Obama Stimulus: For Clean Energy, a Patchwork of Investments

January 20, 2009 |

Barack Obama has finally been sworn in as the 44th President of the United States of America. For once, there is no debate among pundits or Capitol Hill insiders about what Obama's first priority will be as President. It seems like President Obama has been working on crafting an economic stimulus bill since November 5th, and now the real work begins in earnest.

Last week, despite reports from the Congressional Budget Office that our economy will likely face $2 trillion of lost production over the next two years, Obama rolled out a stimulus plan that only spends $825 billion to make up for this gap in production. A summary of the American Recovery and Reinvestment Act, released by the House Appropriations Committee, gives us the first detailed look at how this money will be spent and invested. Reading through the section devoted to energy in particular, a glaring lack of spending and the absence of any sort of cohesive guiding framework both give reason for pause.

Every dollar of public investment produces, on average, about one and half dollars of GDP, achieving a "multiplier effect" that makes federal spending ideally suited for maximizing stimulus investments - a critical criteria when facing such a massive economic shortfall. Considering the fact that only $550 billion of the stimulus will be in the form of spending and investment, it seems that the stimulus in its current form won't even attempt to address the full $2 trillion dollar economic gap. The other $275 billion contained in the stimulus will go to tax cuts, which economists reckon will have little to no "multiplier" effect and will likely make up for no more than $275 billion of lost production. As it stands, Obama's stimulus proposal may only address half of the economic shortfall projected by CBO (stimulating roughly $1 trillion in increased economic production). And it'll be worse if CBO's projections turn out to be optimistic (as scary a thought as that is!). That leaves economists like Nobel Laureate Paul Krugman concluding, "the Obama plan is nowhere near big enough to fill this 'output gap.'"

So given the risks of not doing enough, why does the Recovery and Reinvestment plan attempt to address just half of expected losses in economic production? Or as Krugman is left wondering, "Why isn't Mr. Obama trying to do more?"

Obama has hinted that the scale of public investments in the stimulus has been constrained by a lack of "shovel ready" projects, projects that are ready to go and will expend most of their money and hire most of the associated jobs within the next 24 months. Anything that isn't shovel ready might not yield its peak economic benefits until more than two years from now, reducing the timely impact of the stimulus, or so the argument goes.

So perhaps there is not enough that is "shovel ready." But looking at this stimulus summary, that's hard to believe. In addition to $22 billion for efficiency retrofits, Obama is only planning on spending $32 billion dollars on clean energy research and development, demonstration, deployment, and enabling infrastructure, such as a modern 21st century electricity transmission grid. All these projects and more are necessary and carry a much bigger price tag than $54 billion--even over the next two years. Robert Pollin's Green Recovery report, for example, outlined $100 billion in smart investments in clean energy projects over the next two years - double what is contained in the current stimulus plan.

Another sign that public investments have not been maximized can be found within the House's own stimulus summary. The section summarizing transportation investments explicitly states that while there are more than $65 billion in shovel ready, backlogged public transit and rail projects, the stimulus will only allocate about $10 billion to mass transit investments. This makes it pretty clear that "shovel ready" has not been the consistent standard for apportioning expenditures for the stimulus, and raises plenty of questions. If Obama is not spending to the full capacity of shovel ready projects on smart public transit investments, there is little evidence he has maximized public investments in other areas, especially the clean energy investments so critical to our economic, national security and climate objectives.

Underfunded or not, the series of clean energy investments included in this version of the stimulus reads like a laundry list of piecemeal tax breaks and incentives that simply do not cohere into any kind of unified plan. It seems that there is no coordination between the different intended energy expenditures and no central objective or strategy behind then, other than creating new jobs.

Given the momentous challenges facing America today, challenges that Obama spoke eloquently of in his inaugural speech today, he can ill afford to waste any opportunities to make stimulus investments pull "double duty" - making investments that both create jobs in the short term and set the foundation for smart, sustained growth towards a new 21st century economy.

So when it comes to clean energy investments, the stimulus must follow some kind of plan, designed to organize investments that are most effective at building the new energy economy we need. They should evidence a clear vision of the clean energy economy we're trying to create and follow a diagnosis of the key barriers and challenges standing in the way of that vision. Such a vision and diagnosis would in turn inform a strategy of framework to organize and guide where and how to best invest as much stimulus money as possible in spurring the transition to a new, clean energy economy.

The high price of clean energy technologies is currently the greatest obstacle hampering the transition to "harness[ing] the sun and the winds and the soil to fuel our cars and run our factories," an objective Obama spoke of today. We've therefore argued for a strategy to spur clean energy development and deployment designed to drive down the costs of clean energy - a strategy to "make clean energy cheap." If Obama were to sit down with his top-notch energy and economic teams and a red pen with a single goal in mind--"make clean energy cheap"--the energy section of the stimulus might suddenly expand in scope and have a new, cohesive and strategic focus.

The stimulus legislation is currently making its way through the House, and certain pundits have predicted that Congressional Democrats will bulk up the investment end of the bill before it is passed and sent over to Obama's desk. If this is true, there would be no better way to increase spending, to meet both short-term and long-term objectives, than increasing investments to make clean energy cheap and abundant.

It's President Obama now. For him, and our nation, the real work begins today. The stimulus is the first chance to get it right.


Comments

Any new federal government programs will run into the usual quagmire of influence peddling, favoritism .

By on 2010 05 17


Anything change did not happen.
This is sad!

By mortgage_loanmodification on 2009 08 02


I think we still have to wait for a while to get the real effects of the stimulus plan. It will take several years to get back on the track again.

By Inversiones inmobiliarias on 2009 07 29



Many are waiting for the marvel from him now.
But there will be change at a price of only large victims i think.
Under very long time.

By Loan modification on 2009 07 17


I think it is fantastic how the stimulus funds are making a difference. They are being taken advantage of all the time with the installation of geothermal heat pumps to replace high energy heating and cooling systems.

By Joseph on 2009 06 27


Experts say the US dollar will collapse as China and Russia will start changing their currency reserves from dollar to Euro. It is advised to invest more in Europe as the future is brighter overe there. Look at Fiat's purchase of Chrysler. I would have never thought about happening something like this.

By on 2009 06 11


We all know that banks make a lot of money on every dollar we deposit. Their benefit is many fold surpass the amount we can imagine. They do not care much about people who just can not pay their monthly payments. It is advised to seek help from an attorney who can represent you for changing the terms of your loan. He can renegotiate payments with your lender.

By Mortgage Loan Expert on 2009 06 08


The Obama's cabinet has to focus on many things including the energy, housing market, loan modifications etc.
It's not easy, but I think people's primary focus right now is to stay in their beloved home and not to loose it.

By loan modification help on 2009 05 06


I thought Obama's priority is the real estate business? mortgagaes, loans, houses? but now it seems that it's for energy.

By Countrywide Loan Modification on 2009 04 16


So much for bipartisanship. Seems everyone wants to play the blame game. Can't we all just get along? (Somebody please call Rodney King!)

By Joel on 2009 02 13


Higher gas prices will only make the oil companies richer at the expense of the economy. Although the argument is legitimate for a greater push for energy measures it is a hard sell to cash strapped Americans. Higher gas prices will cripple the already fragile economy and stop any recovery dead in its tracks. A push for energy conservation is an idea whose time has come. It should not be tied to higher gas prices but to an economic recovery and moral sense of global conservation.

By Karl B on 2009 02 02


Adam,
Don't you think that R&D funding should be reserved for the 2009 energy bill? It typically sets the DOE budget that is largely in charge of the kind of funding you advocate.
In terms of short-term stimulus, I think the efficiency measures included in this bill are spot on.

By danl on 2009 01 27


The first thing Obama should do is to keep gas prices high. This will be enough to entice private investment in green energy. The second thing is to reduce taxes dramatically and forget about any 'stimulus' nonsense, in terms of spending, which would at best be a short-term fix but will result in a long-term erosion of wealth. It's not worth it, considering that it's all 'payed for' by America's fiat money system (i.e. The Fed), itself a dastardly concept which begs for an alternative.

The federal tax cuts are crucial. Consider that any new federal taxes levied, now, will only serve some future administration in its global expansionist ambitions, which will undoubtedly include more foreign invasions and wars.

Furthermore, the following is guaranteed: Any new federal government programs will run into the usual quagmire of influence peddling, favoritism and tax dollars poorly spent on suboptimal solutions. Obama should really take the high road on this one.

By Libertär on 2009 01 22