Green Scissors 2011: A Misguided Proposal for Budget and Environmental Reform

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The following post was coauthored by ITIF Clean Energy Policy Analyst Matthew Stepp and Americans for Energy Leadership President Teryn Norris.

In the aftermath of the debt ceiling crisis and as the Joint Committee on Deficit Reduction seeks a second budget deal, many public interest groups are working hard to ensure that even while Congress cuts wasteful spending, it preserves vital public programs and expands smart investments in the nation’s future.  In the energy and climate policy community, a broad range of groups are fighting to defend clean technology investment programs – such as the Advanced Research Projects Agency for Energy (ARPA-E) – that have taken years to establish and offer a glimmer of hope amidst a largely bleak political and policy landscape.

Other organizations are taking a different approach.  This week, two progressive groups – the environmental Friends of the Earth and consumer advocacy group Public Citizen – drew attention when they joined the libertarian Heartland Institute and deficit-hawk Taxpayers for Common Sense in releasing a spending cut plan.  In a report called “Green Scissors 2011,” the groups call for $380 billion in cuts they identify as “wasteful government subsidies” and “environmentally damaging.”

These types of collaborations are rare, and the report marks a unique opportunity for traditionally opposed organizations to take a leadership role and break the gridlock on budget, energy, climate, and environmental policy.  Unfortunately, the report not only fails to realize this opportunity, but makes fundamentally misguided choices that would be counterproductive to reducing the budget deficit and could potentially exacerbate America’s climate and energy challenges.

At the heart of “Green Scissors” is a collection of $380 billion in “wasteful [federal] government subsidies that are damaging to the environment and harming taxpayers,” which the groups believe should be targeted for cuts or elimination.  The proposed cuts include:

  • Eliminating $61.275 billion in conventional fossil fuel subsidies and tax incentives.
  • Eliminating $49.615 billion in nuclear energy programs for R&D, loan guarantees, environmental cleanup, and nuclear waste liability funds.
  • Eliminating $95.817 billion invested in renewable energy loan guarantees, corn ethanol subsidies, R&D, the FutureGen carbon capture demonstration project, and fuel technologies development among others.  The report also targets the elimination of the Advanced Research Projects Agency for Energy (ARPA-E).
  • Eliminating $56.655 billion in agriculture subsidies.
  • Cutting over $106 billion in selected transportation programs and projects including transfer payments to the Highway Trust Fund.
  • Eliminating $15.290 billion in selected land and water subsidies and programs.

At first glance, the proposal correctly identifies some unproductive spending that should indeed be eliminated. For example, corn ethanol subsidies do little more than prop up an uncompetitive alternative fuel that offers little to no carbon emission reductions (its initial intended goal) and doesn’t represent a future, robust economic growth opportunity.  In this way, the proposal appears to be a more nuanced budget debate that the United States desperately needs.  Instead of across the board slash-and-burn budget politics, policymakers should be examining the entire federal budget with a fine-tooth comb and differentiate between vital public investments – such as programs aimed at solving our key economic, energy, climate, and environmental challenges – from government spending on unproductive programs.  Like Time Magazine’s Michael Grunwald lamented, “Here’s a crazy thought: Maybe we should spend more on good things and less on dumb things.”

But this potential is never fully realized, and the report ends up making several factually incorrect statements, misguided recommendations, and errors of omission.  These recommendations are often supported ideologically-driven myths and backed by shallow analysis and evaluative criteria. In particular, the report makes three major errors:

1. The report focuses solely on spending cuts and ignores the role of public investment.  Reducing the budget deficit and addressing the nation’s key environmental challenges requires both cuts and targeted investments. This is a key distinction lost in the current budget debate.  The U.S. cannot simply cut its way out of debt (let alone cut its way out of a stagnant economy).  In fact, the chief budget-cutting measure the U.S. can undertake is spurring economic growth.  This means targeting advanced technology-based industries and accelerating innovation to lay the groundwork for long-term, ecologically sustainable economic growth.  And this means sustained public investments.

Unfortunately, the report not only fails to recognize this reality, it aims to cut vital innovation-based programs like ARPA-E, advanced nuclear energy R&D, and loan guarantees. These cuts would be counterproductive to the goal of addressing the budget deficit by eliminating needed support for future growth industries.  Further, by focusing solely on spending cuts, the report misses a key opportunity to shift wasteful spending into productive investment. Instead of simply cutting fossil fuels subsidies, we should reinvest the savings in advanced energy technology innovation and manufacturing, especially through programs like ARPA-E, Energy Innovation Hubs, and the Energy Frontier Research Centers.  The report fails to seize this opportunity.

2. The report is dead wrong about ARPA-E. Not only does the report ignore the role of strategic public investment to address our deficit and environmental challenges, it falsely characterizes and attacks one of the single most important federal programs designed to accelerate the transition to a low-carbon economy: the Advanced Research Projects Agency for Energy (ARPA-E).

First, the authors misleadingly characterize ARPA-E as a “giant government-run research and development agency.” In fact, ARPA-E was originally authorized by the bipartisan America COMPETES Act in 2007 and provided a total of $400 million for two years by the Recovery Act.  The recent FY 2012 House Energy & Water Appropriations bill would appropriate just $180 million for ARPA-E – hardly a “giant” budget.  Furthermore, calling ARPA-E a “government-run research and development agency” inaccurately implies that government employees are performing the research, when in fact ARPA-E effectively acts as a public venture capital firm that largely funds small, innovative private companies that are developing promising technology breakthroughs.

The authors proceed to repeat tired conservative neo-classical economic talking points that reflect entrenched ideology more than economic reality, asserting that “this type of applied civilian energy research has historically been done almost entirely at private firms,” that it provides “taxpayer subsidies to develop things that the private sector was already using on a large scale,” and that it “fails to add real value.”  However, if the authors made any serious attempt to understand ARPA-E, they would find that it targets high-risk, high-value, pre-commercial technologies that the private sector is largely unwilling to support on its own.

Instead of simply funding the most basic, blue-sky research that may never create commercially applicable technology, ARPA-E is funding projects that can yield massive economy-wide returns on investment, support U.S. economic competitiveness and export-oriented  industries, and drive high-skilled job creation. This is similar to what the Department of Defense’s DARPA has practiced for years and what drove the Information Technology Revolution.  Opposing this kind of public investment is misinformed and antithetical to a serious U.S. economic growth and debt reduction strategy.

As a recent ITIF report explained, “In many ways, [ARPA-E] represents public-private innovation at its finest, both for what it does and how it does it: this is not your grandfather’s politicized bureaucracy. It’s a fresh and nimble organization that operates at the intersection of fundamental and applied research, bringing science research and technology development together under one roof. And we’re already beginning to see early returns: ARPA-E projects, worth approximately $360 million in public funding, have to date obtained $285 million in follow-on private investment and led to 17 patent filings, and the program is still very young. But ARPA-E has only just started to spur successful innovation—and we have yet to see what this innovation engine can really do.”

3. The report picks technological winners and losers with an ideologically-driven agenda.  The report espouses hard-headed libertarian economic doctrine principles, but in reality, it peddles the same kind of failed strategy of picking which low-carbon energy technologies the government should support and which programs should be eliminated.

For example, the report adamantly opposes any and all forms of carbon capture and storage (CCS) technology and advanced nuclear power (even fusion power, for no explicable reason, as well as small modular reactors). In a follow-up post, Friends of the Earth further laments the idea of leveraging any form of nanotechnology or genetic engineering techniques for low-carbon energy technology.  This is why it opposes ARPA-E, asserting that “much of this program harms the environment.”

Yet it is hardly reasonable logic to oppose the entire agency, paint it as largely harmful to the environment, or suggest that it should be defunded, as the report does.  ARPA-E is investing in a broad suite of clean and low-carbon energy technologies, many with the potential for game-changing impacts to dramatically accelerate the U.S. and global transition to a low-carbon, sustainable energy system.  The agency has only invested in the range of $50 million toward advanced CCS technologies – which could in fact eventually reduce carbon emissions from coal plants – out of its total investments of about $450 million.  Only one of ARPA-E’s six primary programs is focused on, as it describes, “revolutionizing technologies that prevent carbon dioxide produced by coal-fired power plants from entering the atmosphere and contributing to global warming.”  The report paints this kind of modest investment in emerging technology in the same way as billion-dollar demonstration and deployment projects, but they are much different.

Opposing these modest investments in general reflects a fundamental lack of understanding about the nature and scale of the global climate challenge and what it demands (the vast majority of energy and climate experts, including the IEA and IPCC, recognize the need to invest in advanced forms of CCS and nuclear).  But even if Friends of the Earth is ideologically opposed to any form of CCS, this is no reason to oppose the entire ARPA-E agency.  Indeed, the same logic could lead these groups to advocate abolishing the entire Department of Energy because it supports particular technologies they dislike.  Instead of taking a balanced approach that creates a level playing field for all low-carbon energy technologies – enabling potential winners to emerge instead of hand-selecting them – the report would not only eliminate any programs related to CCS and nuclear, it would slash or eliminate entire agencies like ARPA-E that engage in any such activities – an extremist and dogmatic approach.

Conclusion: The 2011 “Green Scissors” report offers a unique opportunity to break through the budget gridlock in a way that cut wasteful programs while reinvesting in vital areas for economic and environmental progress.  Unfortunately, it fails to meet this potential.  Instead of taking a balanced approach, the report jumped on the spending cut bandwagon and focuses solely on slashing or eliminating public programs, including vital investments like ARPA-E, which has become one of the federal government’s single most important agencies for advancing a sustainable economic future.  In order to justify these cuts, the report peddles false myths about the nature of public investment and innovation policy, even while pushing an ideologically-driven agenda for picking energy technology winners and losers.  In this way, despite some of its strengths, the report offers a misguided strategy for confronting the nation’s budgetary and environmental challenges.

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About the author

Matthew Stepp is a Senior Analyst with the Information Technology and Innovation Foundation (ITIF) specializing in climate change and clean energy policy. His research interests include clean energy technology development, climate science policy development, transportation policy, and the role innovation has in economic growth.