New Report Highlights Importance of Clean Energy Policy, as Well As Need For Reform
Posted April 18, 2012 in Moving Beyond Oil
Experts from Brookings, Breakthough Institute and WRI released a report today with some insightful and thought-provoking conclusions. In it, they quantify the amount of government funding provided to clean energy from 2009-2014 and the rate that funding will fall off post 2014 (from $44 billion in 2009, to $16.1 billion in 2012, to $11.0 billion in 2014), and the impact that will have on clean technology industries. The report then outlines a host of policy reforms that would improve the efficiency and functioning of our clean energy policy framework. While I’m not in complete agreement with all of the report's conclusions, it represents a well-researched and well-intentioned attempt to start a conversation about energy policy reform that we really need to be having.
The report covers a lot of ground. Too much to get into in one blog, although I’ll try anyway. For more, see here, here, here, and here. It’s a bit of a good news/bad news situation. First, the good news:
The Federal government has aggressively committed to supporting clean energy over the last few years. In the period from 2009-2014, the authors calculate that total spending on “clean technologies” (which includes everything from renewable power like wind and solar to electric vehicles and batteries, energy efficiency, smart grid, biofuels, high speed rail and nuclear) will total $150 billion, three times the amount a different study had calculated from 2002-2008. This is an impressive figure, and while aggregating spending on these technologies like this can overly simplify things, it demonstrates how extensively the government has sought to foster a clean energy economy in recent years. It’s also important that this is not a unique scenraio - keep in mind how much funding has gone into the energy sector in the last century. For example, over the last several decades, the oil and gas sectors have received $447 billion, while nuclear has received $185 billion.
More importantly, based on early returns, this support for clean energy appears to have paid off handsomely. The report estimates that “these [government] investments will leverage an overall cumulative public and private sector investment of $327 billion to $622 billion in US clean tech segments during the 2009 to 2014 period.” Beyond that, “renewable electricity generation doubled from 2006 to 2011, construction is under way on the nation's first new nuclear power plants in decades, and American manufacturers have regained market share in advanced batteries and vehicles. Prices for solar, wind, and other clean energy technologies fell, while employment in clean tech sectors expanded by almost 12 percent from 2007 to 2010, adding more than 70,000 jobs even during the height of the recession.”
But of course, then there’s the bad news.
In spite of the success of these policies, many of them are about to vanish. The report highlights the coming “funding cliff” in 2014 where overall spending on clean energy will drop 75% from current year expenditures, an unfortunate artifact of policy design, a difficult political climate and a lack of consensus about the importance of these types of policies in the clean energy sector. These spending cuts and program expirations will take with them a raft of important policies, including the production tax credit, treasury cash grant, loan guarantees, advanced manufacturing programs, and R&D funding, all of which, as outlined above, have had an immensely positive impact on developing a new clean energy economy.
Finally – and this is where it gets most interesting for the policy wonk in me - the report effectively argues that a number of these policies are in need of reform, and puts forward a variety of options to improve these policies in ways that would increase their effectiveness and cost-efficiency while perhaps making them more politically viable. These recommendations for policy reform are broken into two categories – innovation policy (coming up with new technologies) and deployment policy (getting the technology to market). The innovation policy reforms are well-thought out and cover the gamut from expanding existing DOE programs, regional clustering efforts and military procurement to boosting financing options for new technologies via a “Green Bank” of sorts.
The deployment policy reforms are very familiar to us, given that NRDC’s 2009 brief “Powering Up” supported many of the reform principles outlined in the report, and provided a mechanism to actualize these reforms. We’ve spent a great deal of time as both advocates and analysts exploring ways to boost deployment of renewables in the most cost effective and efficient manner, and appreciate this effort. However, based on that perspective, there are a few elements of this analysis worth clarifying.
To some extent, the idea of clean technology subsidy “reliance” requires a bit more nuance. First, every energy option is reliant on policy and subsidies in one economic form or another and second, given the unpriced pollution externalities and incumbency benefits of fossil fuels and the need to incentivize positive externalities hindered by spillovers – policy will remain an important component of growing the clean technology sectors for at least the next few decades.
Additionally, there’s a need to make sure we think about energy policy reform across the spectrum, and not just focus on subsidies. Much of this report’s analysis (and the overall discussion of this topic) applies primarily to a few key deployment policies used mostly by renewable power and fuels. Many clean technologies (like efficiency, high speed rail, smart grid) face wildly complicated policy environments, and would benefit as much from regulatory reform, improved financing mechanisms, and policies that address market failures like split incentives, information asymmetries and incumbency benefits, as they would deployment policy reform. And of course, any discussion on subsidy reform would benefit from including other options that could negate the need for subsidy reform in the long run and level the playing field, like, say, a carbon price.
Finally, it is important to keep in mind the real world implications of this kind of activity. We’ve built a clean energy industry that is employing 75,000 workers in the wind sector, 100,000 in solar, 150,000 in the clean vehicles sector, and 400,000 manufacturing efficient products. While many of the current policies are in need of reform, businesses and industries have been built around an understanding of a specific policy framework and we do need to balance these competing needs. As we fight to extend the production tax credit, the treasury cash grant and other important policies, tens of thousands of jobs hang in the balance. These are industries that are critical to our long-term economic growth, goals for energy independence and improved public health, and we need to ensure they remain ongoing concerns while we work in parallel paths on policy reform.
There are immense challenges in illustrating these very complex topics, and there are real benefits to this discussion. And as a policy analyst, I applaud and strongly support this report’s desire to address this issue. Our goals are to drive clean energy solutions to market quickly and sustainably (in all senses of the word). The current policy approach is neither optimal nor cost effective, and there is a need for an honest discussion about genuine and comprehensive reform. It is unfortunate that it has to take place in a challenging political climate that is being artificially complicated by November’s election, which makes nuanced conversations about complex topics difficult. But a conversation about reform needs to occur. Overall, this report is a helpful and welcome reminder that the work we do in policy remains critical to building a strong clean energy economy, but that we’ve still got a long way to go.
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