D.C.’s clean-energy conundrum

By Paul Dickerson and Thomas Burton
December 10, 2012

Few issues are now as politically polarizing as the role of government in supporting clean-energy technologies. It pits those concerned about global warming against climate science skeptics; those who see government playing a role in shaping a new industry against those who support a free-market approach; and clean-technology funders and technologists against incumbent energy interests.

These debates only heated up during the presidential campaign, as promises of new clean-technology jobs faced off against reports of failed green technology companies. For some, “clean energy” is synonymous with “government overreach.”

Yet the need is great for domestic energy production that is reliable, safe and affordable. The United States needs innovative solutions that help Americans use energy more wisely.

The first critical step, particularly in today’s political climate, is to recognize that previous efforts, no matter how well intentioned, need to be updated. There are smarter ways to support important innovations without pushing us over the “fiscal cliff.” Clean technologies are likely to be the next great industry and economic success story. Whether that happens in the United States or not is up to us.

The question now is how to do this in a financially prudent way. There are no more blank checks, and no more patience for promises of green jobs. The Jan. 1 fiscal cliff deadline is just the first in a series of bracing negotiations over government spending and tax policies. Given this environment, there is little doubt that clean-technology funding and support will be put to the test.

Yet there is a clear role for government to play at this critical stage of the industry’s development – even while recognizing new budgetary realities. Democratic and Republican leaders should be able to get behind three basic principles that will help provide sensible, targeted support for this growing sector of the economy.

First, government should adopt performance standards –covering fuel economy, electricity reliability and building efficiency, for example – rather than focusing on subsidies and direct investments. Performance standards spur demand and encourage flexibility in the development of technological solutions.

Corporate average fuel economy (CAFE) standards demonstrate how government mandates can drive technological improvements in a free-market structure. By setting goals for fuel economy in carmakers’ fleets, CAFE standards allow automakers to find their own path to meeting the mandate through their choice of technology, materials or vehicle size. They can also use economic strategies to achieve compliance – for example, by subsidizing the purchase price of a vehicle model that exceeds the mandate, thereby making room for vehicle sales that miss it.

Second, we need smarter subsidy programs and tax policies that encourage private investment to bring clean technologies to market.

Production tax credits (PTCs) and investment tax credits (ITCs) have been instrumental in the solar and wind energy industries in encouraging capital to come in off the sidelines and fund new projects. While these credits have been instrumental in the adoption of these technologies, critics see them as never-ending.

To address this, ITCs, PTCs and other subsidy programs should be phased out as the technologies they support reach certain milestones tied to price, performance or some other competitive metric. Structuring subsidies in this way should eventually lead to a level playing field as clean technologies mature to the point where they can compete on their own.

The tax code should also be fixed to remove obstacles preventing renewable energy projects from benefiting from financial structures that have worked for other industries, such as master limited partnerships in the oil and gas sector, and real estate investment trusts in property development.

Third, government agencies should help build the market by installing clean technologies in their facilities. The federal government owns or leases more than 500,000 buildings and spends more than $7 billion a year on energy. State and local governments account for an additional $11 billion a year on building-related energy bills. That is before expenses tied to government vehicle fleets are factored in.

Government organizations across the nation already play a key role in the growth of clean energy as early adopters — driving demand through their purchasing decisions and helping manufacturers achieve the cost efficiencies that come from greater scale.

These policy recommendations are just a start, however. More needs to be done to address underinvestment in federal research and development, support regional innovation clusters and create financing mechanisms to serve the clean-tech industry.

These initial steps can generate the successes needed to support new policy measures.

Financial experts often warn that past performance does not necessarily indicate future success. The same is true of government. Government involvement isn’t anathema to success in this vital sector.

The sooner we recognize this, the sooner clean technologies will help us attain our energy — and environmental — goals.

PHOTO: President Barack Obama speaking at a wind farm, in Haverhill, Iowa, on August 14, 2012. REUTERS/Larry Downing

 

5 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Newspapers and politicians from various regions around the country continue to line up in support of an extension of the federal wind energy Production Tax Credit (PTC).

In fact, over the last few months major news outlets such as the Des Moines Register, Denver Post, Daily Oklahoman, Toledo Blade, Houston Chronicle, San Antonio Express-News, Philadelphia Inquirer, Chicago Sun-Times, and The New York Times have all written editorials in support of the PTC.

Their voices join a vocal bipartisan chorus of governors, senators, and representatives, including such notables as: Senators Chuck Grassley (R-IA) and Mark Udall (D-CO); Governors Sam Brownback (R-KS) Mary Fallin (R-OK), Lincoln Chafee (I-RI), and John Kitzhaber (D-OR); and Representatives Steve King (R-IA) and Jerry McNerney (D-CA).

It’s no surprise that the PTC has such broad bipartisan support–it’s helped the wind industry create over 75,000 jobs, lower consumer energy costs, and revitalize the U.S. manufacturing sector in a time of overall weak economic growth.

Despite these benefits, wind power could be singled out as the only energy source to lose its federal tax credit this year if the PTC is allowed to expire December 31, 2012. Please support American wind power by contacting your federal representatives and asking them to pledge their support for a PTC extension.

Posted by KORourke_AWEA | Report as abusive

The conundrum happens to be how does one do what is right for the country (and therefore bad for oil and coal companies) and still get re-elected? We would have gone in many different directions by now if it weren’t for the political influence of huge corporations. Those are your true leaders. Our politicians cater to them. There is no energy crisis. More energy drops out of the sky every day than can be used by a hundred times the number of people that live on earth today. We are brainwashed and led by the lackies of industry.

Posted by brotherkenny4 | Report as abusive

Climate Change represents the most significant challenge that humans have ever faced. Not because it’s technically difficult to solve (it is, but the technical issues are not what’s holding us back), but because we need to finally look at the world in an un-blindered way, look reality square in the face, and find a way to deal with it. This means that we can no longer continue to act as though we can solve this by striking a bargain between nature and “the economy”. Nature IS the economy, except for a bit of human labor and ingenuity added on that is of minor significance relative to the actual value of the raw materials. Nature is not at the negotiating table. Nature doesn’t give a hoot how much suffering we inflict. Nature doesn’t care a fig whether we go extinct.

The crux of this particular problem is that we have spent several centuries exploiting highly potent energy sources while never paying anything close to the actual cost. The difference between the price we’ve been paying and the actual cost is a debt, and we have passed that debt to future generations. The bill is coming due.

Repeat often and to as many people as you can: nature does not negotiate, nature does not negotiate, nature does not negotiate.

Posted by Sanity-Monger | Report as abusive

@brotherkenny4;

You’ve nailed it.

Oil & coal interests will never allow serious competition.

Big Oil is the Boss, and we the consumers are responsible for creating this monster.

We Americans, & most developed countries, are addicted to oil, and we alone use 25% of the world’s resources.

We have been brainwashed in constantly buying & owing things that we really do not need & with credit card debt above our heads, because this is what capitalism is based on, and it only benefits the 1% elite.

Maybe we should look up to the Chinese, where wind energy is their priority and where they have taken the lead in, and to their spending habits…NO CREDIT CARDS..only debit cards are used by the Chinese…very wise indeed.

Posted by EthicsIntl | Report as abusive

Production tax credit will support uneconomic options and are subject to corruption. The government’s roles should be to fund research and provide loans to build infrastructure. Possibly build large infrastructure projects that make economic sense but may not get done other wise. An example would be national electric grid projects if indeed a national grid would make various alternative energy sources economic. It is unlikely the Hoover Dam would have got built without government finance.

It must be remembered that we have the best politicians money can by. Two of the costs of lack of public morals of those in power is you cannot trust them appoint technically capable people and you can assume anything approved was on the the basses of what is good for the approver personally.

Posted by Samrch | Report as abusive