Overhauling subsidies could boost renewables, think tanks say

Source: Nick Juliano, E&E reporter • Posted: Thursday, April 19, 2012

As federal support for clean energy technologies is projected to decline precipitously by 2014, three prominent think tanks are pushing a new pathway that would free renewable energy industries from the boom-and-bust cycle of policy dependence by rejiggering incentives to reward technologies that can compete with traditional fossil fuels absent government support.

In a report released today, the groups said the federal government should shift its support away from incentives like tax credits that provide level funding to existing clean energy technologies and instead link incentives to improvements in performance and reductions in cost that would allow renewable energy, carbon capture and storage, nuclear power and other similar technologies to stand on their own.

The report also calls for a substantial boost in federal research and development spending through programs like the Department of Energy’s Advanced Research Projects Agency-Energy (ARPA-E). And it stresses the need for improving the federal government’s existing financing scheme with one that would better leverage private investment — like replacing DOE’s current loan guarantee program with a Clean Energy Deployment Administration.

“As long as clean energy sectors remain dependent on public support, they will be continually imperiled by the threat of policy collapse,” the report from scholars at the Breakthrough Institute, Brookings Institution and World Resources Institute says. “Continued innovation and cost reduction is thus the only real route beyond boom and bust.”

The report comes as renewable sectors face the looming expiration of tax credits and the recent loss of key stimulus-funded grant and loan programs that have been key to the industries’ growth. Key tax credits for wind energy and biofuels expire this year, while geothermal, biomass and other renewable industries will lose tax breaks next year unless Congress acts soon.

Renewable industries have been furiously lobbying for an extension of those credits, pointing to the potential job losses in construction, manufacturing and maintenance supported by the installation and upkeep of renewable energy installations.

Pressure to extend the soon-to-expire tax credits is likely to reach a fever pitch during a post-election lame-duck session, while longer-term treatment of those industries could get wrapped into a more comprehensive tax reform debate expected to be on Congress’ agenda next year.

Some renewable energy supporters, especially Republicans like Sen. John Thune of South Dakota, have said they would like to see the credits phased out over the long term, although no specific proposals have been floated (E&E Daily, March 28).

The report offers some options that could inform a near-term subsidy-adjustment debate. The authors write that those conversations should start now because of the coming “collapse” in federal support.

“Some are saying we should simply walk away from this. I think it strains credulity to think that members — all of whom have strong clean-tech clusters in their states and regions — are going to do that,” said Mark Muro, senior fellow and policy director of the Metropolitan Policy Program at Brookings.

The report stresses that “immediate cessation of clean tech subsidies is also not in the national interest,” noting that such industries are still young compared with “well-entrenched fossil energy sources.”

Federal support for clean energy technologies has surged during the current presidential administration, with an estimated $150 billion in direct spending, tax incentives and loan guarantees going to those industries between 2009 and 2014. Comparatively, $44 billion was spent between 2002 and 2008, according to the report. By 2014, annual spending is projected to be at $11 billion, compared with the peak of $44.3 billion in 2009.

The current political landscape presents an opportunity to adjust how the government supports technology, the report says, with the goal of insulating the industry from its ongoing reliance on federal policy.

“Unfortunately, clean tech deployment policies today often closely resemble crop supports, offering a flat production subsidy for any clean energy produced, rather than the demanding military procurement policies that delivered steady improvements and the eventual mass-adoption of everything from radios, microchips, and jet engines, to gas turbines, lasers, and computers,” the authors wrote.

Instead of the current regime, the government should direct its support to foster cost and technology improvements, and such support “should be terminated if technology segments either fail to improve in price and performance or become competitive without subsidy,” according to the report.

The government also should consider performance-based standards to determine who wins federal subsidies. And the government can harness its procurement authority to demand technology improvements when buying from clean-tech firms, such as through military purchases, the report says.