The Big Green Buy

In the wake of the BP oil spill, some captains of industry have begun
calling for government leadership to spur a clean-energy revolution. In
June billionaire software mogul Bill Gates visited Washington and
encouraged lawmakers to pony up public subsidies to triple clean-tech
R&D funding from $5 billion to $16 billion annually. Gates explained
to the Washington Post that much of what is touted as
free-market innovation was born of government subsidies: "The Internet
and the microprocessor, which were very fundamental to Microsoft being
able to take the magic of software and having the PC explode, were among
many of the elements that came through government research and
development." And on his website Gates wrote, "When it comes to
developing new sources of energy, and ways to store that energy, I
believe the federal government needs to play a more active role than it
does today."

Gates's acknowledgment of the need for government intervention is
welcome, but he and many others are stuck on "innovation." The fixation
on new "game-changing" technology is omnipresent. Think of the metaphors
we use: a green Manhattan Project or a clean-tech Apollo Program. It
recalls Tocqueville's observation that "the American lives in a land of
wonders, in which everything around him is in constant movement, and
every movement seems an advance. Consequently, in his mind the idea of
newness is closely linked with that of improvement."

Yet according to clean-tech experts, innovation is now less important
than rapid large-scale implementation. In other words, developing a
clean-energy economy is not about new gadgets but rather about new
policies.

An overemphasis on breakthrough inventions can obscure the fact that
most of the energy technologies we need already exist. You know what
they are: wind farms, concentrated solar power plants, geothermal and
tidal power, all feeding an efficient smart grid that, in turn, powers
electric vehicles and radically more energy-efficient buildings.

But the so-called "price gap" is holding back clean tech: it is too
expensive, while fossil fuels are far too cheap. The simple fact is that
capitalist economies will switch to clean energy on a large scale only
when it is cheaper than fossil fuels. The fastest way to close the price
gap is to build large clean-tech markets that allow for economies of
scale. So, what is the fastest way to build those markets? More research
grants? More tax credits? More clumsy pilot programs?

No. The fastest, simplest way to do it is to reorient government
procurement away from fossil fuel energy, toward clean energy and
technology-to use the government's vast spending power to create a
market for green energy. After all, the government didn't just fund the
invention of the microprocessor; it was also the first major consumer of
the device.

Call it the Big Green Buy. The advantage of this strategy is that it
is something Obama can do right now, without waiting for Congressional
approval to act. As such, it amounts to a real test of his will to make
progress in the fight against climate change.

Consider this: altogether federal, state and local government
constitute more than 38 percent of our GDP. Allow that to sink in for a
moment. The federal government will spend $3.6 trillion this year. In
more concrete terms, Uncle Sam owns or leases more than 430,000
buildings (mostly large office buildings) and 650,000 vehicles. The
federal government is the world's largest consumer of energy and
vehicles, and the nation's largest greenhouse gas emitter. Add state and
local government activity, and all those numbers grow by about a third
again.

A redirection of government purchasing would create massive markets
for clean power, electric vehicles and efficient buildings, as well as
for more sustainably produced furniture, paper, cleaning supplies,
uniforms, food and services. If government bought green, it would drive
down marketplace prices sufficiently that the momentum toward green tech
would become self-reinforcing and spread to the private sector.

The good news is that despite our sclerotic, largely right-wing
Congress, government agencies are turning toward procurement as a means
to jump-start clean tech and cut emissions.

Perhaps the most important move in this direction came in October
2009, when President Obama quietly signed Executive Order 13514, which
directs all federal agencies to "increase energy efficiency; measure,
report, and reduce their greenhouse gas emissions from direct and
indirect activities; conserve and protect water resources through
efficiency, reuse, and stormwater management; eliminate waste, recycle,
and prevent pollution; leverage agency acquisitions to foster markets
for sustainable technologies and environmentally preferable materials,
products, and services; design, construct, maintain, and operate high
performance sustainable buildings in sustainable locations."

The executive order also stipulates that federal agencies immediately
start purchasing 95 percent through green certified programs and
achieve a 28 percent greenhouse gas reduction by 2020. The stimulus
package passed in 2009 included $32.7 billion for the Energy Department
to tackle climate change, and some of that money is now being dispersed
to business and federal agencies.

Already some federal agencies are installing energy management
systems and new solar arrays in buildings, tapping landfills to burn
methane and replacing older vehicles with plug-in hybrids and soon some
all-electric vehicles. But it is the green procurement part of the
executive order that is most interesting.

Government has tremendous latitude to leverage green procurement
because it requires no new taxes, programs or spending, nor is it
hostage to the holy grail of sixty votes in the Senate. It is simply a
matter of changing how the government buys its energy, vehicles and
services. Yes, in many cases clean tech costs more up front, but in most
cases savings arrive soon afterward. And government-because of its
size-is a market mover that has already shown it can leverage
money-saving deals.

Currently, the price gap relegates clean tech to boutique status: San
Francisco Mayor Gavin Newsom owns an electric car; SF City Hall has
three electric-vehicle charging stations; nationwide there are about
55,000 electric vehicles and 5,000 charging stations. Groovy.

However, back on Planet America the asphalt transportation arteries
are clogged with 250 million gasoline-powered vehicles sucking down an
annual $200-$300 billion worth of fuel from more than 121,000 filling
stations. Add to that the cost of heating and cooling buildings, jet
travel, shipping, powering industry and the energy-gobbling servers and
mainframes that are the Internet, and the US energy economy reaches a
spectacular annual tab of $2-$3 trillion.

The clean-tech price gap is partly the result of old dirty tech's
history of subsidies ($72.5 billion between 2002 and 2008), but it is
also the result of the massive economies of scale that the fossil fuel
industry enjoys. In other words, gas pumps and gasoline are cheaper when
you buy in bulk.

Closely associated with the price gap is another concept, which
clean-tech developers call the "valley of death." This is the time in a
technology's life cycle when capital dries up, the time between a
technology's initial invention and its successful application as a
moneymaking commodity.

A report by Ernst & Young found that a typical technological
innovation-like the flatscreen TV or the cellphone-costs about $20-$100
million to invent but about $1 billion to deploy at competitive prices.
Between government subsidies and capital markets, there is often enough
financing available to invent new gadgets or buy into a mature and
profitable business. But there is a dearth of capital for new companies
trying to cross that gap between victory in the lab and victory in the
market.

Smith Electric Vehicles, of Kansas City, is one company that would
benefit immensely if government started robust green procurement.
Currently Smith, the US affiliate of a British firm that has been making
electric delivery trucks for eighty years, turns out about twenty units
a month. The vehicles-flatbeds, refrigerator trucks, basic box-style
delivery trucks-all require components that Smith buys on the open
market.

"If we could buy gear boxes in batches of a hundred rather than ten
at a time, they could be cast to our specifications rather than each one
machined. That would immediately cut the cost by 30 to 40 percent,"
says Smith CEO Bryan Hansel. Similar savings would be available for
other inputs like steel chassis, cabs, drive shafts, suspensions and
wiring harnesses, all of which are purchased from the same suppliers
used by diesel- and gas-powered vehicle makers.

In March Smith received a $32 million Energy Department grant that
will help it offset the cost of its trucks. But what would really give
it a boost is an order of 1,000 trucks a year for the next ten years,
from, say, the Defense Department or the Postal Service or the General
Services Administration (GSA). If that happened, Smith's plans to open
twenty more small manufacturing facilities around the country would
shift into high gear.

"We have approached the DoD about nontactical vehicles, like trucks
that are used on bases here in the US. They bought four of our vehicles
for testing. So we're hopeful," says Hansel. The Defense Department has
160,000 nontactical vehicles, many of which are suitable for
electrification.

In other respects, the military is one of the most avid adaptors of
clean technology. Of all the energy the federal government consumes, 80
percent is used by the Defense Department. The cost of delivering fuel
to forward operating areas can be as high as $400 a gallon, by some
estimates. And according to an Army Environmental Policy Institute
report, 170 soldiers died and many more were horribly maimed just
protecting fuel in combat zones during 2007. For purely strategic
reasons the military is trying to free itself (at least a bit) from its
clumsy and very long fossil fuel tether.

Thus the military is experimenting on a large scale with green
technology. Fort Irwin, in California, is building a 500 megawatt (that
is big) solar power plant and is on track to become self-sufficient in
electricity use within a decade. Fort Leavenworth is undergoing an
energy retrofit that a Pew report described thus: "energy efficiency
improvements are made by a private-sector firm at no upfront cost to the
Army, with resulting savings shared by the base and the contractor."
The list goes on, but unfortunately most of the changes are relatively
small scale.

Government procurement, particularly the military's, would become
significantly greener if two recently introduced bills became law. The
Department of Defense Energy Security Act of 2010, introduced by
Gabrielle Giffords of Arizona, would require the department to derive a
quarter of its electricity from renewable sources by 2025. And-good news
for Smith Electric Vehicles-the bill also calls, rather ambitiously,
for a full-scale conversion of the military's nontactical vehicle fleet
to electric, hybrid or alternative-fuel vehicles by 2015.

A similar bill, introduced by Democrat Jose Serrano of New York,
would require the Postal Service to purchase at least 20,000 electric
vehicles by 2015. That goal is reasonable, and the USPS is a perfect
place to start, as most of its vehicles travel in loops of less than 20
miles each day and always park in the same garage. Thus, even current
battery technology is sufficient. Many other government fleets fit the
same profile: they have regular routes of less than 100 miles a day and
use the same parking spot each night, so they are easy and cheaper to
charge because the price of juice drops at night.

Right now a vehicle from Smith is about 20 percent more expensive
than a standard gas or diesel truck. But the cost per mile to run an
electric truck is about one-third the cost per mile of a gas- or
diesel-powered one. Hansel says that with enough large orders his
product will reach cost parity with dirty-tech options. When that
happens, large private-sector fleets, like UPS, FedEx, Staples and
Frito-Lay, will start buying electric vehicles simply because it will be
the cheaper option.

In anticipation of that day, Nissan is releasing the 2011 Leaf, a
fully electric plug-in car. It plans to make 90,000 of them. Chevy is
coming out with the Volt-10,000 of them. Will this first generation of
EVs really have a market, and sufficient charging options? Who knows?
But you can be sure they would if Big Government made the Big Green Buy.

Buildings also use lots of energy. The US Green Building Council
reports that buildings account for about 36 percent of America's total
energy use and emit roughly the same proportion of greenhouse gases. But
if properly constructed and managed, many buildings could actually
generate energy for their own use, for vehicles or to put back into the
grid.

The government's building manager-its janitor, if you will-is the
GSA. The GSA constructs, repairs and manages federal buildings; it buys
the supplies and keeps the heat and AC on; and it buys and maintains
much of the government's nonmilitary vehicle fleet. It also acts as a
purchaser and contractor of sorts for most other federal agencies. The
GSA is about as dull an agency as you can imagine. It has
pocket-protector and brown shoes written all over it. But in the age of
climate change, its brief has taken on vital importance. The
implications of Executive Order 13514 have put the GSA, along with the
military, at the cutting edge of the Big Green Buy.

"We're taking this very seriously," says Martha Johnson,
administrator of the GSA. "We are normally sort of overlooked, but we
were thrilled, really excited, when the president gave us such prominent
place in his environmental strategy."

President Bill Clinton issued four executive orders on sustainable
clean procurement, but they lacked specific targets or enforcement
mechanisms and thus achieved very little. "Our progress in general in
buying these products stinks," said Dana Arnold, senior program manager
at the White House Office of the Federal Environmental Executive in a
recent interview with the Federal Times.

This time it may be different, and the GSA is gearing up to be the
point agency in what is sometimes called Environmentally Preferable
Procurement, or "green supply chain management." The GSA is putting up
solar arrays, buying a few electric cars and hybrids, trying to produce
energy at its buildings and buying renewable energy like biomass, solar
and wind power, which now account for 10.8 percent of the GSA's federal
building power supply. It is also creating monitoring systems to track
progress and keep federal agencies accountable.

The GSA's sustainability plan requires "a minimum of three percent
renewable energy source for all competitive electricity supply contracts
and requires that renewable energy be from a plant that was recently
built in order to stimulate greater investment in the industry." The
agency has reduced its own energy use by 15 percent, as measured against
a 2003 baseline, and plans to reduce energy consumption in its
buildings by 30 percent from that baseline by 2020. Already the GSA's
building stock-mostly offices-is about 22 percent more efficient than
similar private-sector buildings.

In addition, the GSA is working on cutting the amount of jet travel
its workforce requires and, when possible, increasing telecommuting and
home-based work. It is also pressuring other agencies to shut off unused
data centers-the USDA, for example, uses only between 10 percent and 20
percent of its total computing capacity, but its huge, largely empty
servers run at 100 percent of power.

Other federal agencies, however, are lagging far behind. "It is
amazing to us to find out the low level of awareness," says Linda
Mesaros, a consultant for sustainable purchasing. State and local
governments are also moving toward green procurement, but few have been
very aggressive or ambitious.

Nor are the main pieces of energy and climate legislation focusing on
procurement. The American Energy Innovation Council-which includes Bill
Gates and executives from companies like Xerox, General Electric and
Bank of America-is lobbying for a research plan and money and pilot
programs all focused on expensive and spectacular new technology, like
small fourth-generation nukes. The plan totally ignores the Big Green
Buy strategy.

Another group, the Electrification Coalition-made up of CEOs from
FedEx, Nissan and PG&E-has published an ambitious 180-page plan for
converting America's light-duty vehicle fleet to 75 percent electric
miles by 2040. It also calls for radically upgrading America's old,
overburdened, semi-deregulated and thus chaotic electrical grid, which
loses about twice as much power in transmission as it did in the 1970s.
The EC is lobbying hard and has helped shape the Electric Drive Vehicle
Deployment Act of 2010, legislation being championed by Representative
Ed Markey.

But again, neither Markey's staff nor the EC is comfortable demanding
the Big Green Buy. "We don't think that is the best approach" was all I
could get from a Markey staffer. Instead, the EC proposes a Rube
Goldberg-style scheme of geographic target areas that will receive
multiple layers of consumer and industry tax credits and tax breaks-$7
billion total. That may sound big, but in the face of the climate crisis
it is Lilliputian.

This approach is emblematic of the intellectual poverty of the
political class and business elites. The bill is entirely too clever for
its own good, painfully complicated in its tinkering instrumentalism,
which in the end would do very little and do it too late, like an
impoverished family scrounging for dinner money on the eve of their
eviction. And the Electric Drive Vehicle Deployment Act will be red meat
to the climate deniers and fiscal hawks. You can almost hear the
derision now: if yuppies in Berkeley want to drive funny new plug-in
cars, why do we have to pay for it?

Viewed broadly, there are four simple things the government can do to
help close the clean-technology price gap and aid clean-tech business
across the valley of death.

First, it can boost R&D as Gates has requested, but that alone
won't bring mass-scale green power on line.

Second, it can set up a Green Bank tasked with financing clean-tech
businesses as they cross the valley of death. Along with loans, the
government can offer more loan guarantees, which encourage otherwise
frightened private capital to invest in clean-energy start-ups. The
Waxman-Markey climate bill of last year included language to do that,
but nothing like it is yet law.

Third, the government can impose mandates on the private sector
requiring companies to adopt electric vehicles, purchase clean energy
and conserve energy. Industry already lives with numerous rules that put
limits on the anarchy of production. Yet in the crazy world of American
politics circa 2010, forcing green procurement mandates on business
would be very difficult.

So let's get real. The fourth path is the best: a robust program of
green procurement is the most immediate and politically feasible thing
government can do to boost the clean-tech sector. And the only number
that approaches the scale of the energy economy is government spending
on energy. We need to be talking not about millions or billions but
trillions of dollars going in a new direction. If the government is
serious about electric vehicles-then just buy them already!

At one level, the mad Tea Partyers are correct: government is
leviathan-a monster. But it is our monster, and with proper leadership
even this government in the current climate could jump-start a
clean-energy revolution.