Fractals of Change

The Smart Grid Opportunity in Pictures

Save money, protect the environment, achieve greater energy independence, create economic opportunity – these are the promises of a smart electrical grid.

Is this too good to be true? Look at the pictures below from ISO New England, the grid system which Vermont belongs to.

The top graph is called a load curve. It shows that we New Englanders, like people everywhere else, sometimes consume a lot more electricity than we do at other times. 10% of the time we have meters spinning at over an 18 gigawatt rate at the high end; During the low 10% of the time we consume at less than a 12 gigawatt rate. This by itself would be no big deal until you look at the difference in price per megawatt hour between the heavy use and the low use times – above $100 megawatt hour (except this year) during the high and less than $40 megawatt hour in the lull. The highest prices are over $200 and the lowest near zero.

[cheat sheet: if you light a 100 watt bulb for 10 hours you consume 1000 watt hours or one kilowatt hour (kwh). At retail we pay about $.16/per kwh here in Vermont. 1,000 kilowatt hours are a megawatt hour (mwh). Utilities buying electricity wholesale buy it by the megawatt hour. $100 per mwh is $.10 per kwh; not surprisingly, wholesale rates are lower than retail. 1,000 megawatt hours is a gigawatt hour. Now you know.]

Notice now that the price graph is pretty flat except at the ends while the demand curve is much more slanted. At the ends, price varies much more dramatically than demand. What's going on is that both the fuel and the capacity used to produce "extra" electricity during periods of peak demand are expensive. Here in New England we usually use natural gas for peak power in plants which run only a fraction of the time. BTW, the low price of natural gas this year explains why peak costs in 2009 (red) are so much lower than in 2008 (yellow).

At the low end you can't really turn off a nuclear plant for the night or completely shut down a hydro plant. Sometimes it's literally necessary to give away surplus electricity.

So one smart grid opportunity is to incent and enable consumer to move their use from the left end of these charts over to the right. The more we level out our use, the cheaper the total bill. Sometimes a peak price lasts for only a few minutes; a refrigerator, for example, can safely be turned off for a little while (the process has to be automated to be practical). Cheaper power late at night than during the day is predictable; electric storage heat can and is created off peak. Some day that's when we'll charge our plugin hybrid electric vehicles and electric lawn mowers.

Another smart grid opportunity is incenting generators of renewable energy to make more supply at peak times. For wind or solar, this requires some form of storage like batteries, but the extra cost may be worth the extra revenues. With hydro power, if there's sufficient impoundment space available, water can be stored until power is needed.

It's all about flattening the curves.

There's more on the components of the smart grid we hope to build quickly in Vermont with stimulus money at http://blog.tomevslin.com/2009/03/whats-a-smart-grid-and-why-does-it-matter.html.

Synergy

Yesterday Governor Jim Douglas announced that Vermont has submitted its claim for $21,999,000.00 in stimulus money for renewable energy projects. You can read that announcement at http://recovery.vermont.gov/news/22mRenewable. This is formula money – money that Vermont is entitled to under the American Recovery and Reinvestment Act (ARRA) so long as we can spend it quickly enough and follow all the rules. But this money is also part of our coordinated plan – SmartVermont – which aims to use stimulus money to transform the Vermont economy and assure that we are in a good competitive position for the very competitive 21^st century.

Nothing subtle about this. We intend that our use of this $22 million plus another $7 million of state funds to develop small and medium scale renewable energy projects will help convince the federal Department of Energy that we ought to receive a healthy allocation of the $4.5 BILLION which is available nationwide for smart electrical grid projects. It takes a smart grid to make full use of electricity generated from sun and wind; the smart grid is more valuable if there are a variety of energy sources for it to coordinate. Vermont already has a number of renewable energy projects up and running and in process. We estimate that we can use $29 million of ARRA and state money to bring another $150 million worth of projects online which will generate more than 3 million megawatt hours of electricity over the next twenty years ; generating this electricity from natural gas would release 860 million pounds of CO2 .

On most nights Vermont has no carbon footprint for electrical generation; our power comes from HydroQuebec and Vermont Yankee. Moreover this offpeak power is cheap at wholesale, in comes cases – believe it or not - almost free because there's no easy way to shut down its production temporarily and it has to go somewhere. On the other hand the power for peak times is generated by burning natural gas in plants that are only used for hours a day if even that. This peak power is very expensive.

In an ideal world the sun would shine on our solar collectors and the wind would turn our turbines during times of high demand and save us from buying peak power and burning hydrocarbons to produce it. Unfortunately we don't live in that ideal world; the sun shines at random and the wind blows willfully. We need a smart electrical grid to help match supply and demand.

Among the projects that Vermont utilities will almost certainly seek ARRA smart grid funding for is electricity storage – essentially big high tech batteries. These are particularly effective when used with wind power. The wind blows when it will and charges the batteries ; the grid draws from the batteries before importing fossil-fueled power.

A smart grid is good at dispatching electricity to areas of demand from areas of surplus. Even a small state like Vermont can be half cloudy and half sunny on any given day. Methane in cow power digesters can be hoarded until extra electricity is needed. Water can accumulate behind dams while the wind blows and be released on still days.

A smart grid is used to manage demand as well as supply. When there's a surplus of power, low prices encourage consumers to dry their clothes, charge up their electric vehicles and appliances, and store up heat. When power is in short supply, higher prices and information about those higher prices encourage consumers to avoid electrical consumption.

In context yesterday's announcement of incentives for distributed generation of electricity from renewable sources means that Vermont will be ready to demonstrate all of the benefits of a smart grid for energy independence and reduction of CO2. We hope the Department of Energy will see it that way when they consider our applications for smart grid projects. If they do, we'll have a smart grid sooner than otherwise and get even more value from all of our generation and transmission capacity.

That's called synergy. We should know much more about how close we come to accomplishing this plan in the next few months.

 

Is Vermont Moving Fast Enough?

My last post complained that federal agencies are not moving quickly enough to make the rules and give out the money for competitive stimulus programs in crucial areas like broadband and energy. Getting these projects under way in the this year's construction season is going to be a problem.

So how well are we doing here in Vermont at putting ARRA (American Recovery and Reinvestment Act aka the stimulus bill) money to work?

We've done a good job of getting highway projects underway. It's taken us slightly longer to sort out the priorities for water projects but we're getting there. We can't make our own rules for alternative energy and energy efficiency and some economic development programs until both houses of the Legislature and the Governor agree on a budget (hopefully'll happen by the end of this week). With hindsight I wish that I had pushed for separate legislation to get some of these projects going faster; but it's not clear whether that could've happened or even that the Legislature should have looked at a budget for ARRA money out of context of the rest of the state budget.

The Douglas Administration has proposed that large amounts of the ARRA money which has been allocated to the state by the Department of Energy be spent for alternative energy and energy efficiency projects. The intent is to distribute this money through open processes –either competitive or first come, first served for eligible projects – depending on the anticipated demand for a particular program. The idea is to make sure that the most effective projects are the ones that get done.

We can't write the precise rules for these programs until we know what the Vermont legislature finally authorizes. But we know we have to get the rules written and the awards made quickly to take as much advantage as possible of this year's summer construction season, put people to work, and quickly start reaping the long term benefits of less dependence on imported fossil fuels. You should judge us by whether we meet these goals.

We in Vermont decided to go ahead and prepare for the competitive ARRA broadband, smart grid, education, and e-health awards even in the absence of final regulations from Washington. It'll probably turn out that we've "wasted" some of this work when we see the rules under which grants are to be awarded. We rushed to be ready to file applications for broadband and smart grid grants as early as the beginning on May; looks like we didn't have to move quite that quickly. On the other hand, since we know now how we'd like to proceed in these areas, we find ourselves well-positioned to comment on both proposed regulations and the proposed (but too slow!) schedule of awards.

States have an incentive to move very quickly once ARRA money has been granted. If the money is not spent quickly, it will be reclaimed by the feds and redistributed to speedier states. Our ambition is to have Vermont benefit from these reallocations. Our small size and the important fact that we already have projects in broadband, smart grid, and health information systems underway will help; some of our permitting and review processes could be a problem. Stay tuned.

The Stimulus Czar Summit – Part 1

Vice President Joe Biden invited the state "stimulus czars" to a Washington conference on the American Recovery and Reinvestment Act (The stimulus bill); according to the organizers, representatives from 49 states showed up (they didn't say which state didn't show). We really do want to find out as much as we can about this huge, unwieldy program including both what we can and can't do. We did learn some but not as much as we would've liked; we also made contacts with some of the federal agency people we'll be dealing with in the months to come.

"Transparency" was the mantra of the conference; every speaker used the word at least once; many coupled it with "accountability". In that spirit I'll post both the good and bad things about the conference on this blog. I also twittered some of my notes from the conference (it was open to press so not confidential); if you're interested, you can read them (in reverse order) at twitter.com/tevslin. In Vermont we will figure out how to use modern technology, including social media tools like twitter, to get information out.

Energy Secretary and Nobel laureate Steven Chu opened the conference. Chu said that the stimulus money which the Department of Energy awards will "create jobs which can't be outsourced, promote alternative energy, reduce our dependence on foreign oil and… oh, yes save the planet." He pledged that he agency would move quickly to get money out the door and they did, in fact, announce the almost immediate availability of the first $780 million installment of a total program of nearly $8 billion dollars for weatherization and state energy programs. Vermont's total receipts from these programs will be $38.8 million assuming that we demonstrate suitable progress in using the funds as intended (which we will). The weatherization program, which is administered through the states, provides assistance to low income families earning up to 200% of the poverty level for weatherizing their homes; the state energy program can be used for a variety of different energy efficiency projects. The current (pre-stimulus) Vermont weatherization program is described at http://www.helpforvt.org/weatherization. Information on the expanded program will be available soon.

Chu then introduced Vice President Biden. Biden has been positioned as the enforcer for transparency and accountability in the administration of the stimulus bill – "don't mess with Joe". He was suitably stern. Not only will no swimming pools be funded (it says that in the law), but he and the President will soon announce a whole bunch more things along the same line that cannot be paid for with stimulus funds. "Just because it's legal [not forbidden by the law itself], doesn't mean you can do it," he said. He continued that Congress has given the states a huge opportunity to administer large parts of this very ambitious program; if you [stimulus czars] don't do a good job, it'll be a long time before Congress entrusts the states with much responsibility again.

My personal guess is that if we don't all do a very good job on this – feds and state people alike – it'll be a long time before the taxpayers trust any of us with so much of their money again and, when they do, there'll be a new set of people who earn that trust.

We should have known something was up when the television cameras started to cluster around the edges of the small stage; there were more of them appearing every minute. Somebody came and whispered in the ear of Matt Rogers, Senior Adviser to the Secretary of Energy, who was then presenting. "I have a surprise guest to introduce: the President of the United States Barack Obama." We all stood, of course. The President came in quickly from the back of the room and took the podium. He only spoke for about five minutes but we got the message: he thinks this is important; there will be transparency; people will know where there money has gone and what results have been achieved.

"Use these precious dollars [which] taxpayers gave up to deliver short and long term results," the President said. "You've got a wonderful mission; seize this opportunity to put your shoulders to the wheel of history."

More about what we learned (and didn't learn) from the agencies is at http://blog.tomevslin.com/2009/03/the-stimulus-czar-summit-part-2.html.

When Angels Fear to Tread

It's the lack of exits that's a problem amid the deadly clamp of panic throughout the economy - a far cry from the irrational exuberance that drives entrepreneurs (and their investors) and which brings us trouble and fraud as well as greatness and "slumdog millionaires".

No matter how much we bailout the auto industry, there'll be less jobs making cars next year than there are this year – in fact cutting jobs is a condition of the bailout funds. There are going to be less bankers a year from now, too. New jobs will come from new industries, not from the ones on life support. So it is essential that there be some source of funds for entrepreneurs so that they can do what they do best (when they succeed) – create good jobs for future markets.

Tom Friedman suggested bailout money for VCs; Fred Wilson articulately pointed out that only the incompetent VC firms would take the money and that skilled VCS actually do have money and can raise more. Entrepreneurs pointed out in comments on Fred's post that there IS a shortage of money from entrepreneur's POV. In a comment on my post on the subject, Fred suggested tax breaks for angels.

Angels are motivated by fear and greed just like everyone else – angel investors, that is, who, in better times, are a source of funds for entrepreneurs launching the businesses of their dreams. Angels (I've occasionally been one) are just as perverse as all other investors; we're more likely to invest at market tops when everybody else is and less likely to invest in scary times like the present even though there's greater opportunity now.

There is a way to get angel money flowing again but it's not by subsidizing angels – even with tax breaks. Angels are claustrophobic; don't like going into investments without exits.

Angels generally step aside (but don't get cashed out) when a company gets its second round of financing. Often VCs step in with money, advice, and contacts for the next round of a company's growth. The angels and VCs (and entrepreneurs) generally get some reward when the company is either bought or goes public. But companies aren't getting bought or going public right now.

The result is a logjam. The VCs are concentrating their time and attention on companies which would have – in better times – been long out of their portfolios. It's true, as Fred said, that the good VCs can raise more money; but they can't clone themselves. Fred can only serve on so many boards at a time. That means that venture funds can't take responsibility from angel investors at the rate they used to – they have last years' hatchlings still in the nest.

An angel looking at a potential new investment not only confronts the risk of failure – that's always been there – but also the risk that he or she will be in an active role with the company – and perhaps its only source of capital –for a long time to come. We angels, like the VCS, still have the companies that we previously incubated in the nest. So we're not looking for new investments either. We're scared and there are no exits.

Only greed (the dream of an outsized return) can conquer fear. Tax breaks don't do it; you need to have some gain before you can use them.

An opinion piece in the Wall Street Journal today by Tom Hayes and Michael Malone entitled "Entrepreneurs Can Lead Us Out of the Crisis" suggests not only tax breaks for angels and entrepreneurs but also eliminating Sarbanes-Oxley to make it easier to be a public company. This has the virtue of appealing to greed (the IPO dream) and opening up exits; but even I'd agree that, in the dotcom generation, companies went public much too soon – eventually to the detriment of the companies as well as their investors.

We investors have to give up the dream of a QUICK outsized return. We can dream but we have to dream the patient dream. We probably even have to wait for companies to be profitable before we can make any money. That's OK; we can live with that as long as we can have the dream.

Turns out there is something government can do, however, to get investor juices flowing again: invest in infrastructure that creates opportunity rather than subsidizing zombie companies which are blocking the way. When the Erie Canal was built (funded by private investors buying government bonds), private money flowed to boat people and businesses all along the canal. Same kind of thing when the railroads with built with healthy doses of land grants and other subsidies – fortunately government DIDN'T elect to subsidize the canal boats which the railroads put out of business. DARPA (government) had a lot to do with inventing and funding the Internet; the Internet enabled and encouraged a wave of privately funded innovation.

I wish more of the bailout were focused on infrastructure – especially new enabling infrastructure. If transmission lines actually do get built, "alternative" power'll flourish with much less government intervention than is planned. The government does have a role in building those power lines. If the United States can become an e-nation with every citizen having access to a highspeed persistent connection whether at home or on the road, that infrastructure of connectivity will light the exuberance lights for a new generation of connected services. Government's role there is to create telecommunications competition we don't have today and to subsidize the last five or ten percent of connections as we did with rural electrification and telefonication because the network as a whole gains value when it is universal.

We investors and entrepreneurs have to relearn patience. Fair enough. We'll come back into the game once we can't stand to be on the sidelines any longer and when we see a future – almost no matter how distant – in which there is an exit.

Smart Grants for Smart Metering

$4.5 billion is the number currently in the House version of the stimulus bill for a 50% match to money spent on smart grid projects. As important as the money are the terms:

"The Secretary shall require as a condition of receiving funding under this subsection that demonstration projects utilize open Internet-based protocols and standards if available."

And

"The Secretary shall establish and maintain a smart grid information clearinghouse in a timely manner which will make data from smart grid demonstration projects and other sources available to the public. As a condition of receiving financial assistance under this subsection, a utility or other participant in a smart grid demonstration project shall provide such information as the Secretary may require to become available through the smart grid information clearinghouse in the form and within the timeframes as directed by the Secretary."

The smart grid puts photons of information in charge of electrons of energy. The result should be better use of existing sources of electrical energy and more effective use of new sources, even if those new sources are relatively small and geographically diverse. Utilities win by smoothing expensive peaks; consumers win both by receiving lower bills and having the opportunity to displace fossil fuels with cheap offpeak electricity for home heating and transportation. Energy independence is advanced by the displacement of imported oil for heating and transportation; CO2 emissions are reduced because peak power is disproportionately generated from fossil fuel. What's not to like?

But most of the makers of the equipment for smart metering are still in a walled garden mindset. They would like their meters to become home control centers and all communication between the meters and the utilities to be via proprietary protocols and private networks. Utilities tend to be leery of the public Internet as well. These grant conditions could provide a powerful incentive to open the smart grid to the kind of innovation that the Internet encourages so well.

Consumers will need a web application both to see their current and past usage and to determine when is a good time to do the wash, run the dryer, or charge up the plugin hybrid electric vehicle. Of course they will also want an option to be informed of especially high or low spot rates by email or text messages. Home control applications will need APIs to access that same data in order to automate the use of electric space and water heating and air conditioners. It's conceivable that your car could disgorge stored energy to the grid when the price is right or that your backup generator could turn on when prices are really high to prevent your buying very expensive electricity and unburden the grid.

All of that good stuff will happen sooner rather than later if "open Internet-based protocols" are used. Hopefully the language stays in the bill and the DOE will not allow the "if available" escape hatch in granting grant applications. I hereby volunteer to find open Internet-based protocols on an as-needed basis.

Also see: The Smart Grid Should Be Stupid.

Pew Poll Shows Americans Cooling on Global Warming

A new poll from the Pew Research Center has global warming ranked dead last among twenty alternatives presented for ranking as top priorities. People were asked to assign a priority to each of the twenty alternatives but could, if they wanted to, assign top priority to all of them. This year 30% of respondents made global warming a top issue; last year it was 35% and two years ago (first year it was on the list) 38%.

"Protecting the environment" also slipped significantly. Last year 56% rated it a top priority; this year only 41% did.

Not surprisingly, jobs and the economy topped the list: 85% (up from 75% last year) gave the economy a top priority rating and 82% (up from 61%) did so for jobs. Nothing in the methodology forced people to downgrade one category in order to upgrade another. Obviously, though, people are focused on immediate threats.

But notice that 60% of pollees rate "Dealing with US energy problems" as a top priority (59% last year) and 76% give a top rating to "Defending the US from terrorism" (up from 74%). It's not surprising that Obama mentioned self-sufficiency before global warming as a reason for his energy policy in his inaugural. The poll was taken, however, in the week before the swearing-in.

As blogged previously, environmentalists (which includes me) would do well to make sure that environmentalism is NOT used as an excuse for either NIMBY or anti-growth policies. People worried about their jobs will not take kindly to whatever prevents them from going back to work. This is a time for environmentalists (including me) to find ways to get projects done quickly rather than slowing them down. This is a time when redoing our cumbersome permitting processes and endless opportunities for destructive appeals is essential.

The environmental upside can be huge. If we can really rebuild our electrical grid and make it smart in the next two years, if we can build nuclear power plants during the next five, if we can build a significant number of new windmills and solar arrays, then we will reduce our use of fossil fuels – especially the imported kind. There is no question that the planning and construction of these projects could be done in these timeframes if we were determined to move straight ahead. However, under current law we will not turn over a single shovel full of dirt during the next two years on projects which aren't already years into the planning process. We can only do a patch work of needed but insignificant repair and reconstruction projects that were already in the pipeline.

If we don't make real changes to the processes which chain us, we'll disappoint both the job-seekers and the environmentalists.

Also see:

Removing Obstacles to Obama's Job Growth Plan

Cape Cod'll Tell Which way the Wind is Blowing

It's Time To Go Nuclear

Cape Cod’ll Tell which Way the Wind Is Blowing

Within thirty days we'll have a good indication of how serious the Obama administration is about freeing us from dependence of foreign fossil fuels; that's when the developers of the Cape Wind project could first get a federal lease for the offshore turbines which they estimate will provide three-quarters of the electricity used by Cape Cod, Nantucket, and Martha's Vineyard. The Minerals Management Service, the lead federal agency in reviewing the project, has just released a favorable "final Environmental Impact Statement" (EIS); they have a mandatory thirty day wait before issuing a lease.

Developers say the project could be built in two years (and the next two years will be good ones to build in). They planned this long before the prospect of bailout funds although who knows who will apply for what now.

This isn't a partisan issue. Senator Ted Kennedy (D), from whose family compound the windmills will be visible, is opposed – for the record, he says the view is not the reason for his opposition. Massachusetts Governor Deval Patrick (D) is in favor of the project as part of an effort to ramp up his state's wind use. Both Patrick and Kennedy were Obama supporters.

Studies have been going on for seven years. Opponents have alleged all the usual environmental hazards plus fears that the four hundred foot (to the tip of the blade) towers would interfere with aviation and marine radar. Kennedy isn't about to give in easily. He is quoted in The Wall Street Journal as threatening "By taking this action, the Interior Department has virtually assured years of continued public conflict and contentious litigation."

If we're going to quickly reduce our use of foreign oil, if we're going to generate electricity with less CO₂ output, if we're going to put people to work on important infrastructure projects, then we must, must, must find a way to review quickly and decisively AND FINALLY; we must not allow opponents to add infinite delay and cost to every project. We can't let NIMBY be policy.

A quick favorable action following the favorable EIS would be concrete change we can believe in and part of a great start for the Obama administration.

How a Gas Tax Increase Can Help Economic Recovery

One of the few economic bright spots is the historically low prices of gasoline; it's even possible that the amount Americans are saving both by buying less and paying less for the gallons they do buy will let us replenish our damaged balance sheets quickly enough to avoid a prolonged downturn.

So what kind of idiot would want to raise pump prices with a gas tax increase? Well, me, for one. So would the editors of the New York Times and Tom Friedman (but that doesn't mean that any of us are right). The trick is how to raise these taxes without further cratering the economy; read on for the Fractals of Change proposal.

Friedman writes:

"Have a nice day. It's morning again — in Saudi Arabia.

"Of course, it's a blessing that people who have been hammered by the economy are getting a break at the pump. But for our long-term health, getting re-addicted to oil and gas guzzlers is one of the dumbest things we could do."

A gas tax is highly regressive; this is not the time for sucking money out of the bottom of the economy so it can trickle down from the top. Friedman and I agree that any increase in gas taxes must be rebated immediately, probably through reduced social security taxes (he says "payroll").

The Times recommends a tax which raises prices up to the four or five dollar level but diminishes and disappears when and if untaxed prices approach this level on their own. Sounds like a good idea but it isn't. This plan is an invitation to OPEC and friends to raise oil prices since pump prices'll stay level thanks to the diminishing tax and demand won't be further reduced. The extra dollars Americans pay will flow overseas again rather than back into our own pockets. We've been there. On the other hand, if the tax is additive to any "natural" increase in the price of oil, producers will have a strong incentive to keep their prices low.

Here's the trick, Mr. Obama: announce a $1.50 gallon gas tax increase to take effect eighteen months from now with appropriate rebates through payroll taxes and a schedule of further $.25/gallon increases every six months for a while. This doesn't disturb the positive dynamic at the pump today but gives us the proper advance information to use when we decide to buy a new car. If we don't need a truck (some people really do), we won't buy one. We'll look for economy. We'll even buy the cars that Detroit has promised Congress it'll make instead of switching to foreign-made SUVs.

Assuming that fuel-efficient cars will include a healthy mix of plugin hybrid electric vehicles (PHEVs) and pure electrics, it'll make economic sense both to upgrade our electric grid and bring on new sources of electricity including solar, wind, nuclear, and clean coal. The economics of each of these improves against $4.00/gallon gasoline even without continuing subsidies. And we really don't want continuing subsidies since government then needs to decide what and whom to subsidize – not something it does very well. See corny ethanol.

A new fuel-efficient auto fleet, a rebuilt smart electric grid, new generating facilities – all equal lots of jobs. Government can and should kick start this some by building required infrastructure; but we won't get back to sustainable prosperity until private investment once more kicks in. We will draw private investment back by making clear what the future price of gasoline and diesel (and eventually home heating oil) will be.

With 20-20 hindsight, one of the biggest mistakes of the Bush administration was not recognizing that a gas tax would have been an appropriate response to 9/11. Friedman points out that gas prices today are almost exactly what they were back in 2001 (actually lower because there's been inflation in the meantime). He says:

"Today's financial crisis is Obama's 9/11. The public is ready to be mobilized. Obama is coming in with enormous popularity. This is his best window of opportunity to impose a gas tax. … But if Obama, like Bush, wills the ends and not the means — wills a green economy without the price signals needed to change consumer behavior and drive innovation — he will fail."

Low Gas Prices Will Kill detroit.gov

It's nice to blame the auto execs: who else would be dumb enough to come to handoutville in corporate jets? But Congress deserves a fair share of the blame for Detroit's current fix. Creating detroit.gov and turning over product design to Congress is probably one of the few ways we can assure that Detroit makes worse decisions in the future than it has in the past.

Setting CAFE (Corporate Average Fuel Economy) has been Washington's prescription for ending our dependence on foreign oil ever since the first Arab Oil Embargo in the 1970s. You may have noticed that it didn't work. Some people think that is because the standards were set too low; others, including the non-partisan Congressional Budget Office, think that fuel economy standards are far inferior to a gas tax as a way of reducing petroleum imports.

Even if CAFE didn't wean us off imported oil, it did help kill Detroit. It worked like this: The standard is an average. If you're going to sell some SUVs to people who want them, then you've got to sell enough smaller cars so that the fleet average mileage works out right. That part is straightforward enough except that initially vehicles over 6000 pounds didn't count in the fleet; later that was raised to 8000; still Hummers didn't count until this year. So a minor flaw was that the rules were actually an inducement to build very heavy vehicles instead of just sort of heavy vehicles. But that's just a quibble.

The worst thing about the CAFE standard as far as American manufacturing is concerned was the two fleet rule which essentially mandates that North American manufacturers cannot count cars they manufacture out of North America but sell here to meet their quota for small cars. It turns out that Ford and GM do make fuel efficient cars abroad which sell pretty well in the rest of the world because they're competitively priced. Turns out that most people who care about gas prices also care how much they pay for a car so they won't – actually can't – buy more expensive cars in order to save on gas, especially when gas is cheap. Ford and GM could have imported these cars to meet their quotas but they weren't allowed to because that would have cost UAW jobs here in the US. So, to meet the standards, Detroit manufacturers had to use over-priced UAW labor to build small cars here and sell them at little or no margin. What margin they got, came from the trucks and SUVs. Companies that don't build in the US can use their imports to meet the standards. Companies like Toyota that do build here have a lower labor cost and they can profitably make small cars that cost-conscious people want to buy.

So CAFE had a great deal to do with the "dumb" decision by Detroit to innovate in the design of vehicles from which they actually made money. That was Washington management at work.

Innovation in economical cars came from countries with high gas prices. Those countries gave consumers a reason to choose more efficient cars and people did. That's pretty simple. We could have raised the gas tax and we didn't. The result, given CAFE rules, was predictable; both high gas imports and Detroit's concentration on profitable gas guzzlers that people did want to buy.

Things have gotten even weirder with the political fixation on corny ethanol. Congress needed some cars that would burn the stuff despite its low yield in MPG. "dual fuel" vehicles get a special break under CAFE as now written even if they are never filled with ethanol (which may be better economically and environmentally than if they are).

The late, great surge in gasoline prices showed us how effective gas price can be in changing behavior. Duh. If we want to break our dependence on foreign oil, the solution that'll work is to tax gas prices back up again. Gulp! Raising taxes in a recession is usually an awful idea so this should only be done by making sure that at least 100% of the increase gets fed back in at the bottom of the economy from where it can gush up – forgiving the first $500 of social security taxes would both help workers and employers, for example.

Raising gas taxes is politically tough. Congress and the Bush Administration look like they're ready for a short-term bailout of Detroit from both its own mistakes and those of Washington – although Washington doesn't have to humbly confess the error of its ways and foreswear private jets.

But, if the result of a bailout is to create detroit.gov that builds politically correct cars according to the pc whim of the moment, then we will have to forcibly unionize the foreign manufactures who do build here to dramatically raise their costs, subject them to strict government controls on what they build despite the fact that they haven't asked for a bailout, and put huge tariffs on imports or Americans won't buy what detroit.gov builds.

Or we could just raise the price of gas before OPEC is in a position to do that again and give all manufacturers a chance to compete wherever in the market they're best.