As President-elect Obama begins to make his Cabinet selections, many questions remain as to how he will specifically address climate and energy during his first year in office. During today's OnPoint, Roger Ballentine, president of Green Strategies and the former chairman of the White House Climate Change Task Force during the Clinton administration, gives his perspective on how Obama may choose to handle climate change in the early days of his administration. Ballentine talks about the impact of the credit crunch on investors' willingness to move forward on green projects. He also discusses China's recent economic stimulus package and how it may affect investments in the clean energy sector.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With us today is Roger Ballentine, president of Green Strategies and a former chairman of the White House Climate Change Task Force during the Clinton administration. Roger, it's nice to have you on this show.

Roger Ballentine: Good to be on.

Monica Trauzzi: Roger, Green Strategies provides market evaluation and investor analysis to those in the energy and environment sectors. Considering the economic crisis, give us a sense of what you're hearing from investors and businesses about their ability and willingness to invest in green projects at this point in time.

Roger Ballentine: Well, I think the green energy sector and the green tech space is by no means immune from the larger economic dynamics that are happening right now, particularly the restrictions on credit, so that means it's tough. It absolutely is tough. What we're seeing however though is no real questioning of certainly the longer-term prospects of the clean energy and clean tech space. The fundamental drivers are still there, the prospect of significant pricing of carbon at some point in the not-too-distant future and the fact that there is still a general consensus, despite the recent downturn in energy prices, that the long-term energy dynamics remain the same of significantly increasing demand and by and large increasing marginal cost of production of traditional energy sources. So the fundamentals are all still there for the clean tech space. Having said that, I do think you're seeing more interest at the moment in the down-turned economy in some pieces of the clean tech space more so than others and energy and energy efficiency services and technologies probably being an example of that part of this sector that's the least subject to the pressures of the downturn.

Monica Trauzzi: And the downturn is being felt worldwide and recently China passed a huge stimulus plan, almost $600 billion is going to be spread out domestically there, which is interesting because their GDP is a whole lot less than ours here in the U.S. and they're spending about the same amount that we are. And you're on the board of directors out of China Energy Recovery, which designs and builds waste energy recovery systems in China. So, what do you see as the key differences between the China stimulus and our bailout plan and how that impacts green energy projects and green energy investment?

Roger Ballentine: Well, I think it's fair to say we don't know enough yet about really either country's ultimate stimulus package to say. Certainly, what is being talked about in the U.S. as part of an ongoing stimulus and then an economic recovery package from the new administration, all of it will have indirect and direct effects on the green space. Certainly, the idea now of loosening up credit will help all sectors, but certainly it will help this space. And then you certainly hear the Obama team talking about integrating kind of a green jobs and green sector focus into the economic recovery package. So I think you'll see that. In China it is an extraordinary amount of money and they moved with extraordinary speed. Nothing, to me, indicates that the Chinese government stimulus package in any way changes direction on some of the other priorities that the government has laid, most recently and most notably I think their very aggressive energy efficiency targets. So the extent to which the stimulus will be used for infrastructure investments and will be used to make Chinese companies more cost competitive, because they've lost some of that real traditional strong cost competitive advantage that they've had. Then I think you will see that and, again, the details on both sides are still really to be laid out. But it is clearly a large amount of money; it is clearly intended to be consistent with the longer objectives of the Chinese government and the Chinese economy. And energy efficiency and clean energy is a big piece of that and will remain a big piece of that.

Monica Trauzzi: Cell, any direct impact on what China Energy Recovery does? Or is it still too soon to tell yet?

Roger Ballentine: It's a little too soon to tell, but we certainly expect it to help in several different ways. One to the extent that the infusion gets directly to the potential customers that makes them more liquid to purchase the services in China Energy Recovery. And then also to the extent to which this money is going to free up credit. Because these projects, the payback on these projects, the economics on these projects are absolutely phenomenal. They have very, very short paybacks with very high returns because the nature of energy efficiency, you tend to see that. And particularly with projects at this scale at facilities that, frankly, are very inefficient to begin with, which just means there's a larger waste of energy resource to be harvested there. So the projects themselves are fabulous, but the equipment is very large, expensive equipment, so you've got to finance these projects. And the extent to which the Chinese stimulus package will add liquidity into the marketplace and loosen up some of the credit facilities, that's great news for China Energy Recovery. Right now they're fine, they've got a long backlog of projects, but in the longer term for China Energy Recovery and for other companies in this space, the extent to which that Chinese stimulus will loosen up credit and put some more liquidity into the buyer's side of the transaction, is good news.

Monica Trauzzi: I want to switch gears and discuss the prospects for climate legislation in the U.S. There's quite a lot of work that needs to be done to bridge the gap between the Dingell-Boucher draft and the Lieberman-Warner bill, two very different pieces of legislation. What sort of timeline are you looking at for passage of a climate package?

Roger Ballentine: Also very hard to say. Put it this way, if the Obama administration came out of the box and said this is our priority, to pass cap and trade, which I don't think they will do and nor would I necessarily think that would be the right thing to do. But even if they did that, even with the heavily Democratic Congress, just given the complexities of this issue, obviously, the politics of the issue, the number of committees that have jurisdiction over this issue, it would be extremely difficult to do this calendar year of 2009. Could it happen? Sure, it would take very strong presidential leadership, which is really what has been missing in this issue in recent years. And if it was able to get as far as it got last year without that, I think in general that makes the prospects good. But I think with the sheer complexity of the legislation, not to mention obviously the other pressing priorities on economic turnaround and so forth, I think it's very unlikely that you will see legislation done in 2009. Within the first two years? I do think that's possible and I think it's getting pretty close to where I'd say it's likely.

Monica Trauzzi: We're hearing that energy policy, energy legislation would probably take precedence or come before some type of climate legislation. But what do you think the priorities for the next administration need to be in those first 100 days? What are the key things that they need to be working on in the energy and environment world?

Roger Ballentine: Well, there's not a simple answer to that. Immediately, and you've already heard about this, there are some things that need to be changed that could be done on an administrative basis of some rules and regulations that have been in place, put in place by the last administration that I think would be the first thing to take care of. And I think that's well under way. In terms of a proactive initiative for President-elect Obama, I think the first priority should be wrapping the green agenda into the economic recovery agenda in a way that is coherent and legitimate. I mean it has to be real and consistent with the objectives of the economic, whether it's a second stimulus or whether it's a more structured economic turnaround package, but green needs to be a piece of that. And not just for the sake of the environment, because I do think there's tremendous economic payback from a lot of these investments that we talk about making in the green space. And I would put, again, energy efficiency at the top of that list of ways where we can really generate some positive economic activity in the economy and reduce emissions. So, I think some sort of green angle to the economic recovery package with a heavy emphasis on efficiency, I would certainly recommend being at the very top of the list. He has to keep the larger climate issue on the table politically. That doesn't mean that within the first 100 days the White House needs to release its cap-and-trade bill. It doesn't need to do that, but the White House needs to be talking about the issue and putting some of these economic incentives and initiatives and programs in the climate context, even if they are not part of a climate bill.

Monica Trauzzi: Does that mean using the Clean Air Act, which is being discussed?

Roger Ballentine: Well, it's the other direction that's going to happen early on in the administration, which is the EPA does have authority and most of us believe now a legal mandate to move forward on greenhouse gas emissions. That will happen, and no question about that. But in terms of a proactive policy, if the administration comes out with some sort of green energy investment or incentive programs as part of an economic stimulus or an energy efficiency incentive and maybe even standard setting or regulatory regime early on, that can help stimulate the economy. It can help reduce emissions. They need to talk about that also as part of climate, because if we're ever going to ultimately pass a comprehensive climate bill we've got to get to the point where that is seen not as an economy killer, but as part of a pathway to a green economy, but also a strong economy. And I think doing some of these programs and initiatives first and showing their success and talking about them as climate programs will begin to lay the groundwork for that type of argument for cap and trade.

Monica Trauzzi: And also relating to the economy is something that's being debated this week in Congress, is a possible financial bailout for the big three U.S. automakers. And it seems like a very interesting opportunity is emerging to sort of push the automakers in the direction of building a cleaner fleet. What's that going to mean for our dependence on foreign oil and how can Congress be using this as an opportunity to reach that goal of decreasing our dependence?

Roger Ballentine: Well, first I would just take issue with the idea of decreasing our dependence on foreign oil. Our problem is not dependence on foreign oil. Our problem is dependence on oil, so we need to be very clear that what we are really after is reducing our dependence on petroleum. And absolutely a significant part of that is increasing our fleet efficiency and, ideally, we increase our fleet efficiency with a significant contribution from American cars. And I do think that should be part of the objective. Clearly, the driver for this is to keep this industry alive and have people keep their jobs and not have any further disruptions at this time of a vulnerable economy and I completely understand that. But we also have to take a longer-term view and if we can't create companies that are going to be ultimately sustainable on their own, it doesn't matter what kind of cars we want them to make now. They're not going to making them later. So absolutely I think key to the success of these companies going forward would only be enhanced with a greater emphasis on fuel-efficient technology vehicles. And I do think that should be part of any bailout, but this is a really tough, tough issue. And it's ultimately going to be decided, frankly, on economic and political considerations that won't necessarily have the environment and our dependence on petroleum at top of mind, which I think is unfortunate. But it's clearly a piece of it and it should be part of the requirements for any federal bailout I believe.

Monica Trauzzi: Final question here. Many names that you're familiar with from the Clinton administration are being tossed around for posts in the Obama administration. Any names that you'd like to throw in the ring for the key energy and environment posts? I mean what are you hearing in terms of who might be in those positions?

Roger Ballentine: I'm probably hearing the exact same things that you are hearing. Look, President-elect Obama is in an extremely fortunate position in that partially because the Clinton administration seems like only yesterday, and because he, President-elect Obama, has attracted such a tremendous following of supporters there's a very deep pool for him to reach into for the climate and energy and environmental positions in this administration. So I'm not going to throw out any names other than to say there's been some very good names thrown about. I will not be one of those in the mix as I've told you, but there are really tremendous names out there and I think we're going to be in very good hands.

Monica Trauzzi: OK, we're going to end it right there on that note. Thanks for coming on the show.

Roger Ballentine: Thank you very much.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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