Rethinking the Role of Government in Cleantech, Part I
Another year, another wringing of the hands over tax credits and incentives for clean technology.
Lobbyists and vendors in the U.S. are once again singing the blues, calling for continued and expanding government investments in clean technology. At the same time, political challengers continue their Solyndra hootenanny, raking the current administration for how it spent hundreds of millions of taxpayer dollars.
One can’t help but wonder whether it’s time for a different tune when it comes to government involvement in cleantech.
Perhaps conversations about policy support should be less about giving more taxpayer money to prop up the space, and more about elected officials setting long term market stability and enabling the private sector to deploy capital to assume risk in cleantech.
Why? First, some background…
Down with incentives
Every time US tax credits for renewable energy development come up for renewal, the cleantech sector cringes at having to once again “play chicken” with whichever administration is incumbent at the time.
The U.S. Production Tax Credit (PTC), which provides a 2.2-cent per kilowatt-hour benefit for the first ten years of a renewable energy facility’s operation, was born in 1992. But it’s had a hardscrabble life, clinging to life support after seven one and two-year extensions bestowed alternately by Republican and Democratic Congresses. Neither major American party has been willing to show long term incentive support for renewable energy.
The PTC for incremental hydro, wave and tidal energy, geothermal, MSW, and bioenergy was extended until the end of 2013. But the production tax credit for wind expires at the end of 2012. And that’s got wind lobby groups girding up. In a recent statement, American Wind Energy Association (AWEA) CEO Denise Bode cited a study suggesting Congressional inaction on the PTC “will kill 37,000 American jobs, shutter plants and cancel billions of dollars in private investment.” The same study suggested extending the wind PTC could allow the industry to grow to 100,000 jobs in just four years. Expect this battle to simmer all summer.
The unpredictability around cleantech incentives is taking its toll. “The US is hitting a brick wall with the cessation of benefits,” remarked John Carson, CEO of Alterra Power, on the subject at a recent cleantech investment conference I co-chaired in Toronto. He wasn’t happy, and do you blame him? Nobody likes living hand to mouth. But that’s what happens when you rely on credits and incentives like the PTC or its loved and loathed counterpart in the U.S., the Investment Tax Credit (ITC).
And then there are the cleantech subsidies provided by the American Recovery and Reinvestment Act of 2009 (ARRA), which are now winding down.
If it feels that clean technology vendors and lobbyists are spending an undue amount of energy and resources chasing such subsidies worldwide, they likely are.
Up with mandates and standards
Rather than funding and administering subsidies to help the clean and green tech sectors find their footing, a case could be made that governments should focus on passing aggressive policy mandates, standards and codes.
Instead of using taxpayer money to make technology bets, regional and national governments could focus on passing laws, including broad brush stroke ones like the renewable portfolio standards in the U.S. that mandate a certain percentage of power from renewable sources by certain dates, and then step back and let the private sector figure out how to deliver. Or mandate change more granularly—for example, that coal power plants need to meet certain efficiency or emissions standards by certain dates, and, again, let the private sector figure out how. (Ironically, if there were more public support to actually clean up coal power instead of simply disingenuously parroting, beginning in 2008, that “there’s no such thing as clean coal,” throwing up our hands because environmental ads told us that “clean coal doesn’t exist today”—and that translated into political will and a mandate—cleaner coal power could exist today. Yes, there’d be a penalty on the nameplate capacity of plants’ output, but there’d also be billions saved in health care costs. But we digress.)
Taxpayers should take their politicians to task for trying to play venture capitalist, i.e. by investing their money in trying to pick winners (a la Solyndra) in complicated markets. Professional venture capitalists themselves, who focus on their game full-time, barely pick one winner in 10 investments.
Tomorrow I will discuss the drawbacks of incentives, what governments can and should be doing, and cities as test beds of policy innovation.
A former managing director of the Cleantech Group, Dallas Kachan is now managing partner of Kachan & Co., a cleantech research and advisory firm that does business worldwide from San Francisco, Toronto and Vancouver.
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