New Energy Policies Could Ease the Economic Crisis

In rented offices on a quiet side street in Paris, not far from the Eiffel Tower, analysts for the International Energy Agency spend long days and nights crunching numbers about oil production and greenhouse-gas emissions. They're the staid, sober global accountants who watch over the power supply for the 30 rich countries that are members of the Organization for Economic Cooperation and Development, and their many reports are dry and technical. But lately, the group's pronouncements have taken on more ominous overtones. With a sense of urgency bordering on desperation, the IEA has begun calling for radical changes in the way the world drives its cars, its factories and, indeed, the global economy. This month the agency will issue a collection of comprehensive reports declaring that "a global revolution is needed in ways that energy is supplied and used."

That kind of rhetoric has become familiar to U.S. voters, who've spent months listening to both presidential candidates tout their energy plans. Barack Obama has promised to "strategically invest" $150 billion over 10 years to build a clean-energy economy, one that will create 5 million new green jobs. While John McCain has offered slightly fewer specifics, he's promoted an "all of the above" strategy that focuses more on nuclear energy and drilling for more oil. "The U.S. must become a leader in a new international green economy," McCain has said.

Starting this week, one of those candidates will have a chance to make good on those promises. On the surface, that opportunity could hardly come at a worse time. Around the globe, the financial crisis plunging the world into recession has caused a wave of doubts, second-guessing and backsliding among many political and business leaders who've pledged allegiance to a green agenda. Italy and several Eastern European states have threatened to sink previously-agreed-upon European Union initiatives. U.S. venture capitalists are getting cautious about investing in clean-tech projects. China's leaders, after what seemed a crisis of environmental conscience during the Beijing Olympics, may reverse course as they see their economic growth drop into single digits.

But there are also powerful voices being raised amid the din of despair, saying that now is precisely the time to seize the initiative and launch the "global revolution" the IEA is calling for. And not just because it will stave off disasters two or three decades away, but also because it can provide the impetus to pull the global economy out of the slump it's in now and put it on a more solid foundation than it's had in at least a generation. British Prime Minister Gordon Brown and French President Nicolas Sarkozy have already taken up the cause. United Nations Secretary-General Ban Ki-moon last month called for a "Green New Deal" that would rebuild and reshape the economy of planet Earth in ways reminiscent of the programs that President Franklin Roosevelt used to revitalize the economy of the United States during the Great Depression. Indeed, even as the slowing economy and falling oil prices make it harder to justify huge new investments in a green economy, there's a strong counterargument that now is precisely the time to make them.

It took a great war, and all the military industries that fed the carnage, to bring America out of the Depression. But to a surprising degree, the world economy has been riding the strength of its hottest sectors ever since. By the 1990s, it was the rise of the Internet, which collapsed with the dotcom bubble and gave way to the housing boom and the financing that paid for it. In each of these recent cases it was the market that discovered and promoted a new engine for growth—creating millions of jobs and trillions in profits worldwide. Between 1996 and 2000, the tech sector created 1.6 million new U.S. jobs, according to Moody's—roughly 14 percent of new U.S. job growth. In this decade, the financial sector accounted for the lion's share of U.S. corporate profit, while housing accounted for a staggering 40 percent of new U.S. job growth. Now those two stalled drivers are leading producers of unemployment: Goldman Sachs, for instance, announced a 10 percent staff cut last month.

The world, simply put, needs a new economic driver. Proponents of a Green New Deal argue that massive public investments can lay the groundwork for the private sector to develop whole new industries and create millions of jobs in the near term—and oh, by the way, save the planet in the medium term. "You are not just putting money into hot paper or into a financial-services sector that destroys itself," says Oliver Schäfer, policy director of the European Renewable Energy Council. "You are investing in clean technology, which is real business."

Indeed, in 2008 the promise of jobs may be a stronger incentive to go green than the threat of ice caps melting and coastal cities drowning in 2018 or 2048. In the euro zone, for instance, unemployment is expected to rise from 11.3 million to 14.5 million by the end of next year, pushing the rate up from 7.5 to 9 percent. In the U.S. the rate is 6.1 percent, but is expected to push toward 8 percent by the end of 2009, the highest in 25 years.

Even as a new administration sets to work on that problem, a few European countries have taken the lead pushing forward with substantive green initiatives. According to a recent United Nations report, Germany's $240 billion renewable-energy industry already employs 250,000 people, and by 2020 it is expected to provide more jobs than the country's auto industry. Britain plans to spend $100 billion on 7,000 wind turbines by 2020, and the government claims that will create 160,000 jobs. "I know that some people may be saying that the difficult financial circumstances that the world now faces mean that climate change should move to the back burner of international concern," British Prime Minister Gordon Brown recently said. "I believe the opposite is the case."

But just how plausible are such plans? Even if they create jobs, will those jobs really contribute to a system that slows or stops global warming? Fatih Birol, the chief economist at the IEA, has overseen the studies calling for a global revolution in the way energy is supplied and used. But he remains pessimistic. He cites a fatal dynamic that is perfectly straightforward. In a recession, consumption of just about all commodities goes down, but so do energy prices—and that discourages the development of alternatives. Nuclear-power plants, vast solar-collection farms, forests of wind turbines, ethanol production, R&D for electric or hydrogen-powered cars and the infrastructure to support them—all require enormous quantities of capital awaiting a fairly distant payoff. When capital and credit are tight, and oil prices suddenly drop (they are less than half what they were in July), private investors are less likely to put billions into a distant clean-energy future. Alternative programs for renewable sources of energy that might make business sense when oil is at $140 a barrel make less sense when it's at $70—and none at all if it drops below $40.

If there is good news, in Birol's view, it's that after the epic interventions in the financial markets over the past few weeks, the notion that the state might intervene massively to redirect the energy market no longer seems extreme, even to the normally laissez-faire British and Americans. Once you open the floodgates of government funding for the banks, why not for green industry, too?

It's the French who offer perhaps the most detailed blueprint for the moment. The particular advantage that Gauls have is that dirigisme (state planning) has never been a dirty word in Paris. Massive public investment in rebuilding the economy is what gave the French what they still call les trente glorieuses, the 30 glorious years of phenomenal growth after World War II. That was when they made the expensive but prescient decision to build the nuclear-power plants that now supply 80 percent of their electricity with no direct emission of greenhouse gases. So, too, the French dirigiste decision to crisscross the country with capital-intensive but energy-efficient high-speed train lines.

Although France was seen as an environmental laggard in the '80s and '90s, when green causes seemed more about lifestyle than survival, over the past year the problems have been defined and addressed with stunning celerity. In October 2007, Sarkozy kept his campaign promise to convene all branches of government, unions, the private sector and other interested parties in a conference similar to the one on the Rue de Grenelle in Paris that ended the quasi revolution of 1968. This Environmental Grenelle, as it's now called, came up with 268 recommendations, many of which have been passed by the parliament. And those have provided Sarkozy with the specifics needed more than ever in the current crisis.

The clear priorities in the new legislation are on practical programs that have an immediate effect on, yes, the job market. First on the list is the construction business: an estimated 25 percent of the country's greenhouse-gas emissions come from energy consumption in buildings. "We're trying to have a 40 percent drop … by 2020," says Nathalie Kosciusko-Morizet, the state secretary for ecology, who says the move to make homes, offices and especially public housing better insulated and more energy-efficient will generate some 200,000 of the 500,000 jobs the Grenelle initiatives are supposed to create in France over the next dozen years.

Transportation is another sector that's already been addressed creatively in France. A system that went into effect on Jan. 1 offers a financial bonus for the purchase of cars with low emissions, while there is a tax disincentive (called a malus) against buying a car with high emissions. Although the French already drive automobiles that are far more fuel-efficient than most U.S. cars, the move has further transformed the country's taste in automobiles. The sale of pollution-prone used cars has dropped off, while the number of new cars sold in France by Renault, for instance, was up 8.4 percent in September.

Success doesn't come cheap. The bonuses will cost the government up to $265 million this year. Those costs, coming on top of the financial-sector bailouts, will exacerbate France's budget deficit. But Paris says the new expenditures are betting on future energy savings as well as the "formidable follow-on effect" of raising employment and creating dynamic new sectors in the economy. "This time it won't be about sacrificing the future for the present," said Sarkozy, "but on the contrary, putting our country in the best possible situation to face the future."

Can the rest of the world be persuaded to take even more dramatic steps? What of countries like Poland, which produces 94 percent of its electricity from coal? Or China, which pumps more carbon dioxide into the air in eight months than the European Union is likely to save in the next 12 years with all its programs to reduce emissions 20 percent by 2020? Complicated schemes to price carbon emissions and trade carbon credits, some of which are in place, may provide a useful mechanism. So might the costly and almost entirely untested schemes to capture and store the carbon dioxide produced by power plants and factories—the "clean coal" that both McCain and Obama talked about frequently on the campaign trail.

But the political and financial reality is that no government will be so moved by the dire predictions of the world's scientists and the doomsday scenarios on computer models that it will allocate trillions of dollars just to meet those postulated challenges. What governments might do, and some certainly will do, however, is spend huge sums soon to kick-start their economies and create millions of jobs. "The nation is asking for action, and action now," said Franklin Roosevelt when he took office in 1933 and launched the New Deal. Today the global economy—the planet itself—is asking for the same thing.

With William Underhill in London and Jessica Ramirez in Washington, D.C.