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State Planning is necessary to combat climate change

State Planning is necessary to combat climate change

To Fight Climate Change, Bring Back State Planning

Photo: Eein Schaff/POOL/AFP via Getty Images

In a rare presidential Press conferenceLast week, Joe Biden was asked repeatedly about inflation. “How long,” The Wall Street Journal’s Ken Thomas asked, “should Americans expect to face higher prices when they’re at the grocery store? At the gas pump?”

Biden moved on to energy prices after discussing the ways his administration plans to break through supply-chain blockages for goods such as semiconductors. “That gets a little more complicated,” he said. He noted the Department of Energy’s November AnnouncementAlthough it was supposed to release 50 million barrels from its Strategic Petroleum Reserve onto a market, he reaffirmed his belief. It went on to emphasize that controlling inflation ultimately isn’t the responsibility of the president or Congress. “The critical job of making sure that the elevated prices don’t become entrenched rests with the Federal Reserve,” he said, through raising the federal funds rate.

Although hegemonic, Biden’s position is something of a historical novelty in the United States. These were not radical policy-makers not so long ago. Recognized that a wide range of now mostly rusted tools — from price controls to outright limits on profiteering — were needed to deal with the varied causes of inflation, especially in periods of crisis that demanded massive investment and Economic planning. Climate change promises more than one crisis. It promises a new era of crises.

Unfortunately, Congress is not ready to approve a Green New Deal or a wartime-scale mobilization of emissions to reduce emissions. But global efforts to curb warming — combined with ever-worsening fires, floods, and droughts — are likely to entail economic transformations at least as dramatic as war and depression, stranding trillions of dollars worth of assets as vast swaths of the planet become uninhabitable. Supply-chain troubles aren’t going anywhere, and it’s hard to imagine the Federal Reserve is equipped to manage all the upheavals the next decades have in store.

Inflation tends to be thought of as a fog that rolls in and settles over the economy, making life’s necessities pricier and voters angrier. Yet consider what drove last year’s 7 percent rise in the Consumer Price Index: Gasoline (oil) led the pack per usual, followed by used cars and trucks, energy, and gas piped in by utilities, then meat, poultry, fish, and eggs, and then new cars. The result is the Inflation’s biggest drivers these past few months are also what’s fueling the climate crisis. All of these are prominently featured in the Top sources of U.S. greenhouse gas emissionsTransportation (including cars and oil) accounts for 29 percent. The next highest source of emissions is from fossil fuels used for electricity generation, accounting for 25 percent. Commercial and residential heating — mostly piped-in utility gas — accounts for 13 percent. Agriculture accounts for 10 percent.

It was Ur-neoliberal and University of Chicago economist Milton Friedman who summed up the current consensus on inflation — that it was “always and everywhere a monetary phenomenon” to be controlled with monetary policy. David Stein, economic historian, recently wrote about inflation. CounteredIn Democracy Journal that inflation “is — always and everywhere — a specific phenomenon with specific causes.” More often than not, those causes are wrecking the planet.

Although clean-energy investments need to be significant to avert catastrophe — on the order of 1 to 2 Percent of GDP at the conservative end — the results would very likely be Anti-inflationary due to the large role that fossil fuels play in driving the CPI. Decarbonizing the power sector and retrofitting homes and buildings to run on that new grid, as Green New Deal proposals outline, would not just create millions of jobs but decouple life’s essentials from fossil-fuel price volatility. The same applies to large-scale investments made in electrified transit. Toxic air pollutionThis would allow more people to feel a closer connection to the oil-market decisions made across the ocean.

This is not the U.S.’s preferred path. Should Congress pass intact — and let’s hope it does — the climate provisions in the Build Back Better Act, it would initiate just $55 billion of new spending per year on average. The largest-ticket items, worth more than $300billion over ten years, encourage consumers and businesses to choose lower-carbon options with rebates for electric vehicles and e-bikes, along with tax incentives for renewable energy building-outs and transmission lines. It will be good for the planet. But given just how reliant these policies are on incentives, raising interest rates now stands to make those policies pack less of a punch, just as the window for the U.S. to be a competitive player in a budding green economy closes rapidly — if it hasn’t already.

The private-sector-led campaign embedded in Biden’s climate plans is odd in no small part because of how ubiquitous all manner of state-led planning has been in the nation’s long quest for energy independence via fossil fuels — a goal deemed too important to leave up to market forces. OPEC’s ability to manipulate the price of oil was a power the U.S. once exercised through both the Texas Railroad Commission and the imperial control of oil reserves throughout the world by American and British companies, maintained in some cases by violent coups. Ross Sterling, Texas governor, sent 1,200 National Guard troops in 1931 to disarm roughnecks at wells to keep oil prices low. He did this to stop them from violating production limits. “Our task,” FDR’s Interior secretary Harold Ickes said in 1933, “is to stabilize the oil industry upon a profitable basis.” When the Supreme Court struck down the first New Deal’s price-control regime in 1935, it was promptly reinstated in the energy sector as the Connally Hot Oil Act, which leveraged punitive fines on companies that exceeded production quotas and transported excess (“hot”) oil across state lines.

Energy, as historian Andrew Elrod tells me, “was a thoroughly controlled industry for most of the 1970s,” with prices initially frozen by the Defense Production Act of 1971 and extended even as Congress allowed price controls in other areas to expire. After the 1973 oil-price shock, such controls were revived with tiered limits that flatten the difference between oil prices in domestic and foreign markets. This was also the time when the Strategic Petroleum Reserve and what would become the Department of Energy were created.

Jimmy Carter was the one who eliminated energy price controls in late 1970s. He overrode his Democratic Congress in a deregulatory push. As output slowed down, prices rose and prices went up, resulting in stagflation. To remedy that, Carter’s chosen Fed chairman, Paul Volcker, would trigger a painful recession that spiked unemployment and triggered a global debt crisis. In an expansive recent essayElrod writes about the history of price control in the U.S. Volcker shock’s successes in curbing inflation — at tremendous cost — solidified the central bank’s virtual monopoly on economic planning:

The previous White House bodies charged with monitoring cost-price relationships — the Council on Wage-Price Stability, the Cost of Living Council, the Council of Economic Advisers, the Office of Price Stabilization, the Office of Price Administration — either became objects of McCarthyist persecution or accommodated themselves to a world in which such microeconomic analysis was considered irresponsible for a public agency to conduct, on the grounds that the only potential use of such data was public control of prices.

Nevertheless, through subsidies, foreign policy, and more, energy planning persisted — still in the service of producing fossil fuels. You don’t even need to look that far back to find sectoral planning creating seismic shifts in the world’s energy landscape. Among the biggest prizes of loose monetary policy after the Great Recession was the shale revolution: a domestic oil-and-gas-production renaissance This was possibleBy the easy credit and extra cash that was floating around the global financial market as interest rates hovered close to zero, Fracking is extremely capital-intensive and can lead to cash loss for firms. Wall Street was patient because dollars were inexpensive, but generous.

Furthermore, days after the Paris Agreement was brokered in 2015, the White House backed a deal to repeal a 40-year-old ban on crude-oil exports, helping resurrect shale drillers’ prospects after the price of oil crashed in late 2014 as OPEC flooded the market. The Department of Energy opened the doors for U.S.-produced liquified natural gases (LNG) to flow around world in the next year. Already the State Department was acting as a passionate salesman for U.S. drilling companies around the globe, through its Global Shale Gas Initiative, which helped to cultivate LNG export markets. Over the next four year, crude oil exports exploded. 750 percent. The U.S. was founded in 2016 and is now the The largest LNG exporter on Earth.

Despite all the state planning that has been done around fossil fuels the U.S. is not in complete control of its own energy future. And despite claims of energy independence — or “Dominance,” as Donald Trump put it — the U.S. routinely has to Ask OPECWhen prices get too high, lower them. In 2014, shale drillers learned the hard way that fat times can end if a few Vienna bureaucrats decide to keep pumping. That’s in large part because, unlike the vast majority of oil-producing countries, the U.S. does not have a state-owned company through which it can either oversee domestic levels of production or capture natural-resource wealth — nearly all of which flows to shareholders and CEOs paying record low tax rates. The fact that Permian Basin drilling crews spent months preparing for the next boom in oil prices is one of the major causes. Production can be voluntarily restrictedin order to increase prices and extract greater profits. Jennifer Granholm, Energy secretary, can only do this. Ask them to get their “rig count up.”

The United States has a lot to catch up to in order to achieve its stated goal of limiting global warming at 1.5 degrees Celsius. Thanks to some 30 years of dedicated industrial policy, China — by far the world’s biggest investor in low-carbon technologies — produces 66 percent of the world’s solar panels, supplies one-third of its wind turbines, and is both the largest supplier of electric vehicles and the largest market for them. It was responsible for 99 percentWorldwide e-bus sales between 2016 & 2020 China holds approximately 60 percent of the global lithium market. “No other economy,” political scientists Jonas Nahm and John Helveston wrote in Science in 2019, “has been willing and able to pour even a remotely equivalent level of resources into manufacturing expansion and R&D in recent history. It is therefore highly unlikely that another nation will be able to replicate China’s skills in the time frame needed to avoid the worst consequences of climate change.”

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We are not the only ones running ahead of our allies. Only two of the world’s top wind-power developers are based in the U.S. Although this country has 9 percent of the world’s lithium reserves, according to the International Energy Agency, it has just one operational mine. Ninety percent of the world’s current supply is produced in Australia, Chile, and China. All ten of the top EV battery manufacturers are based in East Asia. With few options left in Congress and executive authorities vulnerable to court challenges, it’s unlikely the U.S. will catch up anytime soon.

The old mantra of “energy independence” is at least as bad a fit for the 21st century as it was for the 20th. Rapid decarbonization will require cooperation, not a blind pursuit of export market dominance. Many of the state-planning tools of earlier eras still exist and are ready to be used by the U.S. to do its part for the planet. The Department of Energy still holds broad powers to stop energy exports and maintain strategic stockspiles of oil, and other important minerals. The Department of the Interior is responsible for limiting oil-and-gas drilling on public land. one-quarterU.S. emissions. Even the Texas Railroad Commission still exists, though its three elected Republican members don’t exercise the control over methane leaks and production that they’re legally entitled to.

These powers and institutions could theoretically be used now to reduce emissions and protect Americans from swings in energy prices. On the more modest end, the White House has already proposed a cross-agency effort to “recapitalize and restore” stockpiles of critical minerals and materials — mostly liquidated by Richard Nixon — and support domestic extraction, processing, and recycling of important green-economy components. The Roosevelt Institute’s Todd Tucker has Detail the range of powers available to the president under the Korean War–era Defense Production Act, whose allocation authority could be an engine of clean-energy development, filling gaps the private sector and Congress won’t.

The United States must also stop exporting large amounts of fossil fuels to other countries. This can be done without legislation but not without controversy. The Department of Energy can revoke export permits. Biden could declare a national crisis and reinstate the crude-oil export ban. Secretary Granholm has already ruled this out. After mentioning it as an option to relieve pain at pump, she pulled it off of the table in November. Telling fossil-fuel executives directly, “I don’t want to fight with any of you.”

As the White House states, it wants to deal with the climate crisis, this will undoubtedly require both a fight against the problem and a reduction of profits from the extractive-industry. That a policy will enrage the fossil-fuel industry isn’t a reason not to do it, especially when you don’t need Congress’s approval. Climate-conscious, 21st Century economic policy can mean allowing an economy to run hot, while surgically targeting the causes for inflation. This could be done through a new evaluation or pricing policies (as suggested by). Among other things, economists Isabella WeberAnd James K. Galbraith), intervening in bottlenecks through industrial policy, rebuilding and strategically deploying Stockpiles, or placing restrictions on profiteering. Price controls on oil, when combined with export restrictions, could help to stop the 50 percent increase in drilling in the Permian basinin over the next eight year. This is due to cause the Permian Basin to burn through. 10% of the entire world’s remaining carbon budget. The administration could stabilize the prices of consumers and discourage expensive exploitation or exploration that are not in line with its goals to a cleaner future.

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