertheless, there is the argument that the CO2 emissions from some industries will still be there in large and growing amounts even with large-scale deployment of renewables and CCS is the only way to limit these emissions.

These are strong arguments for some attention to CCS R&D and demonstration, but, in my view, not at the expense of rapid development and deployment of renewables. This creates a conundrum as CCS demonstrations are expensive, and the money for them would have to come from somewhere. Government funding is at best problematic in current budget situations. Other possibilities are the fossil fuel industries themselves, which have a vested interest in continued purchase of their commodities. Countries with large reserves of fossil fuels – e.g., the U.S., with large reserves of coal – will also see value in CCS allowing extended use of secure domestic energy reserves.

In a world committed to reducing carbon emissions CCS offers a helping hand but not a definitive one. It may offer a partial answer for the rest of this century, but governments are unlikely to provide the needed funds for large-scale deployment. Let’s see if the private fossil fuel sector is willing to step up to protect its vested interests.

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What I Took Away From the Doha Clean Energy Forum

Returned on Friday (11 October) from four days in Doha where I participated in the final annual Global Clean Energy Forum sponsored by the International Herald Tribune (IHT). In the future IHT will be known as the International New York Times.

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The Forum organizers put together an excellent set of international speakers on a broad range of clean energy issues, including fracking gas and it’s impact on investments in renewables, energy technology innovation, sustainable energy in Arab and developing countries, carbon capture and sequestration, and perspectives of the financial community on investments in renewable energy. The agenda can be found at http://www.inytcleanenergy.com/2013-agenda.asps.

Some of my take-aways are the following:

– shale gas from fracking is seen as a definite part of future energy supplies and will be considered ‘complimentary’ to other natural gas supplies such as those from the large reserves in Qatar.
– the availability of relatively low cost, large shale gas supplies will affect the pace of investments in renewable energy technologies.
– the fact that water and energy issues are ‘inextricably linked’ is gaining wider acceptance but is still not routinely mentioned in discussions of energy supplies.
– global investment in deployment of renewables is increasing, but the pace of investment will have its ups and downs, with national policies being a critical determining factor in these early days.
– transportation will be an important future market for fuel cell and other forms of green electricity.
– there is much opportunity and need for innovation in clean energy technologies, with a corresponding need for appropriate incentives.
– The United Nations is finally on board with the need for greater attention to energy issues in sustainable development (there were no energy goals in the 2000 Millennium Development Goals).
– The financial community sees solar energy as the best bet for future renewable energy investments. De-risking clean energy investments is a critical need in funding decisions.
– three speakers made a strong case for carbon capture and sequestration (CCS) as a means of addressing global warming and climate change, especially in heavily carbon emitting industries such as cement production. Lots of questions remain, and will be discussed in a future blog.

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The Role of Government vs. That of the Private Sector

This is a topic that applies to more than just the energy sector, but it is one that I wrestled with as a U.S. DOE official with significant budget responsibilities. Where does the government fit into the research, development and deployment (RD&D) of emerging energy technologies and where is it appropriate to turn these responsibilities over to the private sector? Where do government interests differ from and overlap with private sector interests? How does one balance the two?

In some ways addressing these questions were some of the most difficult decisions of my DOE management career. My immediate staff, aware of the decisions I faced, often said: “That’s why you get paid the big bucks.” If only that were true!

My thinking on these issues was strongly influenced by my familiarity with the DOE renewable energy program at the end of the Carter Administration. I had been a political appointee in that Administration until leaving in 1979 but I had kept in close touch after that with my former DOE colleagues. Something that burned into my memory was the experience the DOE wind energy program had with the Boeing Corporation. After the oil embargo in 1973-74 there was increasing attention to and budget support for renewable energy programs like wind, solar and others. Boeing was supported by the wind program to develop wind turbines for commercial application, a logical approach given Boeing’s experience with aviation propellers, turbine generators, and related technologies. The problem was that Boeing put up none of its own money in this effort, being fully supported by DOE. As we like to say: they had ‘no skin in the game’.

With the arrival of the Reagan Administration this funding situation changed and 100% support from DOE was no longer possible. In fact, the Reagan Administration tried its best to eliminate DOE’s entire renewable energy program, and even DOE. When this loss of total support became known to Boeing they dropped their participation in DOE’s wind program, and I drew a conclusion that guided my future decisions when I returned to DOE as a senior manager in 1991: no RD&D funding to companies that will not do cost-sharing with the government, with the degree of cost-sharing being a function of the level of risk faced by the private sector concern in carrying out its RD&D responsibilities. Thus, when I was in a position in the 1990’s to make such budget decisions my guiding rules were: at least 25% cost-sharing by the private sector when the risk was high in the early stage of a technology’s development; 50% during most of a technology’s development; and 75% when a technology was approaching commercial application. With respect to this latter point, I believed that the government could help get demonstration units into the field for evaluation and confidence building but that the government had no role in commercialization.

I also believe that government should work closely with the private sector to expedite transfer of emerging technologies to the commercial marketplace. This does not mean that government goals overlap completely with private sector goals, as some may believe but I do not. I see government’s RD&D role as ‘looking down the road’, seeing what’s coming, and doing what’s necessary to protect the public’s longer term interests. In addition, our economic system has assigned the private sector the role of maximizing financials returns to investors. Given this latter assignment of responsibility, private sector goals are of necessity shorter term in nature than those of the federal government. Thus, I see it as governnment’s responsibility to set policy and create a financial environment in which government and private sector goals can overlap to the extent possible. They will never be the same, but this is one place where government officials can earn ‘the big bucks’.

I will conclude by noting some recent public discussion of the private sector’s role in serving the public as well as its shareholders. This has been motivated by several corporations, e.g., IBM, making public their primary goal of maximizing shareholder returns. I leave a discussion of whether this is appropriate for another time and for others to discuss.