Jeremy Carl

Jeremy Carl

Jeremy Carl is a research fellow at the Hoover Institution whose work focuses on energy and environmental policy, with particular emphasis on energy security and global fossil fuel markets. In addition, he writes extensively on US-India relations and Indian politics. Before coming to Hoover, Jeremy was a research fellow at the Program on Energy and Sustainable Development at Stanford and a visiting fellow in resource and development economics at the Energy and Resources Institute in New Delhi, India. He is the editor of Conversations about Energy: How the Experts See America’s Energy Choices, and his work has appeared in numerous books and journals in the energy and environmental fields. His writing and expertise have been featured in the New York Times, Wall Street Journal, Newsweek, and many other publications. Jeremy holds degrees in history and public policy from Yale and Harvard Universities.

 

In a time of continuing budget deficits and record-high taxes, Californians are currently spending billions of dollars annually on eleven different, often overlapping, renewable and distributed energy programs, with no clear lines of decision-making authority and little accountability or transparency.

If California is to move to an affordable and modern energy future without bankrupting the economy or bringing down the electric grid, there needs to be fundamental reform of California’s energy governance and regulatory environment.  This is the key conclusion of a report on California’s renewable and distributed electricity programs released today by myself and several colleagues on behalf of the Shultz-Stephenson Task Force on Energy Policy.

 

Mr. George P. Shultz announces Hoover task force report on California energy policy

At a Power Association of Northern California (PANC) luncheon on Wednesday, November 28th, Mr. George P. Shultz introduced a new study by the Shultz-Stephenson Task Force on Energy Policy on renewable and distributed power in California. Mr. Shultz is pictured here with PANC president Les Guliasi. (photo credit: David Fedor)

 

Thomas and Susan B. Ford Distinguished Fellow George P. Shultz announced the release of this study yesterday afternoon at a meeting of the Power Association of Northern California, a trade group comprised of leading figures in California’s power industry. Secretary Shultz has been a leader in the fight for regulatory reform in government, and has increasingly turned his attention to the importance of regulatory reform in California’s energy sector.

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In many ways, Thomas Massie, a Republican congressional candidate in Kentucky’s heavily Republican 4th district, which holds its primary election on Tuesday, probably fits the liberal—and media–  stereotype of a Tea Party candidate.  He lives in rural Kentucky on a farm and speaks with an accent that quickly reveals his small-town Kentucky roots.  He is the incumbent Judge-Executive (county executive) in his native Lewis County, a rural area of 14,000 whose county seat, Vanceburg, where Massie grew up, has less than 2,000 people.  The closest city in his Kentucky census area is  Maysville, a town of less than 10,000 almost one hour’s drive away.

Unsurprisingly for someone who grew up in very rural Kentucky, Massie is a gun-rights enthusiast, who has had a concealed-carry permit for a decade and enjoys hunting and target practice with his four kids.  Married to his high school sweetheart, he is  strongly pro-life, he’s anti-bailout, anti-stimulus, supports aggressive use of domestic energy resources.  His  anti-Washington, anti-establishment rhetoric mirrors that of Kentucky Senator  and Tea Party champion Rand Paul, for whose campaign he volunteered.

So far, so typical, according to the liberal’s tea party boilerplate.  But there is much more to Massie’s story.  Massie, son of a beer distributor, left Vanceburg after high school when he enrolled as a student at MIT where he became known for his inventive genius, standing out even amongst some of the most outstanding young engineers in the country. Alex Slocum, a long-time MIT engineering professor and a mentor to Massie during his college days, calls him “brilliant” “driven” and “honest”.  In 1995 he won MIT’s Lemelson Prize (and $30,000) as MIT’s outstanding student innovator, an impressive achievement at a campus where some of America’s best young engineers work all hours developing breakthrough technologies in every field.

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When Subsidies Fizzle

“Nobody knows anything.”

William Goldman, a legendary screenwriter, made this observation about predicting the box-office success of movies before they open, but his comment could just as easily be about projecting the success of specific renewable-energy technologies before they are widely deployed. And that is why subsidizing the deployment of individual renewable-energy technologies—picking winners, in other words—is a bad idea, both for fiscal responsibility and for the long-term health of the clean-technology economy itself.

This does not mean that governments should do nothing. The support for basic scientific research and even applied R&D is one of the few governmental expenditures that actually produce a good societal return on investment. Funding a broad and sustained clean-tech R&D effort by government, academia, and even, subject to tight restrictions, within industry, makes a lot of sense.

But loan guarantees to private firms, whether those are Solyndra (bankrupt), Beacon Power (bankrupt), or Fisker Automotive (for a 20 mpg hybrid sports car), are a bad idea. The Obama administration has tried to combine an energy policy, a stimulus policy, and a jobs policy all in one, with the net result being both policy incoherence and charges of corruption, incompetence, and conflict of interest. As Larry Summers, then–Treasury secretary, wrote at the time of the Solyndra investment in an internal e-mail: “Government makes a crappy VC.”

Continue reading Jeremy Carl…

Last night’s State of the Union address had something for every fan or critic of the President. In energy policy, my own primary area of research, the President offered a mix of the promising (some sops for greater domestic conventional energy production and a continued commitment to sustained support of basic energy R&D) along with the regrettable (no mention of his ill-advised opposition to the Keystone pipeline—and no recognition that the government role of picking winners Solyndra-style was not likely to lead to good policy outcomes). But the focus of the speech for most commentators was, not surprisingly, the President’s populist economic message of redistribution in the name of “fairness.”

It was therefore highly symbolic that Warren Buffett’s secretary Debbie Bosanek was in attendance as an invited guest of the First Lady. Bosanek was the inspiration of the so-called “Buffett Rule”, named for Warren Buffett, America’s second-richest man, who regularly claims that Bosanek, his secretary, pays taxes at a higher rate than he does. Whether this is in fact the case, nobody knows, since Bosanek has not released her tax returns—but if it is the case, it’s a highly unusual circumstance. In a recent OECD study cited by the non-partisan Tax Foundation , the U.S. was found to have the most progressive tax system in the entire OECD, a number that includes not only all income taxes but payroll taxes as well. Even when taking into account income distribution, the well-off in America pay a higher share of America’s taxes then do the well-off in any other comparable country. Meanwhile, 46% of tax filers pay absolutely no federal income taxes at all and the fastest-growing group of those, up from almost zero during the Clinton years, to nearly ½ million individuals and families today, are those earning between $75-100,000 a year, hardly the huddled masses.

What is breathtaking about Obama’s state of the Union rhetoric is the fundamental dishonesty of his central conceit, that of rich not paying their “fair share” of taxes. Indeed a large part of America’s tax problem today is that it is overwhelmingly only the well off that are paying much in the way of taxes. Large swathes of the middle class and most of the working class are increasingly exempt from any significant shared tax burden at all outside of Social Security, which arguably is more akin to a forced retirement savings scheme than actual redistributive taxation.

Now it would be fundamentally honest if Obama said that in order to fund our growing entitlements and general government expenses, everyone, poor, middle-class and wealthy would have to pay substantially more taxes. Raising taxes rather than cutting spending would be in my view, very ill-advised, but at least it would represent a serious approach to the problem. And it would embody the sort of “shared sacrifice” that the President constantly calls for—everyone has to give up something to make sure an expansive social safety net is there for everyone. But continuing with a long-running theme, last night Obama ruled out any tax increases for those making under $250,000. It’s clear his definition of “shared sacrifice” is nothing more than a massive redistribution of wealth from those who have earned it through voluntary exchange in the private market to his political cronies and voting blocs, who are asked to sacrifice absolutely nothing. This is the exact opposite of real Presidential leadership, and it is a direct repudiation of the national unifier image Obama sold to the American people in 2008. As economics, this approach will do little if anything to solve the deficit. As politics, this is pure demagoguery.

Indiana Governor Mitch Daniels’ response on behalf of the Republicans was pitch perfect in getting to the heart of the issue: “No feature of the Obama Presidency has been sadder than its constant efforts to divide us, to curry favor with some Americans by castigating others. As in previous moments of national danger, we Americans are all in the same boat. If we drift, quarreling and paralyzed, over a Niagara of debt, we will all suffer, regardless of income, race, gender, or other category.”

But perhaps the best response to Obama, Warren Buffett ,and his Buffett rule was given by Buffett himself—Not Warren, but his late father Howard .

The elder Buffett is not much remembered today, but in his time he was a paragon of the so-called Old Right, a four term Republican Congressman from Nebraska, a leading figure in Robert Taft’s 1952 Presidential campaign, a stalwart critic of the New Deal, a defender of the Constitution, and a relentless critic of the growth of government power. He was a strictly ethical representative, turning down his Congressional pay raise and refusing to participate in any junkets in contrast to almost all of his colleagues.

According to Buffett’s wife, he had only one rule of his own when deciding whether or not to vote for a bill: And it wasn’t “Does this meet my own arbitrary definition of fairness?” Or “Does this sufficiently spread the wealth around?”

He asked himself: “Will this add to, or subtract from, human liberty?”

The Warren Buffett Rule, with its false patina of social justice, fails the Howard Buffett test rather dramatically.

By all accounts Warren Buffett greatly admired his father. How tragic then that by giving a name and a symbol to the heart of the President’s intellectually dishonest class-warfare strategy, he has repudiated the original Buffett rule, and undermined his father’s fundamental legacy.

(photo credit: Aaron Friedman)

Renewables

William Goldman, a legendary screenwriter, made this observation about predicting the box-office success of movies before they open, but his comment could just as easily be made about projecting the success of specific renewable energy technologies before they are widely deployed. And that is why subsidising the deployment of individual renewable energy technologies—ie, picking winners—is a bad idea, both for fiscal responsibility and for the long-term health of the clean-technology economy itself.

This does not mean that governments should do nothing. The support for basic scientific research and even applied R&D is one of the few governmental expenditures that actually produces a good societal return on investment. Funding a broad and sustained clean-tech R&D effort by government, academia and even, subject to tight restrictions, within industry, makes a lot of sense.

But loan guarantees to private firms, whether those are Solyndra (bankrupt), Beacon Power (bankrupt) or Fisker Automotive (for a 20mpg hybrid sports car), is a bad idea. The Obama administration has tried to combine an energy policy, a stimulus policy and a jobs policy all in one with the net result being both policy incoherence and charges of corruption, incompetence and conflict of interest. As Larry Summers, then Treasury secretary, wrote at the time of the Solyndra investment in an internal e-mail: “Government makes a crappy VC.”

Continue reading Jeremy Carl…

(photo credit: Steve Jurvetson)

In Search of Adventurism

For all of the concern among some Beltway Republicans about his Texas tough talk alienating moderate voters, it is perhaps ironic that Republican presidential nomination front-runner Rick Perry raised the most eyebrows at one of the first GOP debates when he warned against military “adventurism,” in what many saw as a subtle dig at the foreign policies of both Presidents Obama and George W. Bush.

Yet Mr. Perry’s sentiments are reflective of an increasingly popular approach in the GOP, especially among those allied with the tea party movement. This influence can be seen not just in Mr. Perry’s campaign, but in the rising influence of once-marginal candidates like Rep. Ron Paul of Texas, who now sits in third place in some national GOP polls.

Continue reading Jeremy Carl…

Yesterday’s vote in the Senate that failed to kill $6 Billion in annual subsidies to corn ethanol might seem like a defeat for market-oriented energy reformers—But there’s a lot more here than meets the eye.

The bill, sponsored by Oklahoma Republican Tom Coburn, would have eliminated ethanol blender subsidies  while striking the  import tariff on foreign ethanol  (typically cheaper Brazilian ethanol derived from sugarcane).  It failed 59-40, falling 20 votes short of cloture,  but a closer look reveals that the  defeat had as much to do with inside-the-beltway maneuvering as it did with fundamental untouchability of ethanol subsidies.

In fact it is revealing that opposition to ethanol subsidies has recently become a mini-trend among GOP potential presidential candidates with everyone from Tim Pawlenty to John Huntsman to Sarah Palin implying that corn ethanol subsidies  should be eliminated either now or in the near future.  The strong support of the Club for Growth, Jim DeMint and even Koch Industries for Coburn’s position also has added to the momentum for the removal of these subsidies, spurring a unique alliance of conservative deficit hawks and alternative-energy skeptics with liberals who, while far more favorable to alternative energy, believe that corn ethanol is the wrong way to go.  Meanwhile, farm state Republicans like John Thune (SD) and Chuck Grassley (IA) have joined with their farm state Democratic colleagues like Tom Harkin and generally blocked the more serious  reform efforts while offering a weaker alternative.  But even Grassley and Thune can see the writing on the wall, and it is becoming increasingly clear that some sort of reform to corn ethanol subsidies is very likely to be in the offing.

In fact, the defeat of this particular bill may say as much about Coburn’s famous contempt for Senate proprieties and procedures as it does about the popularity of corn ethanol subsidies. Coburn is often styled “Dr. No” for his lone wolf stands on issues – and personal friction with colleagues on both sides of the aisle probably cost this measure votes, particularly among the Democrats. Yet it is notable that the very conservative Coburn co-sponsored this bill with California’s own Dianne Feinstein.  And in a move that shows just how tortuous the Congressional politics of ethanol have become,  Feinstein ultimately voted against her own Amendment, due to partisan issues related to Coburn’s pushing for a vote without Majority Leader Harry Reid’s blessing.

Meanwhile, Coburn framed the ethanol issue in stark terms declaring: “What part of stupid are we? This is a historic vote that is a signal to the American people: Either people in Washington get it and are going to stop wasting money and start acting in the best interests of the country, or … they won’t.”
Yet in addition to farm state foes, Coburn faced powerful opponents from his own party including  Grover Norquist, head of Americans for Tax Reform, who argued that eliminating ethanol’s favorable tax treatment would constitute a tax increase, something the GOP caucus has pledged to avoid—But significantly 34 of 47 GOP Senators were not swayed by this argument, marking a potential shift on the caucus’ view not just of corn ethanol, but on whether eliminating special-interest  tax breaks in the tax code (so-called tax expenditures) qualifies as a tax increase.

 

Beyond these issues of politics and semantics, the entire ethanol quandary illustrates a powerful point about the current climate for energy subsidies and innovation—money tends to flow to politically popular but inefficient programs such as corn-based ethanol production—But even if, on their own terms, they could address energy security needs (and one should be very  dubious of corn ethanol’s role here) as soon as they actually are implemented at large scale, they become too politically visible to continue.

In other words, our current system of energy subsidization—from solar energy to corn ethanol,  only works as long as the subsidized forms of energy are small enough to be irrelevant to our energy security.  Given that energy security (along with climate change, for some)  is the prime driver of the supposed need for these technologies,  this seems like a perverse result, to say the least.

What is needed is a fundamentally different approach to the federal role in energy—one that emphasizes sustained energy R&D on basic and early applied research—particularly in higher-risk, higher-reward, longer-term technologies that are too early for angel or venture capital funding.   The federal government has a long and fairly distinguished track record in basic science and engineering R&D, including the development of the Internet on which you are reading these words. We need a lot more of that—and a lot less corn ethanol.

 

That’s the money quote on Indian development from Jim Yardley’s terrific article in the New York Times on Gurgaon, the booming Delhi suburb that probably best exemplifies the new India with all of its problems and possibilities.

Surveying Gurgaon, one quickly apprehends how virtually all of India’s modern growth miracle has occurred due to the dynamism of the private sector, with the vast majority of the government serving only as a corrupt impediment to progress. In fact, as Yardley correctly notes, a key driver in Gurgaon’s early development was that there was no local government at all to interfere with it. As a former resident of nearby Delhi, I am always struck by how much Gurgaon grows and changes between each of my semi-regular trips back to India’s capital.

A close Indian friend of mine recently relocated with his family back to India after several years in the U.S., and he and his wife took high-powered jobs in one of the most fashionable and pleasant parts of Delhi. Yet they commuted an hour plus each way to Gurgaon because they felt that for their young children, who had grown up in the U.S., the culture shock would be far less if they moved to Gurgaon than if they had relocated to one of the pleasant yet more traditionally “Indian” neighborhoods in the capital.

Yet, as Yardley notes, for all of its flashy modern façade, Gurgaon has no reliable municipal roads, sewers, water or power—everything must be done in independently by companies and residential colonies. For some it might seem like a libertarian paradise—Yardley even gives a nod to Gurgaon’s private transport networks. And there is no question that Gurgaon’s private amenities are far, far superior to those India’s government provides. But ultimately, the Gurgaon model, powerful as it is, produces both urban planning nightmares and economic inefficiencies— It may be better than the existing alternatives, but it can’t scale to make India an economic superpower, a reliable partner for America, or a regional check to Chinese ambitions.

A final important point Yardley touches on is the political role of India’s emerging middle and professional classes, one that is frequently misunderstood by outsiders. These groups, which provide India with its economic dynamism, actually have very little political power in many cases. They are dwarfed by the numbers of poor at the ballot box and their needs are ignored by politicians only interested in caste-based or other similarly situated vote banks. Furthermore, India’s political system, in which “Anti-Defection” laws make it impossible for members of parliament to defy their leadership on votes without losing their seat, render the views of all but top leaders irrelevant on many key issues.

In fact, they are so irrelevant that another Indian friend, extremely politically sophisticated and running a prominent political organization in the capital, once confessed to me that he didn’t even know who his own representative in parliament was (since the member in question was not in the leadership, he was not relevant.)

So while the growth of Gurgaon is an Indian success story that should serve as a lesson to Indian politicians about the centrality of the private sector to economic growth (something that many American politicians seem to have forgotten, if they ever knew it), The Gurgaon model of development ultimately has its limits if it is not accompanied by at least a minimally functional state. Whether India’s current political and administrative system can supply even that minimally functional state is very much an open question.