Economic Stimulus (Part I): Only 16% Green?

Part I of a three-part series

Congress is expected to approve to a massive economic stimulus package in the next couple of weeks. But before it does, there’s important work to be done on the color and content of the package.

Lawmakers should address three questions:

• Is the package green enough?
• Is it visionary enough?
• Can the beneficiaries handle the money?

I’ll offer some thoughts on each of these questions in a three-part post, starting here with the green issue.

First, it’s important to understand that the Obama White House has the fundamentals right: The stimulus package must do more than spark a short-term boost to the economy. It must invest in the nation’s mid- and long-term economic security – and that security must be based on a new energy economy that reverses the growth in greenhouse gas emissions and weans us from our dependence on fossil fuels.

That is the first intelligent energy policy to come out of the White House in a decade. As Congress finalizes the stimulus packages proposed by the Obama administration and House Democrats, job No. 1 is to keep that enlightened strategy intact.

Job No. 2 is to make the package greener. There are a couple of reasons a greener stimulus is important. First, renewable energy industries are America’s next IT revolution, with critical benefits for national security, economic stability, new industries and new jobs. In the past couple of years, we’ve seen unprecedented investments in wind and solar power worldwide. The U.S. wind industry set a record last year, installing enough generating capacity to serve more than 2 million homes and pumping $17 billion into the economy, according to the American Wind Energy Association.

But those investments are slowing in the economic downturn. HSBC Global Research, a division of HSBC Global Banking and Markets, assesses the situation this way:

In the short term, the availability of project finance remains a major stumbling block, with growth expectations rapidly deteriorating as developers find it more difficult to obtain financing. From a stock market perspective, we therefore expect the sector may well underperform in early Q1 2009 and possibly into Q2 2009 … but we expect a strong rebound thereafter.

An important part of the stimulus package is to make the rebound in the green energy sector arrive sooner. HSBC continues:

Central to climate change investing in 2009 will be the interplay with the depending economic downturn. We see two forces at work – a strengthening strategic tailwind in favour of clean energy, set against a worsening financial and economic downdraft. Which will dominate is likely to depend on the extent to which climate change and sustainability are built into government plans for economic recovery.

Second, the stimulus package should send a concrete and timely signal of America’s leadership on climate action. The size and nature of our investment will have not only economic impacts, but also political impacts as we approach the international conference this December in Copenhagen, where nations will attempt to reach a global accord on climate action.

The stimulus signal will be especially important if Congress does not approve an effective form of carbon pricing this year. Without a carbon tax or carbon trading, the U.S. commitment to climate action will have to be demonstrated with a number of more discreet policies and investments, which in aggregate have sufficient throw-weight to show that the United States is taking moral and material leadership.

What signal does the current stimulus package send? On January 19, HSBC Global Research issued an analysis of the economic stimulus packages passed or pending in 15 nations, including the United States. It found that these countries plan to invest more than $3 trillion to stimulate their economies over the next decade. Only about 14% of that amount will be invested in green technologies – defined by HSBC as low carbon power, energy efficiency, water treatment and pollution control.