Bill Gates on Climate Change

This is my summary of Bill Gates thoughts on Climate Change.

First, he makes the assumption that the US and other rich nations need to get to Net Zero (NZ), hopefully by 2050.  For this we will need new breakthrough technologies that are both cost-effective and can be massively scaled.   While the solutions may be more expensive than current practices the difference in cost (which he calls the green premium) must be manageable in order for them to be useful to developing countries.

He makes two other points which are controversial.  One, is that we should not make any investments in any technology that will not be part of a net zero solution.   Secondly, we should not focus on intermediate goals, e.g.  reduce carbon emissions by 30 per cent by 2030.  His starkest example is that power companies should NOT be incentivized to convert from coal to natural gas! 

Prior to reading his book I had the opposite view.  My view had been that we needed to rejoin the Paris Accords, then make specific commitments to exceed our 2030 goals, and then encourage or even pressure other countries to exceed their goals.  One of the ways to do this is to convert from coal to natural gas.  I believe that in the US the conversion from coal to natural gas has done more than all of the renewable energy projects in reducing greenhouse gas (GHG) emissions.

Gates says no.  The goal is not to meet some intermediate goal but to get to NZ as soon as possible.  Once a new natural gas power plant is built it may stay in use 30, 40, 50 or more years.  The same is true for incentives for hybrid cars including plug-in hybrids.  They may reduce GHG emissions a little but they are not part of a NZ economy.

Implicit in all of this is that we will need significant public and private investment to get to NZ.  Especially as it pertains to public investment limited resources should not be spent on anything that is not part of a NZ economy.

The main areas that need new solutions are electric energy generation, travel, food production, and specific industries like steel and cement.

The easiest for me to understand is electric energy generation.   Gates's first premise is that renewables need to be a major part of the solution but they will be insufficient to get to net zero.  The challenge is that since renewables energy production is intermittent it will not always match demand.   

In order to have a NZ grid we need renewables combined with one the following breakthrough technologies; (1) energy storage, (2)  nuclear power or (3) fossil fuel, presumable, natural gas with Carbon Capture and Sequestration (CCS).  To make these potential solutions cost-effective will need large investments in basic research and development.   Since none of the solutions are close to becoming commercial products only the federal government can fund these investments.  Once we make progress on the basic science and technology to the point where they are close to commercially viable then the private sector can fund product development.

Gates doesn't disparage choices individuals might make like installing solar panels on their properties, buying a hybrid or becoming a vegetarian.  But he says these choices should not be subsidized.  Any green technology they require material subsidies cannot be scaled to the developing world; think India or sub-Sahara Africa where currently there may be close to a billion people with no access to electricity.  They will need cost-effective solutions or they will use fossil fuels.  In fact, they will use more fossil fuels than they currently do.

Those we are concerned about climate change say "follow the science".   Gates agrees but also says follow the math and the economics.   His view is right from the Seven Habits of Highly Successful People, i.e. Plan with the End in mind.  He thinks like a project manager and a business executive.

Last point and this was not part of Gates book.  The Build Back Better Act currently proposes up to a $12,000 tax credit on EVs.   While I agree that EVs needed tax credits to get started we should not extend or enlarge these credits.   This is a subsidy for millionaires and billionaires and it is coming at the cost of limiting poverty programs like the child tax credit.   It's a reminder that the Dems have a donor class which includes wealthy suburbanites who want to drive a luxury EV or install solar panels but they want someone else to help pay.

NDT not FDR

The debate within the Democratic party regarding Biden's domestic program AGENDA certainly hurts the party.  One question is who is to blame?  Some of those being accused are Manchin or Sanders, Jayapal or Gottheimer, and certainly Sinema.   

Perhaps the answer is Biden, Pelosi and Schumer.

In early August the Senate passed the American Jobs Plan aka the bipartisan infrastructure bill and the Senate budget resolution crafted by Sanders.   

In retrospect the situation in early August may have mislead the Dems into thinking they could they could pass legislation in line with the budget resolution. Things looked up then, things look much different now.  

At that time Biden had a set of victories; a successful vaccination rollout, passing the popular ARP, passing the popular AJP in the Senate with bipartisan support, a recovering labor market, a growing economy and a record stock market.   Biden, Pelosi and Schumer had visions of an FDR-like administration and decided to "go big" and transform the American Family Plan into the $3.5 trillion Build Back Better Act - which now included immigration reform and a set of infrastructure programs related to climate change that were omitted from the AJP. 

But Biden wasn't elected to be FDR or LBJ.  He was elected to be NDT - Not Donald Trump.

Since August we have had the Afghanistan withdrawal, delta variant, higher inflation, and a nasty intraparty squabble.  Biden's popularity has sunk and the VA and NJ election results were terrible.  

Perhaps Biden, Pelosi and Schumer - all over 70 - thought this was there last chance to make history.  Were these experienced pols all naive?   Whatever the reason, the decision to transform the AFP into the BBB act and, temporally link it to the AJP now looks like a major, unforced error.

While the economy is still strong and the labor market continues to improve the latest inflation figure (>6%) has become an issue. The BBB Act is inflationary.   By additional taxes on the wealthy and on profitable corporations the ACT transfers money from saves to spenders.   In general, this is a good idea.  However, giving that the current inflation stems from demand and the BBB Act increases demand.  

And the BBB Act is still a work-in-progress.   There have been last minute changes to the bill that have not been thoroughly vetted.  The Senate has not agreed to the House version.   Some provisions of the bill will increase wealth and income inequality while other provisions seek to reduce poverty.  Frankly the bill is a mess.   The idea that the bill could be drafted and agreed by the end of Sept. now looks hopelessly naive.  

An Alternative Narrative

After Biden's win and the miracle of the Georgia Senate races the Democrats found themselves in control of the executive branch and a small majority in both Houses.  The Senate majority needed all 50 Democratic Senators to agree on legislation and to agree to use budget reconciliation to overcome a GOP filibuster.

Biden had formulated an excellent three-part plan.  

The American Rescue Plan (ARP) for emergency funding of programs made necessary by the pandemic.

The American Jobs Plan (AJP), an infrastructure investment, funded by an increase in corporate taxes.

The American Family Plan (AFP), domestic spending programs on health, education, child care, etc. funded by an increase in personal incomes taxes.

The ARP was a $1.9 trillion plan which included enhanced federal unemployment benefits, a child tax credit, loans to small businesses, expansion of ACA subsidies, vaccination rollout and funds for state and local governments.  The plan was an enormous expansion of domestic spending - completely unfunded.  Budget reconciliation was used to pass it in the Senate.  The plan was popular, progressive and (mostly) pragmatic.

Since infrastructure spending was an issue both parties supported in principle it was decided to try to pass a bipartisan bill.   It took months on negotiation but on August 10th the bill passed the Senate.  To win GOP support some initiatives, particularly programs to address climate change were omitted from the bill.  But the party had come up with a plan to put everything that was left out of the AJP into a third bill, the Build Back Better (BB) Act.   The American Family Plan which was focused on social issues morphed into $3.5 trillion of new domestic spending that was included in the budget that passed the Senate on Aug 11. The intention was to pass the third act using budget reconciliation again with the understanding that this bill would never get GOP support. 

The idea was that since the party was likely to lose either the House or Senate in the mid-terms it made sense to "go big".  There was only going to be one chance and this was it. So the AFP morphed into the BBB. Since the AJP did not raise taxes the initial idea behind the BBB Act was to include increases in both corporate and personal income taxes.

The catch was that there were at least two Democratic Senators opposed to many of the programs in the budget.   The leadership of Pelosi and Schumer had hoped to pass both bills at the same time.  The hope was that by delaying the vote on the AJP in the House pressure would be on the moderate Dems to support the BBB Act.   The leadership and the House Progressive Caucus simply did not trust the moderates to cooperate on the BBB unless they tied it to the much more popular AJP.   They had reason to be cautious as the key Dem Senators, Manchin and Sinema, were plainly opposed to elements of the BBB but were not being clear as to what they would support or even if they would compromise at all.  

Therefore, when the AJP came to the house the House Progressive Caucus (HPC) refused to support it until the BBB was agreed.   Then a small House "moderate" faction intervened.  They refused to support the budget resolution.   Passing the budget resolution was a pre-requisite for using reconciliation.  They wanted to vote on the AJP immediately and then work on the BBB Act.   But the HPC was unwilling to give up whatever leverage they thought accrued from delaying the vote on the AJP.   Pelosi then agreed to vote on the AJP no later than Sept 27.

This was her statement:

In consultation with the Chair of the Transportation and Infrastructure Committee, I am committing to pass the bipartisan infrastructure bill by September 27. I do so with a commitment to rally House Democratic support for its passage.

Then the House set off to work on the BBB with the hope that it would be complete by the end of Sept and both bills could be approved.   The challenge was that the $3.5 trillion in the budget reconciliation was very far off of what could be passed in the Senate.   Negotiations dragged on through the month of Sept.  It was difficult pinning down Manchin on the size of the act and what programs he strongly opposed.  It was even more difficult pinning Sinema down.  When Sept 27 came, the BBB was not close to complete.  The HPC told Pelosi they would not vote for the AJP even though they supported it.  They were reluctant to give up any leverage to Manchin, Sinema and the House "moderates".   So, Pelosi pulled the vote.  Somewhat surprisingly the House moderates did not make a fuss.   They understood that the votes weren't there to pass the AJP yet. 

Over the next month negotiations (mostly private) continued to work on the bill.  On Oct. 28th Biden announced a "framework" had been agreed at $1.75 trillion.  But the bill hadn't been written and Manchin did not commit to support it.  On Nov. 1 he made a statement that he was withholding support for the "framework" and wanted to understand the costs.  In his defense the"framework" had one obvious problem.  It only funded the child tax credit for one year which was an important anti-poverty feature of the AFP.  

Finally on Nov 5 the moderates agreed in principle to support the BBB "framework" once the Congressional Budget Office estimated the cost and economic impacts.  With that the HPC supported the AJP and it passed.