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Rethinking the Role of Government in Cleantech, Part I

This is part I of a two-part series. Part II will run tomorrow.

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).

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One thought on “Rethinking the Role of Government in Cleantech, Part I

  1. Subsidies have traditionally been used to enable nascent energy technologies and industries. Look at the oil, gas, and coal industries – they received significantly more subsidy support in their early years; than has wind, solar, or any other renewable technology. After more than a century of existence, oil, gas and coal still receive subsidy support – ridiculously longer than needed or warranted. And these continued subsidies to the traditional energy industries; continue to impede development of the renewable sector by directly creating a less even playing field for market competition. In addition, traditional energy technologies have not been held accountable for their vast and negative environmental consequences – those costs are instead ‘externalized’ (i.e. they are borne indirectly by society in the form of pollution, health consequences, etc.).
    To argue that subsidies are the wrong approach now, totally ignores the historical success that subsidies have bestowed on traditional energy technologies. That argument is simply incorrect. Instead, subsidies currently enjoyed by the traditional energy technologies should be immediately ended; and the resulting federal income stream should be directed to greatly increased startup subsidies for renewables. After an appropriate period of time – say, 25 years or so at a minimum – they can be gradually phased out. This idea compares favorably with the more than 100 years of subsidies given to traditional energy technologies. It helps the nascent industries get established – just as was done for the traditionals. It removes the unfair market advantage that continued subsidies bestows on the traditionals. It is not open-ended, and therefore carries no implication of unending susidy support for the indefinite future. And it addresses overarching societal goals like energy security, global warming concerns, etc.
    The author of the article is also quite incorrect to argue that government should “step back and let the private sector figure out how to deliver”. The private sector is not the disembodied market genius that is implied – and furthermore, the private sector is mainly motivated by making a buck; not by helping society achieve any overarching goals. Give the private sector free rein to create the future, and they will create one designed to maximize their income streams – regardless of such ‘externalities’. Furthermore, the author ignores the historical record; that quite clearly shows how the private sector reacts to the slightest proposed governmental “policy mandates, standards and codes” by soaking Washington with PR, with political ‘contributions’ (read ‘bribes’), with lobbyists, etc. – and all too often succeeds in preventing such mandates from ever becoming reality.

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