Powering Forward: The Case for Renewable Energy Incentives

Dec 20, 2011Cory Connolly

To create jobs, encourage economic growth, and ensure a sustainable future, Congress must continue to support clean energy.

Since the recession began, renewable energy, the environment, and climate change have taken a back seat in political discussions. However, the development of the renewable energy industry has been a rare bright spot during tough economic times. The clean energy economy continues to grow, creating jobs, mitigating carbon emissions, improving energy security, and carving out a place in the international market. For this progress to be sustained and even accelerated, federal tax incentives need to be extended.

Clean energy industries, like wind, solar, and biodiesel, have taken advantage of federal tax incentives like the Production Tax Credit (PTC), Investment Tax Credit (ITC), and the Treasury Cash Grant to carve out an important and growing sector of the U.S. economy. However, many of those incentives are now in danger. The PTC, which provides 2.2 cents per kilowatt-hour of wind energy produced for the first 10 years of a project, is set to expire at the end of 2012. Its extension is currently being debated in Congress and is critical to the continued viability and progress of the wind industry. With 54,000 new or saved jobs at stake in wind, industry leaders are also advocating for a four-year extension of the PTC. The cash grant, also known as program 1603 of the American Recovery and Reinvestment Act, is slated to expire at the end of 2011. According to an SEIA report released last week, this will spell trouble for the solar industry.

With calls for austerity measures and government cutbacks on basic social services, these incentives may not seem affordable, but what many aren't aware of is the progress and innovation that these policies have stimulated. Solar energy is expected to reach grid parity in the short term, wind energy is becoming more competitive, and in a few regions of the U.S. both technologies are now claimed to be competitive with traditional sources. In the last four years, wind generation has accounted for 35 percent of all new generating capacity, and at the current rate the wind industry alone is expected to create 500,000 jobs by 2030.

The SEIA report also showed that installed generation capacity from solar has increased 10-fold since 2005 and that the third quarter of 2011 saw 140 percent growth in capacity installed compared to the same quarter in the previous year. In 2011, federal incentives helped the industry reach a total of over 100,000 solar-related jobs in the U.S. The cash grant has made 3,600 grants, totaling $1.5 billion, and, according to Milbank's Alan Marks, has leveraged over $22 billion in private investment. Having funded 22,000 projects in 47 states, the cash grant's impact has been remarkable and its ability to support a still developing industry is proven.

As these incentives have stimulated progress in clean energy industries, they have clearly had an economic impact at the state level. As of early 2011, clean energy technology was the fastest growing sector in Michigan, the auto capital of the world. California is home to 25,575 solar-related jobs alone. Combined with state renewable portfolio standards (RPS), which set a target percentage of renewable generation by a specific year, and other state and municipal incentives, the federal tax incentive programs have had amplified success in numerous states.

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Not only have the tax incentives accelerated the adoption of clean energy and driven the creation of manufacturing jobs, but they have also helped stimulate innovative and entrepreneurial activity in the energy sector -- something that has rarely been done in an industry that is traditionally centralized, concentrated, and unaccommodating to entrepreneurs. Innovative business models have been developed by companies like SunRun and Sungevity. These companies utilize incentives to help make solar affordable and accessible for consumers in the short term and are helping build the foundation for distributed energy generation in the long term. While nonprofit ventures like Solar Mosaic are not necessarily qualifying for federal incentives, they are also infiltrating the energy generation sector with models for community ownership of clean energy generation, thanks to the continued advancement of the industry. As new business models develop and this industry "booms," the only thing less desirable than the current uncertainty is the actual expiration of federal tax incentives.

Some might balk at or criticize subsidies for clean energy, and Congress clearly doesn't want to be seen as "picking favorites," particularly in light of the recent Solyndra controversy. Given these likely talking points, there are a couple of factors that need to be kept in mind when talking about subsidies for clean energy. First, the extension of the federal tax incentives is not indefinite -- federal incentives will be removed as soon as the technologies and the sector have matured enough to compete and thrive. That is to say, they will be removed when they have done their job. Second, subsidies and tax incentives are pervasive but unbalanced in the energy industry. According to the 2011 IEA World Energy Outlook, global fossil-fuel subsidies amounted to $409 billion in 2010, while global renewable energy subsidies totaled a mere $66 billion. Renewable energy technologies are advancing rapidly but need support to compete with established carbon emitting fossil fuels and the already existing subsidies.

While monetary support is clearly lopsided internationally, it is important to note that from 2007 to 2010 renewable energy subsidies increased from $39 billion to $66 billion globally. This indicates that, despite the global economic downturn, governments are seeing an upside to increased investment in renewable energy. As Steven Cohen pointed out in a Huffington Post piece supporting the extension of 1603, "Destroying solar energy in America will not kill the industry worldwide, it will simply eliminate America's prominent role in a very promising, emerging industry." With volatile oil markets, continued climate concerns, and the electrification of developing countries, it is clear that there is an important place for clean energy in the international market -- it is just a matter of America's ability to capture it.

A clean energy economy is in sight, but if we don't embrace its successes and support its growth, we'll lose its economic and environmental benefits. We need to find better ways to advertise and communicate the progress of clean energy and the important role of incentives in these and future successes. The wind and solar industries have seen unprecedented success in recent years thanks in large part to the Production Tax Credit and the section 1603 cash grant. These industries aren't yet prepared to stand on their own, but given enough time and support they may become strong enough to fuel a rejuvenated U.S. economy.

Cory Connolly is a Roosevelt Institute | Pipeline Fellow focusing on the development of the clean energy economy.

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