Can Big Government really solve the energy crisis? It would be nice to believe that. While America has a much-deserved reputation as the land of free-market-loving entrepreneurs, that doesn't mean Uncle Sam can't occasionally take the lead and achieve some pretty impressive results. Two that quickly come to mind are the Manhattan Project ($20 billion in today's dollars), which developed the atomic bomb, and the Apollo space program ($100 billion in today's dollars), which eventually put 12 men on the surface of the moon. And it's those two examples of successful collective action that many people think should serve as the models for how we deal with our current power problems, whether it's slowing climate change or achieving energy security. As Democratic presidential contender Barack Obama has put it:
There's a reason that some have compared the quest for energy independence to the Manhattan Project or the Apollo moon landing. Like those historic efforts, moving away from an oil economy is a major challenge that will require a sustained national commitment.... Washington needs to get serious about working together to find a real solution to our energy crisis.
"Washington to the rescue" may be the classic liberal rallying cry, but this doesn't seem to be a Democrat-Republican, left-right issue. You can find folks across the political spectrum—Obama, Hillary Clinton, Newt Gingrich, Mitt Romney, Rudy Giuliani, Thomas Friedman, Sam Brownback —who seem to think a multibillion-dollar, government-led research and regulatory effort is just what is needed right now to develop clean energy sources in America. This, for instance, is what Romney told me during his unsuccessful campaign for the GOP presidential nomination:
I wish we could become energy independent for only $100 billion. But energy independence is going to take a long-term commitment and the public and private investment which will most likely be quite substantial, but the return will be even more substantial. We send over a billion dollars a day out of our country to buy oil and energy from other countries. Building nuclear power plants, developing carbon sequestration, liquefied coal, or gasified coal will be the more expensive efforts, but the payback is enormous.
There are all sorts of ideas floating around for a Manhattan Project or Apollo program for energy. Some cost less than the original articles, some many times more. Here is a quick summary of a few of them:
1) Set America Free wants American taxpayers to spend $12 billion over the next four years to provide incentives to auto manufacturers to produce and consumers to purchase plug-in and flex-fuel hybrid vehicles, as well as mandate substantial incorporation of plug-ins and FFVs into government fleets. It also advocates providing incentives to transform existing fueling stations so they serve all liquid fuels and to enable utilities to enter the transportation fuel market. It also favors government policies to encourage mass transit and reduce vehicle-miles traveled.
2) Barack Obama wants American taxpayers to spend $150 billion over 10 years to push the next generation of biofuels, advance the commercialization of plug-in hybrids, promote development of commercial-scale renewable energy, invest in low-emissions coal plants, and begin the transition to a digital electricity grid. He also wants to spend $10 billion a year on a "clean technologies" venture capital fund. In addition, Obama wants to spend an unspecified amount of money on training workers for green energy jobs.
3) Amory Lovins of the Rocky Mountain Institute wants American taxpayers to spend $180 billion over 10 years to double U.S. oil efficiency by making vehicles out of advanced composite materials and spurring their adoption via rebates to consumers and through government purchasing policies. He wants to create a domestic biofuels industry through advances in biotechnology and cellulose-to-ethanol conversion. He also advocates using "well-established, highly profitable efficiency techniques" to save half the projected 2025 use of natural gas, making it again abundant and affordable, then substitute part of the saved gas for oil or convert it to hydrogen.
4) The Apollo Alliance wants American taxpayers to spend $300 billion to develop hydrogen fuel cells, promote "green" buildings, construct high-speed rail, and advance renewable technologies such as solar and wind. It also tosses in massive infrastructure spending for everything from carbon capture and sequestration to road and bridge maintenance in urban areas.
1) You say "Manhattan Project" or "Apollo," I say "Project Independence" or "synfuel"—two failed 1970s attempts to break us from our "addiction to foreign oil," the latter of which blew $60 billion in four years (in today's dollars) with nothing to show for the effort. Here is the problem: Both the Manhattan Project and the Apollo program attacked a definable—and "technologically sweet," to borrow the words of Robert Oppenheimer—challenge, the basic parameters of which were pretty well understood. Governments, even hapless ones like that of the old Soviet Union, can throw resources at those sorts of problems and come up with some sort of workable solution. (I am reminded of the 1990s film Contact, where aliens send us the blueprint for a mysterious machine that the Clinton administration goes ahead and successfully builds. It cost only $1 trillion. So that's where the surplus went!) Alternative energy is more amorphous. Solar, wind, next-generation nuclear, and clean coal may all have varying roles to play, but how exactly? Superefficient, nanotech solar cells? Genetically engineered trees that breathe in carbon and turn it into fuel? Who knows? But I am pretty sure government planners and bureaucrats have lousy crystal balls.
2) Why not subject all possible energy paths to the cool logic and reasoning of Mr. Market—investors, venture capitalists, and entrepreneurs? Last year, venture capitalists sank some $3 billion into alternative energy—with some industry estimates far higher—and four of the 10 biggest VC deals in the first quarter were related to alternative energy. Google is making direct investments in areas such as enhanced geothermal and concentrated solar power. High oil prices are sending a powerful signal to the private sector about the profit potential in alternative energy. And an analysis by JPMorgan Chase found that there are a number of promising technologies involving coal and tar sands that become economically competitive when oil prices reach $110 per barrel.
3) Not only might the government-dominated effort produce poor results—it might waste a lot of money in the process. Just look at the most expensive plan I listed, the one from the Apollo Alliance. The group wants to invest all sorts of dough in old-economy infrastructure projects and worker retraining programs, all of which seems a bit off point. It's easy to see how all sorts of pork-barrel projects would be justified as being part some great national energy initiative.
4) Despite all of the above, it is unlikely that Uncle Sam will just sit back and let the markets handle things. So here is one smart and effective path. First, focus any new spending on helping to push existing technologies to market, such as through government purchases of civilian and military vehicles. Second, set prices for carbon through a tax or a cap-and-auction system—with revenue rebated to taxpayers—then cut subsidies, with the money again returned to taxpayers. Third, create innovation prizes for key technological breakthroughs and let the best idea win, as with private prizes such as the Ansari X Prize for space flight.
Of course, a crash government program might be easily justified if the planet's climate was about to take a terrible turn for the worse or the most frightening of the "peak oil" projections looked to be coming true. But if that's the case, we just might need aliens to sends us some blueprints.