Green Building Law Blog

Obama Stimulus Plan and The Rule of The First Dollar

I look at a lot of green building regulations, and I have devised the rule of the first dollar--regulators should be putting the first dollar of tax payer money into the most cost-effective initiative, to ensure that those initiatives that have the greatest cost-benefit calculus get funded first and most robustly. 

This week Obama has come out with some of the details of his green financial stimulus plan. In Obama's speech yesterday, as well as in his Obama/Biden plan unveilied during the campaign, he proposed

  • modernizing more than 75% of federal buildings
  • improving the energy efficiency of two million American homes

He also outlined the benefits of these programs

[S]aving consumers and taxpayers billions on our energy bills.  In the process, we will put Americans to work in new jobs that pay well and can’t be outsourced – jobs building solar panels and wind turbines; constructing fuel-efficient cars and buildings; and developing the new energy technologies that will lead to even more jobs, more savings, and a cleaner, safer planet in the bargain. 

Energy efficiency efforts work with the rule of the first dollar--according to Energy Star estimates,

Compared with standard homes, ENERGY STAR qualified homes use substantially less energy for heating, cooling, and water heating-delivering $200 to $400 in annual savings. Over the average 7 to 8 years you may live in your home, this adds up to thousands of dollars saved on utility bills.

In this study, the RAND Corporation analyzed California's energy efficiency initiatives and concluded that

In California, improvements in residential energy intensity and energy prices have reduced the average energy expenditures per capita in real terms since 1980...Low-income households derive the greatest benefit from reduced energy expenditures.

RAND also noted

The most important benefit for California is the impact of energy efficiency improvements on air pollution emissions. If energy intensity in the state had remained at 1975 levels, air emissions from stationary sources in the state would be approximately 50 percent greater than current levels.

Energy efficiency measures equalled savings and environmental benefits.

The analysis with respect to greening federal buildings is similar.  According to the Alliance to Save Energy

The federal government is the nation’s single largest energy consumer and energy waster. In 2005, the federal government consumed about 1.6 quadrillion Btu (quads) of energy at a cost of $14.5 billion. This is 1.6% of all energy used in the U.S. American taxpayers pay about $4 billion annually just to heat, cool, and power the 500,000 federal buildings and facilities.

So, each dollar saved on energy on  public buildings is a taxpayer dollar saved, and a reduction in the quantity of resources requried to heat, cool, and power those facilities.

The analysis on the tax cuts, however, is not as sanguine.  According to Nobel-Prize winning economist Paul Krugman

First, if the government spends money, that money is spent, helping support demand, whereas tax cuts may be largely saved. So public investment offers more bang for the buck. Second, public investment leaves something of value behind when the stimulus is over.   

Krugman argues that tax cuts in the first year may be beneficial in providing a quick hit to the economy, whereas public works projects take time to get started, but Obama's proposal of 40% tax cuts seems like too much. Obama can see similar upfront benefits from providing food stamps and unemployment benefits, for example.  Alternatively, he could provide vouchers for energy efficiency improvements through private vendors. 

In short, green is green, tax cuts not so much.

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Comments (4) Read through and enter the discussion with the form at the end
Chris Hill - January 9, 2009 3:06 PM

Interesting post as always Shari. I can understand the thought process for federal infrastructure upgrades to more green and energy efficient standards because of a long term payoff. Couple these with tax cuts to allow individuals the resources to do the same at their own homes and we have a good private/public partnership that should lead to more stimulus and more energy efficiency.

The Green Decoder - January 9, 2009 3:59 PM

Great thoughts and certainly geared toward lively discussion. The issue we really face is not just the products, but the behavior. As long as we continue to behave irresponsibly, all the action in the world won't help. I do not mean giving up conveniences, just doing better with what we have. As much as I would like a tax cut, that is not the answer right now.

If everyone gets a bailout, then we are no better off then we were before. Targeted approach is the answer. Glad I don't have to identify the correct targets to hit today.

Rory Williams - January 9, 2009 4:49 PM

I fully support the idea that government should be more careful about getting the most benefit from their investment, and that this should guide spending priorities from the public purse.

Not sure I understand the quote from Krugman, though. Obama is faced with the challenge of addressing the three key issues of energy independence, global warming and financial meltdown. There are other challenges, of course, but his fiscal policy may be able to hit these three balls with the same swing, if he can find the right bat. But I think that the choice of bat may be made difficult by the differing objectives of these three policy issues.

The Krugman quote seems to be primarily about economic stimulus, which has to deal with long term and short term objectives, as you (and Chris) note. However, when one considers other policy objectives, the idea of saving is not so bad. Particularly in the energy arena, the 'first dollar' should be the dollar saved. For example, it is better to reduce energy consumption to avoid having to build another power station. I am sure you recognise this, since it is one of the objectives of energy efficiency - but traditional cost-benefit analysis often fails to address this. CB analysis, influenced by the need for economic stimulus, might actually say it's better to increase electricity consumption and build the power station.

The main concern I have with the cost-benefit approach is that there are still too many externalities not included in the calculation. Until carbon, water and other indicators of environmental degradation and resource consumption (not to mention social impacts) are part of the equation, the definition of 'most cost-effective' will be flawed.

So while I agree with the principle of your rule, Shari, I would be interested in seeing a refined version that somehow considers the broader issues.

Rich Cartlidge - January 10, 2009 11:35 PM

Great post Shari! I have enjoyed following your blog. Keep up the great work and let me know if I can ever be of assistance.

Shari Shapiro, Esq., LEED AP
Suite 300, Liberty View, 457 Haddonfield Road, P.O. Box 5459
Cherry Hill, NJ 08002-2220,