How should Canada approach green stimulus plans? Architects of Obama’s strategy have some lessons

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Carol Browner has one big regret about the US$90-billion green stimulus package she helped drive, back in the midst of the Great Recession, when she was serving as Barack Obama’s director of the White House Office of Energy and Climate Change Policy.

And it may come as a surprise to anyone who remembers the controversy surrounding failed clean-energy investments – most infamously a US$535-million loan guarantee on which solar-panel manufacturer Solyndra defaulted – that dogged Mr. Obama when he sought re-election in 2012.

“I wish we could have taken more risks,” Ms. Browner said in an interview. “Because of politics, we were driven to be a bit more careful than government should be.”

Her assessment makes more sense than would have seemed likely a decade ago because many of the bets on clean technology that Mr. Obama did place have paid off handsomely. The 2009 Recovery Act’s combination of grants, loans, tax credits and other funding mechanisms is credited with helping U.S. wind-energy production to roughly triple and the country’s solar-energy industry to grow exponentially, all the while breathing life into other clean-technology sectors such as electric vehicles.

With Justin Trudeau’s government considering joining others around the planet in prioritizing climate-change measures and developing homegrown clean-tech sectors as part of their COVID-19 economic recovery plans, The Globe and Mail asked some of the architects of Mr. Obama’s strategy for lessons from the Western world’s biggest such effort to date.

They responded with advice on everything from the dangers of homing in on specific technologies over others, to how short-term spending needs to fit into a longer-term clean-tech strategy. But it started with the message that if governments want to use stimulus to prompt a clean-economy transition that would not otherwise happen, they need to take chances on companies and projects that could prove to be embarrassing failures.

Harvard economist Joe Aldy, who served as Mr. Obama’s special adviser on energy and the environment, put it simply: “I wanted more Solyndras.”

The point is that government funds were sometimes least usefully spent on relatively safe bets that likely would have gone forward eventually with private capital. In Mr. Aldy’s view, that was especially an issue with some of the loans offered through the Department of Energy, to which relatively well-established wind-energy proponents had some of the readiest access.

The challenge is that when dealing with public money, any funds perceived to be misspent get more attention than those that achieve their intended purpose. The explosion in solar projects, for instance, may not have happened without high-risk government investment. But the Solyndra flop validated political and institutional resistance to riskier investments, obscured the fact the loan program eventually turned a profit and may have contributed to the program not being extended.

To Ms. Browner, that points to a communications shortfall. And it’s one Mr. Trudeau’s Liberals might do well to consider, since they have thus far been reluctant to publicly discuss the green-stimulus measures they are weighing, doing little to lay the groundwork for public support.

“I think you have to be completely clear on the front end that you’re doing this the way the private sector does it,” Ms. Browner said, “and therefore you should be evaluated the way the private sector is evaluated, which is how the portfolio performs over all, not how it performs on a case-by-case investment basis.”

Mr. Obama’s former director of legislative affairs, Phil Schiliro, who helped see the Recovery Act through as a whole, agreed that ideally there would have been a more sustained effort to sell Americans on how they could all benefit from green stimulus bets that paid off. “There was so much going on,” he said – a new President taking office amidst an economic crisis, rolling out a broader US$800-billion recovery plan before moving on to other matters – that there was limited capacity.

But despite the chaos that contributed to communications challenges, the administration did manage to construct its green stimulus policies in ways that would later allow it to claim overall success. And while the package’s structure was specific to U.S. institutions and processes, it still seems broadly instructive for Canada in several ways.

For instance, it’s important to determine how the economic crisis is affecting nascent clean-tech industries, rather than just relying on funding mechanisms sitting on the shelf.

Ms. Browner and Mr. Aldy speak especially proudly of the stimulus package’s response to a seemingly obscure problem. Many younger companies had been relying on a mechanism that allowed them to sell tax credits for renewable-energy production to larger companies or financial institutions, which had higher tax bills and thus more ability to use them. But the resale market dried up in the recession. So Mr. Obama replaced it with a US$25-billion grant program that is now credited with averting a wind and solar collapse and enabling the boom.

“We spent a lot of time with individual sectors to understand what their specific problem was,” Ms. Browner said, “and then really try to fine tune the solutions.”

Another lesson is that for short-term government spending to attract private investment, it should be paired with more permanent regulatory or tax policies that provide “certainty about policy in the longer term,” as Mr. Aldy put it.

He noted the administration’s inability to push through a cap-and-trade program at the time as a setback in that regard (which suggests that Canada, with its carbon-pricing regime, may be well positioned). But the former officials were also able to cite the example of Mr. Obama pairing support for electric vehicles – including a large loan for Tesla, which was repaid as the company took off – with ambitious fuel-efficiency regulations introduced separately from the stimulus package.

“There was a way in which we were using all of the tools available to us,” Ms. Browner said. “You’ve got to have great peripheral vision and move across the whole front at one time.”

Among their other takeaways from the experience is one that may be relevant to Canadian governments considering industrial strategies tied to specific sectors, such as hydrogen production. Despite their enthusiasm for placing large, high-risk bets, they argued that stimulus funds are best kept reasonably technology-agnostic.

A danger of zeroing in on a particular form of clean tech, Ms. Browner said, is that it’s impossible to predict how the energy market will evolve, pointing to the fracking boom that helped reduce U.S. reliance on coal, albeit with its own environmental concerns. “Twelve years ago, if I had said that natural gas would be more than 50 per cent of our baseload production of energy in the United States, you would have laughed at me,” she said. “You don’t know what you don’t know.”

Once a government homes in on a particular technology, Mr. Aldy added, “you then create a constituency that will lobby for the continuance of that support,” making it harder to pivot away if it’s not panning out. He and Ms. Browner suggested instead that governments start with the emission-reduction outcomes they want to achieve, then take chances with an array of technologies that could help get them there.

That’s not an argument, however, for trying to mitigate risk by spreading money thinly.

“A little bit to everybody probably won’t get you anything,” Ms. Browner said.

What they are suggesting, rather, is spending a lot of money on a lot of different technologies. Some will prove successful as a whole, like wind and solar did; others less so, like carbon capture and sequestration in their case. But it’s only worth trying if the amount of funding is “enough to really matter,” as Mr. Aldy put it.

Back in 2008-09, that money flowed freely in the U.S., while in Canada the government of Stephen Harper mostly eschewed green stimulus in favour of more traditional infrastructure spending.

This time around, at least until November’s U.S. elections, it may be the reverse, with Canada making the bigger clean-tech gambles. But Mr. Trudeau’s government has the advantage of doing so less blindly if it’s paying attention to what worked and what didn’t for Mr. Obama.