• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
Reed Hundt and Todd Filsinger Co-Chairmen, Coalition for the Green Bank December 3, 2009
Create a Green Bank to Create Green Jobs
We propose that Congress should pass a Jobs Bill, and include in it the Green Bank as proposed in the Van Hollen Green Bank Act of 2009, HR 1698. Under the name CleanEnergy Deployment Administration (CEDA) this proposal drew overwhelming bipartisansupport in the House Energy and Commerce Committee (51 yes, 6 no) and wasincorporated in the American Clean Energy and Security Act of 2009 (ACES), theWaxman-Markey Bill, HR 2454. It has also passed on a bipartisan basis in the SenateEnergy and Natural Resources Committee.We propose that Congress move the Green Bank into the Jobs Bill, and capitalize iton a one-time basis with $25 billion, all of which would be
returned 
over time to theTreasury. In order to meet the challenge of creating more than four million direct jobyears – all in the private sector – by the end of 2012, the Green Bank should have, as proposed by Congressman Van Hollen, the flexibility and dispatch of a small privatefirm. Instead of being an agency or instrumentality of the government, it would begoverned by a board of public officials and private persons, and would operate in partnership with, but outside of, existing departments, much like the Export-Import Bank and other similar entities in our nation’s history.This memorandum explains the purpose and function of the Green Bank, addresses possible objections, and outlines the content of the legislation that would create it.I.
The Bank Would Be a Non Profit, Private-Public, Non-GovernmentalInstitution with a Clear Focus on Creating Green Jobs
The purpose of the Green Bank is to create – on a rapid, continuing and emergency basis – approximately four or more million job years by the end of 2012. These jobs willnot otherwise naturally come into existence in the next three years; they would bend theunemployment curve most of the way toward full employment.
1
As described in theCEDA provisions in both the House and Senate, the Green Bank would have a suite of financial instruments to guarantee low-cost financing for clean energy infrastructure andmanufacturing, generation, and efficiency retrofits. In the long run, these techniques willhelp finance breakthrough and conventional clean energy technologies. But in order toaddress the emergency of joblessness, the Green Bank would principally financeefficiency investment (including retrofit insulation and other similar measures inresidential and small business buildings) and clean energy generation facilities that can provide electricity at or below market rates if they have government guaranteed-debt.We have three premises that preserve our Coalition’s preferences (all members
1
In general, each megawatt of new energy generation produces 20 direct job years lasting and 80 to 100indirect job years, and each billion dollars of investment in clean energy produces 10,000 direct job years,and three times as many indirect job years. Individual projects vary.
1
 
are in business) for private sector ownership of investment decisions, aversion toexpanding federal deficit spending, and repugnance for inefficient make-work:-The work would be in and for the private sector. (Private Sector Investment-Driven Jobs),-The federal government support would be deficit-neutral; that is, the job creationwould not produce significant new spending (Don’t Expand Deficit Spending)-The work would contribute to large-scale productivity gains (Useful Work)The private sector, for various reasons, has under-invested for many years in at leastthree revenue-producing sectors: (1) energy, (2) transportation, and (3) informationtechnology in health, energy, education, and public safety. Yet every advanced economydepends on widespread, reasonably priced, and reliable access to energy (measured byreliable, low priced electricity that is used efficiently), transportation, and IT. The greatopportunity of the jobs bill is to open the opportunity to private sector-led investment,creating productive work without burdening the taxpayer, in these three sectors. Thismemorandum concerns only the first sector, and contends that legislation creating aGreen Bank can catalyze very rapid private investment in energy generation, distributionand transmission and storage, efficient use of energy, and domestic manufacturing of thegoods used in such generation, transmission and efficiency measures. Attachment Boffers lists of projects that exemplify these possibilities.The electricity sector today earns about $400 billion in revenue and is not veryleveraged. Its revenue streams are extremely reliable (even in the present recessionrevenue will have dropped only about 3% for the year 2009 relative to 2008). It is quite possible to cause about $500 billion in new, incremental capital expenditure inconventional activities (insulation, wind, sun, natural gas, and others) to be spent in theenergy sector within the next three years. With a capitalization of $25 billion and a 20:1leverage ratio that is quite prudent given the low default rate for conventional measures,in the next three years the Green Bank can cause up to $500 billion in investment tooccur, producing jobs at a rate of only $5,000 from the taxpayer for each year of directwork on the retrofit or generation work – and that does not include the indirect work thatwould follow. In later years, after the unemployment crisis is abated, the Green Bank canaddress the breakthrough technologies for which it was also designed in the House andSenate bills.All this investment would aim to produce enough revenue to pay down debt and earnabout 15% per year for equity investors, with 95% or greater probability of success per  project, and without increasing electricity prices to consumers. An illustrative businessmodel is Attachment C. (Therefore, unlike many worthwhile existing loan programs ingovernment, the focus of the Green Bank would be rapid job creation in predictable,conventional business activities.)By way of a “yes we can” analogy, in the three peak years of investment in themobile and data networks that have effectively replaced most of the previous, fixed line2
 
circuit-switched telephony and coaxial cable networks during the last decade, the totalcapital expenditure amounted to $338 billion, producing about four million job years – and that was all private sector money without any of the government financingtechniques we propose for the Green Bank. See Attachment D, a slide showing capitalinvestment in the communications sector 1997-2007. This comparison implies that the private sector can achieve the investment and job goals we suggest. However, two centraldifferences between the communications investments of a decade ago and the energysector investments of today demonstrate the necessity of creating a Green Bank:(1) in the former case, demand for mobile and data naturally soared, whereas in thelatter government has to create demand by rewarding investors for efficiency gains andemissions-abating clean energy investments, and(2) in the former case, investors enthusiastically embraced risk and reward (some tooenthusiastically, some to their great good fortune), whereas in the latter the Green Bank needs to offer a carrot that will draw investors into a sector from which, due tooscillations in global commodity prices and unpredictable regulations, they have mostlywithdrawn.In the wake of the reduced output of the American economy following the financialcrisis of 2008, electricity demand has dropped and in most states will stay below existingcapacity for at least six to seven years. Nevertheless, we want to replace existing andunder-utilized carbon-intensive generation and insulate our buildings, because, as thePresident has often said, we want our economy to be firmly planted on a renewableenergy platform and to be highly productive in energy usage. If the Green Bank wereempowered to cause $500 billion in new investment, we would have achieved at least20% reduction in carbon emissions for the whole economy relative to business as usual by 2015 (if not sooner).In the next three years, the Green Bank would prioritize its actions to maximize jobcreation per dollar, and to act in every state, particularly where unemployment is mostacute. Because no other government agency has such a task, the Green Bank should be anew addition to the landscape of institutions. Specifically, it should be a private non- profit corporation in order to free it from cumbersome government hiring and procurement regulations. The Green Bank’s financing decisions would be transparent inall respects, but would not be subject to judicial review under the AdministrativeProcedures Act (APA) and OMB review under the Federal Credit Reform Act of 1990(FCRA). Although the projects it financed would have to comply with NEPA, its actionswould not require another layer of NEPA review. It should be kept independent of existing multi-purpose bureaucratic structures so as to retain its focus. It should have a board of private and public officials so as to achieve the flexibility and focus of privatesector companies and will employ a few hundred professionals. It should have the mix of financial tools that would permit it to order its activities so as to maximize private sector commitments, immediate job creation, and long-term recovery of its appropriatedcapitalization.The primary barriers to green investments are financial constraints, inability toorganize multiple stakeholders, and regulatory barriers to fair rewards for investors. To3
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...