The California Green Debauch

George Gilder
The American Spectator
February 1, 2011
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California’s Treasurer Bill Lockyer has a bridge he wants to sell you. No, he is not putting the Golden Gate on the market. That would actually find buyers. He is trying to foist a “bridge loan” on the country that in effect would require us to buy the entire state.

Shuffling off the streets of Sacramento into the bond market a few weeks ago seeking to raise some $14 billion in so-called “revenue anticipation notes,” Lockyer is offering notes that can be repaid only by future revenue anticipation notes, in a delusional statewide recycling binge of bonds on bonds.

Since the state at the same time officially projected $20 billion annual deficits for the next six years (Governor elect Jerry Brown says $28 billion in 2011), the end of this road is another of those bridges to nowhere that politicians believe stimulate an economy but ordinary people prefer not to drive on or off. So now Lockyer is following up with a drive to get the federal government to guarantee California's debt against default, which means the taxpayers will have to be the ultimate buyers.

Before we close the deal to purchase the state, however, ordinary financial due diligence would require Congress to make California rescind a “poison pill” provision in its state laws. This poison pill is not medical marijuana. But it renders any bridge loan or “revenue anticipation note” utterly hallucinogenic.

Unrecognized by most media, conservatives lost miserably in what may have been the most consequential election on November 4. This was the California referendum to repeal Assembly Bill 32, the so-called Global Warming Solutions Act. Passed in 2006, AB 32 ordained that the state economy be ratcheted back to 1990 levels of so called green-house gases by 2020, a 30 percent drop, and mandated an 80 percent drop by 2050. Together with an unsustainable $500 billion public pension overhang and $28 billion current budgetary shortfall, the effort to cap all energy production dooms the state to bankruptcy.

Although conservative pundits have lavished disdain on this California political potlatch, California is the nation’s most important state, dominant in the innovation, manufacturing, and enterprise that make the U.S. economically and militarily supreme in the world. Perhaps two thirds of the nation’s new technology originates in the state or is financed by its venture capitalists. California cannot go down the drain without inflicting serious damage on the rest of the country.

 The irony is that the general trend of advance in conventional “non-renewable” energy for a century—from wood to coal to oil to natural gas and nuclear—has already wrought at least a 60 percent drop in carbon emissions per watt. In the words of natural gas pioneer Robert Hefner, “As man travels down the energy path from solid wood and coal to liquid gasoline and to gaseous natural gas and hydrogen, the progression is one of carbon heavy to carbon light; from complex chemical structure to simple; from toxic particulate emissions to no particulate emissions; and finally, from high CO2 emissions to no CO2 emissions.” Thus the long-term California targets might well be achieved globally in the normal course of technology advance. Unlike the existing bonfires of ingenuity and money, moreover, an organic advance of energy efficiencies can readily propagate around the world without mandates and subsidies.

 The obvious next step in this positive energy evolution is aggressive use of the several trillions of cubic feet of low-carbon natural gas, enabled by new horizontal fracking techniques, that have been found in the U.S. over the last two years. These discoveries have essentially ended the “energy crisis” in the United States.

 This hugely promising breakthrough, though, collides with the massive vote against repeal of the California green law--62% to 38%--which gives a patina of public support to an economy-crushing drive to suppress CO2 in natural gas and everything else. Already mounting a scare campaign against the new natural gas extraction methods, California Democrats apparently expect to pass on the huge costs of their policies to the rest of the country in a reverse gold rush on Washington.

 Masking the bailouts for the state will be subsidies for green jobs and stimuli for politically oriented R&D, provisions for so-called “feed-in tariffs” for nuisance energy suppliers and boondoggles for a “smart grid” that can adapt to dumb and erratic power (but is more complex and  vulnerable to sabotage). Eventually there will have to be a costly environmental clean-up for the dilapidated toxic wreckage of windmills and solar panels (replete with lead and cadmium). When all these efforts to save California fail, the last resort will be a debt-withering siege of inflation that depreciates much of the nation’s remaining wealth.

 In a parody of the supply side economics of creative destruction, advocates of AB 32 envisaged the usurpation of existing fuels with alternative energy sources that create new jobs and industries. Thomas Friedman’s Hot, Flat and Crowded is the bible of this delusional sect, which has lamentably captured much of Silicon Valley. This economic model sees new wealth emerge from dismantling the existing energy economy and replacing it with a medieval system of wind mills and solar collectors. The problem with this strategy is that its destruction of the old energy system does nothing whatsoever to enable a new one. By this logic we could all get rich by razing the existing housing plant and replacing it with fancy renewable tents.

 All the so-called “renewables” are more costly, environmentally destructive, and inefficient than the existing energy infrastructure. They waste and desecrate the precious resource of arable land that feeds the world while banning the abundant subterranean troves of fossil and nuclear fuels.

 The Greens, led by Amory Lovins and Al Gore, retort in an indignant chorus that non-renewables, such as oil and gas and nuclear, receive far more government subsidies, some $73 billion in 2008, than the $29 billion received yearly by the new green alternatives. But much of the so-called subsidies for conventional energy are not subsidies but deductions for tax payments already made overseas. In any case, the conventional energy companies, unlike the renewables, make vast net tax contributions while, also unlike the renewables, supplying 98 percent of the nation’s energy.

 Even accepting the nonsensical idea that tax deductions and depletion allowances are a governmental bonanza for “dirty fuels,” the direct subsidies per watt are roughly 20 times greater for the renewables. Meanwhile the CO2 suppression caps and mandates represent a confiscatory new tax on all conventional energy sources. All the accumulating environmental litigation and laws pose an insuperable barrier to innovative new nuclear facilities.

The chief so-called renewables that the greens believe can replace oil, gas and coal, are wind, solar and biomass. All tend to cost more energy to produce and transport and adapt to the power grid than they yield in new power. Windmills, for example, not only deface the environment but they are too erratic to supply reliable base power and thus require non-renewable backup. As venture investor and engineer Andy Kessler has calculated, the inefficiency of alternative sources means that every dollar of new wages for green workers will result in at least a dollar fifty of reduced pay and employment for the state’s other workers. The damage, sadly, will not be confined to California but will also displace and impoverish workers across the country.

 During the career of “Climate Chancellor” Angela Merkel, Germany has become the cynosure of alternative energy movements around the globe, with 47 imitators so far including the U.S.  Subsidizing solar at double the U.S. rate for 25 years Germany has so far failed to make a discernible dent on the solar share of total energy use, still around 2 percent, while wasting some $70 billion in the process. To supply all their electricity with solar would cost some $3.5 trillion.  

 Unrecognized, however, is the most punishing effect of the California legislation. It has debauched and stultified America's and California’s most important asset: its venture capital industry that accounts for the nation's technological leadership, military power, and roughly a fifth of GDP.

 Venture capitalists are America’s most valuable financiers. Rather than creating intricate money shuffling devices like many on Wall Street they have funded the most important breakthroughs in global technology, from Intel, the world’s leading microchip company, to Genentech, the revolutionary biotech firm that sparked a new industry in healthcare. I myself have devoted much of my career to chronicling the venturers’ triumphs and today I devote much of my time to my own more modest venture capital pursuits. I have discovered that the real Silicon Valley has now heavily moved to Israel, which continues to focus on fundamental new technologies rather than on green frivols. Tiny Israel now stands behind only the U.S. not only in new defense innovations such as unmanned aerial vehicles and missile defense but also in a range of venture technologies, including telecom, microchips, software, medical instruments, biotech, and clean tech. Sadly the bulk of new U.S. venture investment proposals harbor a “green” angle that turns them from potential economic assets into government dependencies that ultimately deplete U.S. employment and tax revenues. Fortunately Israeli innovations are transmitted almost immediately to the U.S. and compensate to some degree for the debauch in Silicon Valley.

 Silicon Valley learned little from this experience. Key to the green victory in California’s election was the massive support of the state’s high tech venture community. Against the feckless outlays of a few oil companies, totaling some $10 million, came some $31 million, partly from other oil companies perversely trying to bribe and buy off the greens but mostly from the venture capital community led by Al Gore affiliate Kleiner Perkins Caulfield &Byers.

 Under Gore’s influence, millions poured into the green campaign from such promethean venturers as Doerr and Vinod Khosla of Kleiner-Perkins, Eric Schmidt and Sergei Brin of Google, the legendary Gordon Moore and Andrew Grove of Intel, Cisco founder John Morgridge and Robert Fisher of Draper Fisher Jurvetson, along with a passel of descendants of  late David Packard now presumably rotatory. The campaign even managed to shake down a contribution from the state’s public utility, Pacific Gas and Electric. Those hapless Texas oilmen from Valero and Tesoro did not know what had hit them.

 I am not so cynical as to imagine that my venture heroes would spend $31 million to save their sickly green portfolios if they did not think they were doing great good in the process. Most of the donors seem to have suffered a midlife muddle of plethoric wealth and quixotically set out to save the planet at the expense of the U.S. economy. Even the billionaire Republican gubernatorial candidate Meg Whitman, formerly of E-Bay, made her austerity campaign a sad joke by opposing the repeal. Since her governorship could not possibly have succeeded under the AB 32 energy cap, the Republicans may well be better off with California under the regime of an obvious leftist buffoon like Jerry Brown than under a poll-driven careerist Republican like Whitman or under a gullible green such as Arnold Schwarzenegger.

 The green gaggle of venture geniuses in California are simply out of their depth in a field they do not understand. All these venturers made their fortunes in digital information technologies. As MIT professor Eugene Fitzgerald, a microchip and solar innovator, writes in his new tract, Inside Real Innovation, “Early stage investors hoped that energy would be the same as the semiconductor-PC-information technology sector but alas...there will be no new form of energy analogous to the birth of the transistor or integrated circuit...that offers very dramatic performance gains...without breaking the laws of thermodynamics.”

 Solar panels are not digital. They may be made of silicon but they benefit from no magic of miniaturization like the Moore’s Law multiplication of transistors on microchips. Setting the size of photo receptors are the wavelengths of sunlight, which are microns wide, not the nanometers of new chips. Biofuels are even less promising. Even if all Americans stopped eating (about 100 thermal watts per capita on average) and devoted all our current farmland to biofuels, the output could not fill more than one or two percent of our energy needs (more than a 11 thousand watts per capita on average). As Bill Tucker has pointed out in these pages, virtually all the energy in the atom resides in its nucleus. Twiddling valence band electrons in solar cells can yield only an infinitesimal amount of energy compared to nuclear and chemical technologies, and because the renewables are inefficient they are horribly wasteful of the precious resource of the arable surface of the earth.

 Matt Ridley makes the argument cogently in his superb book, The Rational Optimist: “Roughly five percent of the world’s crop land has been taken out of growing food and put into growing fuel (20 percent in the United States)...Not even Jonathan Swift would dare to write a satire in which politicians argued that...it would somehow be good for the planet...to give up food-crop land to grow biofuels...thus driving up the price of food for the poor [who] spend 70 percent of their incomes on food. In effect, American car drivers were taking carbohydrates out of the mouths of the poor to fill their tanks.” Following Peter Huber in Hard Green, Ridley makes the key point: “A sustainable future for nine billion people on one planet is going to come from using as little land as possible for each of people’s needs.” From wind to solar and biofuels, renewables waste land, capital, and labor, and thus are an environmental catastrophe.

 The general Gadarene rush for green subsidies in Silicon Valley is thus as destructive to environment as it is to the country. Most people do not grasp the centrality of venture capital to the U.S. economy. All the key technologies that sustain U.S. wealth and power were developed by companies crucially supported by venture capitalists in California. None was more important than Kleiner Perkins Caulfield and Byers, the firm led by Doerr and Khosla, which funded scores of vital ventures, including Apple (the leading innovator in consumer electronics), Applied Materials (the paramount producer of waferfab capital gear), Sun (once the leading innovator in workstations), Amazon (the pioneering web retailer), Google  (the spearhead of the emerging digital economy), and an array of microchip and fiber optical investments that sustain the Internet and military innovation.

 From the sublime to the bathetic, Kleiner is now moving on to such politically dependent firms as Miasole, Bloom Energy, Amyris Biofuels , Upwind Solutions, and Segway. Many have formidable technology and employ thousands of ingenious engineers, but they are mostly wasted on the pursuit of ambient pork and pelf. Other venturers plunged into solar panel manufacturer Solyndra, which received some $500 million in federal subsidies and a campaign visit from Barack Obama before slipping toward bankruptcy last month, laying off some 17 percent of its workers, closing a major new plant, and giving up on half of its two thousand projected green jobs. Many of these green companies, behaving like the public service unions they resemble, diverted some of their government subsidies into the AB 32 campaign for more subsidies.

 What is the remedy for this disaster where American venture capitalists have turned from huge contributors to American innovation, capital formation, and government revenues into arrant petitioners for pork? One partial solution is a suit by four Attorney Generals from other states against the California law for violating the interstate commerce clause by barring out-of-state energy that emits CO2.

 But ultimately the movement must be stopped by the new Republican Congress. The Center for American Progress, a liberal think tank, has calculated with alarm that 50 out of the some one hundred new Republican Congressmen elected last month are “climate-change skeptics.” The bad news in this story is that half of the new Republican congressmen are not climate change skeptics. There is a far smaller percentage of climate change skeptics among Republican politicians than among American scientists, judging from eminent chemist Arthur Robinson’s ability to get some 30 thousand people with science degrees, including 9 thousand with PhDs, to sign his  petition against the theory of man-made global warming. “I could do another mailing,” he says, “and get another 30 thousand.”

 A mere mix of skepticism and gullibility in the Republican majority will fall far short of overcoming the legal and political forces now being mobilized to suppress U.S. energy production in the name of this spurious man-made global warming crisis. Republicans should care because this shift will ultimately consign the U.S. to second-class status in the world economy regardless of what happens to the Federal deficit.

 Even Republican leaders show dangerous gullibility in the face of environmentalist pressures. The eloquent tribune Newt Gingrich has been clutching the coattails of Nancy Pelosi on the issue. Co-sponsoring a disgraceful bill introduced in September to force utilities to expand their use of “renewable energy” to 15 percent by 2021 are Republican Senators Sam Brownback (Kansas) and Susan Collins (ME). 

Republicans may delude themselves that the U.S. can undertake a vastly costly, hugely inefficient and disruptive transformation of the energy economy, estimated to cost some $45 trillion over 40 years, while meeting our global military challenges and addressing the huge debt overhang. But the facts are binary and intractable. Alternative fuels cannot begin to meet American economic and military needs. Continuation down this path means the end of U.S. world leadership. Mandates, caps, and subsidies to downgrade our infrastructure will not create enduring wealth or jobs. But they deplete scarce and precious technological and entrepreneurial resources.

 Closing the deficit will do nothing for the United States if we give up our technical prowess. With hard technologies in eclipse and thousands of engineers diverted into efforts to build perpetual motion machines, even venturers who shun energy investments focus on such trivialities as social networking schemes. But Zynga, Farmville, and Facebook cannot be counted upon to sustain the U.S. economy, let alone our defense. Kleiner Perkins’ great new hopes are Twitter and Groupon. Although some social networking companies will aid the economy, reliance on such distractions as the focus of venture capital is portentous for the future of US world leadership.

 Economic growth is indispensable to a clean environment. The chief danger to growth is a collapse of U.S. and global innovation in a swamp of government programs for politically correct piddle power supported not for its high efficiency but for its low emissivity. Mandates for a new and inferior energy system will reliably retard the technological progress that can reduce real pollution and other environmental damage around the globe. Compounding this danger is an advance of the global jihad enabled by an inability of the U.S. to sustain its military power and technical prowess.

 The environmental movement has palsied two generations of American youth with a pale cast of green goo. It has turned much high school science into a fake field called environmental science. As legendary physicist Richard Feynman observed, “If a science has an adjective it probably isn’t science.” At the same time, the movement has turned many universities into an apocalyptic nature cult that converts money for education into an obscurantist debauch. This movement has already corrupted most branches of government with a CO2 fetish. Now it is debilitating America’s most precious venture assets.

 Unless this insanity stops, we should not buy any bonds or bridges from California.

 

George Gilder is a founding fellow of the Discovery Institute and author of 15 books, most recently The Israel Test.