Why Thinking Long-Term on Energy Makes Economic Recovery Sense

President-elect Barack Obama is talking about "jump-starting" the economy with an economic recovery package that could top $1 trillion.

So why are Nobel Prize-winning economist Paul Krugman, the New York Times columnist, and others telling him — practically shouting — that it's not enough?

Because the problem is so much bigger, one. But also, importantly, because the problem is so much more long-lived. You jump-start a car when the battery's been run down. You rebuild the engine before (hopefully) the clunker's dead on the side of some desolate stretch of road, miles from the nearest service station.

That, in addition to the obvious and pressing need to do something dramatic about the global warming crisis (which Obama's energy secretary choice, Nobel Prize-winning physicist Steven Chu made clear to Congress, the incoming administration understands), is why Obama can do more to invest in renewable energy as part of the economic stimulus. It's already been exhaustively detailed how investing in renewable energy and energy efficiency can create jobs, but one of the popular concerns about including these investments in the economic recovery package has been that they aren't "shovel-ready" projects.

That misses the point: The economy needs shovel-ready investment now to create jobs, yes. But Krugman's argument is that we need investments that will produce jobs two and three and four years from now, too.

(If we needed another reason to believe that it's time to get off of oil, there's been yet another offshore oil spill, one of the biggest on record in Alaskan waters — this time a ConocoPhillip's corroded pipeline spilled nearly 100,000 gallons, according to Reuters. Short analysis: Offshore oil, and oil shale and tar sands, are risky bets that only prolong our dependence on fossil fuels at a time when we desperately need to develop alternatives that work for everyday Americans.)

Obama's team seems to be getting the message. It is reportedly scrapping an ill-conceived (according to economists who know more than we do) business tax credit that would have paid businesses who hired new workers (but which everyone, including Krugman, apparently saw as a fraud superhighway waiting to happen). And it is talking about investing more in renewable energy (including — be still, my heart — a $7,500 tax credit for buyers of hybrid vehicles).

Which brings us to the second challenge, which is really the first challenge: How do you make sure your investments pay the right dividends. When it comes to investing in renewable energy, there's renewable and then there's "renewable." Renewable includes the likes of wind and solar power: with technological improvements to distribution and battery storage, coupled with more efficient use of energy, these can truly help build a low-carbon economy. Then, there's "renewable" energy, and corn-based ethanol is the poster child.

Growing corn to make fuel takes land away from food crops, requires the massive use of fossil fuels and chemicals, and barely produces more energy — or less carbon — than it takes to grow all the corn. In a word: unsustainable.

Yet, ethanol — due to its hand-in-pocket relationship with the corn farmers of America and their lobbyists — has received far more tax subsidies than any other renewable energy source in recent years: "The corn-based ethanol industry received $3 billion in tax credits in 2007, more than four times the $690 million in credits available to companies trying to expand all other forms of renewable energy, including solar, wind and geothermal power," according to the Environmental Working Group, which recently analyzed government data.

In so much as the development of the U.S. ethanol industry is a steppingstone to a cellulosic ethanol industry, which makes fuel from the likes of waste crops, wood chips or grass, that investment makes sense. But to the extent that it just enriches corn farmers when the point is to transform energy policy, it simply doesn't work. (One good piece of news on the ethanol front: Poet has opened the first pilot U.S. cellulosic ethanol plant, producing fuel from corncobs and other agricultural waste).

Obama needs to think long-term, about energy policy and economic policy.

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