Power Failures

Whether it's Barack Obama or John McCain who enters the White House in January, the new president could well find his approval ratings sliding fast. The increasingly grim economic news is likely to overshadow all else. Britain's prime minister, Gordon Brown, is already experiencing this reality. While most of the British media would argue (vigorously) that Brown's low poll ratings relate to his charisma, or lack thereof, he is also clearly suffering the political effects of economic malaise.

Like the United States, Britain is going through a credit crunch, a financial crisis and a housing collapse all at the same time. Brown, however, argues that the central problem is skyrocketing food and fuel prices—"that's what hurts the average family most," he said in a conversation  last Tuesday. Brown said he hoped that the Group of Eight countries would take them on at its summit in Hokkaido, Japan, this week. "The great challenge for the G-8 is, can we coordinate policies to prevent crises. In the 1980s, we had currency coordination. But with finance globalized, that's not the challenge of the present," he said. "The new problem, worldwide, is energy. We need to coordinate our energy policies."

Brown argues that even in the short- and medium-term, the G-8 countries could do something. "The market assumes that demand will always increase, and in a circumstance of constrained supply, that means prices rise. But we can send a signal that demand is going to moderate, that we are serious about efficiency and alternative energy sources. But it would have to be a clear signal sent by all the major consuming countries."

Last month, Britain laid out plans to generate 35 percent of its electricity needs from renewables by 2020—up from 5 percent now. The country is already the world's largest generator of wind power (with mostly off-shore turbines) and plans to generate 60 times current levels in 12 years. It has also cleared regulations to increase nuclear energy. "You cannot get to a new energy mix without a substantial rise in nuclear power," Brown said.

The contrast with Washington is blinding. George Bush still has not made a serious speech, announced a serious plan or presented Congress with a serious set of laws to move the country toward new energy sources. With oil prices at their highest levels since the discovery of oil (even in inflation-adjusted dollars), and with their rise threatening to push the country and the world toward 1970s-style stagflation—he hasn't brought himself do it. And while we stand pat, the rest of the world is moving. In a recent ranking of countries for environmental performance, jointly produced by Yale and Columbia universities, the United States came in 39th, well behind every other advanced industrial country. (Germany ranked 13,
Britain 14 and Japan 21.)

Washington's inaction also stands in contrast to intense activity in the private sector, fascinatingly described in Fred Krupp and Miriam Horn's new book, "Earth: The Sequel." Krupp heads the Environmental Defense Fund, but this is not a gloomy global warming tirade. It's an optimistic account of the progress being made by American industry in renewable energy. The
authors explore every new technology, from solar to wind to geothermal, and introduce the men and women who are inventing the future.

But they would be the first to point out that, even though American research labs are rising to the challenge, government action remains vital. The idea that government should "stay out" is meaningless. It is in knee-deep already; energy is a highly regulated industry. In fact, it's notable that we have low productivity and runaway inflation in two crucial areas these days—food and fuel. Both have been nationalized, protected or subsidized by governments around the world for decades. A host of regulatory and legal barriers make renewable and small-scale energy production less attractive, profitable and manageable than it could be. But Krupp and Horn focus on the central policy change that the United States needs to make—enacting a cap on carbon. America is the only developed country that does not put a price on carbon.

Imagine if President Bush were to announce at the G-8 summit that the United States would institute a cap on emissions. We would instantly have the world's largest carbon market and it would, instantly, change the price of clean energy. It would unleash a tsunami of economic activity in renewables that could, over time, give American productivity the next big boost it needs. It would, of course, also quickly send a signal to the market about future demand for oil, which would in turn affect the price.

But somehow I don't think that's what Bush is going to say in Hokkaido this week.