The President was indirectly acknowledging that there are only two ways to significantly reduce CO2 emissions from electricity generation: either reduce the amount of electricity generated by coal combustion or capture and sequester the CO2 emitted by coal-fired plants. Coal combustion for electricity generation is responsible for approximately 30 percent of all U.S. greenhouse gas emissions. Within the electricity sector, coal is responsible for more than 80 percent of greenhouse gas emissions. While the percentage of all U.S. electricity that is generated by coal has decreased over the past 15 years, the total amount of coal combusted by the electricity industry has actually increased by 4 percent from 1996 to 2009, peaking at a 16 percent increase as compared to 1996 in 2007. Coal use is currently widespread throughout the country but concentrated in a handful of states.  In 2009:

• 36 states generated more than 20% of their electricity from coal, thus currently falling short of Obama’s goal;
• 22 states generated more than 50% of their electricity from coal;
• The top 5 states generated 32% of all coal electricity in the U.S.; and
• The top 10 states generated 52% of all coal electricity.

Generation statistics tell only part of the story. Electricity markets are interstate, and some large coal electricity producers export much of their power to nearby states. Pennsylvania, the fourth largest producer of coal electricity, participates in the PJM electricity market and exports more than one-third of the electricity it produces. West Virginia, the ninth largest producer of coal electricity and also a participant in the PJM market, exports more than half of its coal power. States that produce coal or are neighbors of major coal producing states generate most of their electricity from coal, have the among the lowest electricity prices in the country and emit the most carbon dioxide per megawatt-hour of electricity generated (CO2/MWh).  In short, dirty power is cheap, especially if the dirty resource is located close to the state’s power plants.

State statistics and rankings based on 2009 in-state generation.  CO2 stats from 2008.

All data from the Energy Information Administration. *Most of Delaware’s electricity is generated out of state. **Missouri is bordered by five coal producing states, including Kentucky and Illinois, two of the largest.

By comparison, states with the most expensive electricity do not produce coal and tend to generate in-state electricity that is far cleaner.

These differences are a reflection of legislative and regulatory choices as much as natural resources. In the 1990s, a handful of states with expensive electricity began the process of opening retail electricity markets to competition and consumer choice.  Opening up the retail market was often related to mandates or incentives to utilities to sell off their generation assets. Some states have largely kept the traditional vertically integrated utility structure of their industries in tact (Table 1), while other states developed electricity markets with many and more diverse players (Table 2). States with inexpensive, dirty electricity generally chose not to restructure. On the other hand, the nine most expensive states, on average more than twice as expensive as the ten cheapest, have all restructured their electricity industries. States with the dirtiest electricity also tend to export, while the most expensive states are generally importers, keeping pollution out of state.

Thirty-five states have some form of a Renewable Portfolio Standard (RPS), including all of the most expensive states in Table 2. Of the five dirtiest states, North Dakota has a voluntary RPS, West Virginia has an Alternative Energy Portfolio Standard that allows utilities to meet goals with a range of advanced coal technologies, and the other three states have not set any renewable or “clean” electricity goals. According to a recent state survey of efficiency policies by the American Council for an Energy Efficient Economy (ACEEE), the twenty highest ranking states all have an RPS while only three of the bottom fifteen states have any form of RPS.

If the country is going to meet Obama’s target and move away from cheap, dirty coal, the Federal government will have to play a role, both in pushing laggard states to reform and deepening the change that has been ongoing, to varying degrees, in many states. Any effort by Congress to influence the situation should recognize that there are currently vast differences among states. Congress ought to provide states and utilities with the flexibility to tailor general requirements. The key task for the Federal government is to articulate a goal that motivates further reform at the state level. Coal states may want to protect their in-state production by mandating costly emissions-capturing technology, as many did in the early 1990s by requiring utilities to meet new Clean Air Act limits with sulfur scrubbers, thus allowing the continued combustion of high-sulfur in-state coal.  Other states that prioritize low electricity prices may opt for a combination of lower cost options, such as natural gas and wind, along with some dirty coal. States that currently generate a relatively small percentage of their electricity from coal may choose to abandon the fuel entirely.

Federal legislation aimed at meeting Obama’s goal could conceivably involve multiple agencies, such as FERC and EPA, working along different jurisdictional lines, and such complexity could be replicated at both Federal and state levels. Such a convoluted approach may be difficult to untangle, locking the electricity sector into various overlapping regulatory systems that may be politically difficult to undo. Given the uncertainty of the technological and economic development of the electricity industry in moving to a lower carbon footprint, a less tangled and more flexible regulatory approach may be better suited to adapt and meet the challenges of reform.

If Congress does pass electricity legislation it should recognize that there are many potential paths to achieving its goal. Regulatory indeterminacy is a call to let states allocate the costs of meeting a national goal to match their current situations and long-term priorities. Deferring to states and granting them flexibility will allow for a variety of approaches. Such policy diversity will enable innovation and dampen the effects of mistakes and market failures. Congress should remain cautious as it inevitably continues to expand its jurisdiction and influence in the electricity industry.

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Ari Peskoe is a Contributor in AEL’s New Energy Leaders Project and his work will be regularly featured on the website. The views expressed are those of the author and do not necessarily reflect the position of AEL.

In the face of Republican attacks on Obama’s budget proposal, Senate Democrats have produced a twenty point plan broken up into four focuses: “Deficit Reduction,” “Out-Innovate,” “Out-Build,” and “Out-Educate.” The strategy focuses on expanding and extending already existing successful initiatives such as the Advanced Energy Manufacturing Tax Credit (48C), the R&D Tax Credit, the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.

Also put forth are some new programs that have been previously proposed, the most notable example being the Clean Energy Deployment Administration (CEDA). CEDA has long been touted as an efficient way to bring clean energy technologies to market, helping them to avoid the “valley of death.” Other new itiatives would include an “America builds” bond program as well as a transportation authorization bill.

While Senate Democrats’ support of Obama’s innovation agenda is highly encouraging, it is yet to be seen what will be able to make it out of a House bent on deep spending cuts. Regardless, it is good to see an emerging consensus forming around policies that aim to stimulate innovation and American competitiveness.

Senator Murkowski, Ranking Member of the committee, pointed toward preferential treatment as a big problem in the new budget: “It seems to me that within the administration, you are picking those areas through the budget process that you would like to see advanced.” However, as Secretary Chu stated, “there are mature technologies and there are technologies that need more help,” challenging the notion that the Obama administration has simply ‘chosen’ arbitrary technologies.

Oil, natural gas, and coal-based energy systems are currently mature technologies, profitable and advantaged by years of government support. While these traditional fossil fuels still need further R&D to become cleaner, as Senator Bingaman noted, in a time of escalating deficit worries that must take back seat to the development of cheap and truly clean energy. Renewables face a number of hurdles to reaching commercial viability, in part due to comparatively large fossil fuel subsidies, and posses the potential for driving the American economy into the 21st century.

As the era of cheap oil looms ever closer, it seems questionable to invest billions of dollars in researching and subsidizing an industry that has reached technological maturity and relies on diminishing resources.  As the Wall Street Journal reports:

“Exxon Mobil Corp., the world’s largest publicly traded oil company, is struggling to find more oil.

In its closely watched annual financial report released Tuesday, the company said that for every 100 barrels it has pumped out of the earth over the past decade, it has replaced only 95.

It’s a conundrum shared by most of the other large Western oil-producing companies, which are finding most accessible oil fields were tapped long ago, while promising new regions are proving technologically and politically challenging.”

Rather than investing in highly profitable industries, the new budget aims to shift government assistance to technologies with high potential for future growth and current competitive disadvantages. The strategy is based in reality, with a strong understanding of how past innovations have occured and what the future holds for energy sources both dirty and clean.

This is the second article in a series by Alex Trembath detailing opportunities for bipartisan cooperation on energy policy.

In the wake of cap-and-trade’s defeat, and as we begin a new session of Congress, common ground must be found on policy to renovate America’s energy infrastructure. Now may be the time to explore the possible benefits of renewing America’s once vigorous nuclear power production. Notably absent in recent advances in America’s energy portfolio has been nuclear power. Public safety fears stemming from Chernobyl and Three Mile Island have left nuclear policy in stasis for decades, but as our President aims to launch a new industrial policy and our nation trends towards a new national energy policy, it may be time to revive our commitment to this method of zero-emissions baseload power generation.

Nuclear power is unique among clean energy technologies in that Democrats tend to be more hesitant towards its production than Republicans. Indeed, it has a reputation for its appeal to conservatives -Senators Kerry, Graham and Lieberman included provisions for nuclear technology in their ultimately unsuccessful American Power Act (APA) with the ostensible goal of courting Republican support. The urgency with which Democrats feel we must spark an energy revolution may find a perfect partner with Republicans who support nuclear power. But is there anything more than speculative political evidence towards its bipartisan viability?

If there is one field of the energy sector for which certainty of political will and government policy is essential, it is nuclear power. High up front costs for the private industry, extreme regulatory oversight and public wariness necessitate a committed government partner for private firms investing in nuclear technology. In a new report on the potential for a “nuclear renaissance,” Third Way references the failed cap-and-trade bill, delaying tactics in the House vis-a-vis EPA regulations on CO₂, and the recent election results to emphasize the difficult current political environment for advancing new nuclear policy. The report, “The Future of Nuclear Energy,” makes the case for political certainty:

“It is difficult for energy producers and users to estimate the relative price for nuclear-generated energy compared to fossil fuel alternatives (e.g. natural gas)–an essential consideration in making the major capital investment decision necessary for new energy production that will be in place for decades.”

Are our politicians willing to match the level of certainty that the nuclear industry demands? Lacking a suitable price on carbon that may have been achieved by a cap-and-trade bill removes one primary policy instrument for making nuclear power more cost-competitive with fossil fuels. The impetus on Congress, therefore, will be to shift from demand-side “pull” energy policies (that increase demand for clean tech by raising the price of dirty energy) to supply-side “push” policies, or industrial and innovation policies. Fortunately, there are signals from political and thought leaders that a package of policies may emerge to incentivize alternative energy sources that include nuclear power.

One place to start is the recently deceased American Power Act, addressed above, authored originally by Senators Kerry, Graham and Lieberman. Before its final and disappointing incarnation, the bill included provisions to increase loan guarantees for nuclear power plant construction in addition to other tax incentives. Loan guarantees are probably the most important method of government involvement in new plant construction, given the high capital costs of development. One wonders what the fate of the bill, or a less ambitious set of its provisions, would have been had Republican Senator Graham not abdicated and removed any hope of Republican co-sponsorship.

But that was last year. The changing of the guard in Congress makes this a whole different game, and the once feasible support for nuclear technology on either side of the aisle must be reevaluated. A New York Times piece in the aftermath of the elections forecast a difficult road ahead for nuclear energy policy, but did note Republican support for programs like a waste disposal site and loan guarantees.

Republican support for nuclear energy has roots in the most significant recent energy legislation, the Energy Policy Act of 2005, which passed provisions for nuclear power with wide bipartisan support. Reaching out to Republicans on policies they have supported in the past should be a goal of Democrats who wish to form a foundational debate on moving the policy forward. There are also signals that key Republicans, notably Lindsey Graham and Richard Lugar, would throw their support behind a clean energy standard that includes nuclear and CCS.

Republicans in Congress will find intellectual support from a group that AEL’s Teryn Norris coined “innovation hawks,” among them Steven Hayward, David Brooks and George Will. Will has been particularly outspoken in support of nuclear energy, writing in 2010 that “it is a travesty that the nation that first harnessed nuclear energy has neglected it so long because fads about supposed ‘green energy’ and superstitions about nuclear power’s dangers.”

The extreme reluctance of Republicans to cooperate with Democrats over the last two years is only the first step, as any legislation will have to overcome Democrats’ traditional opposition to nuclear energy. However, here again there is reason for optimism. Barbara Boxer and John Kerry bucked their party’s long-time aversion to nuclear in a precursor bill to APA, and Kerry continued working on the issue during 2010. Jeff Bingaman, in a speech earlier this week, reversed his position on the issue by calling for the inclusion of nuclear energy provisions in a clean energy standard. The Huffington Post reports that “the White House reached out to his committee [Senate Energy] to help develop the clean energy plan through legislation.” This development in itself potentially mitigates two of the largest obstacle standing in the way of progress on comprehensive energy legislation: lack of a bill, and lack of high profile sponsors. Democrats can also direct Section 48C of the American Recovery and Reinvestment Act of 2009 towards nuclear technology, which provides a tax credit for companies that engage in clean tech manufacturing.

Democrats should not give up on their policy goals simply because they no longer enjoy broad majorities in both Houses, and Republicans should not spend all their time holding symbolic repeal votes on the Obama Administration’s accomplishments. The lame-duck votes in December on “Don’t Ask, Don’t Tell,” the tax cut deal and START indicate that at least a few Republicans are willing to work together with Democrats in a divided Congress, and that is precisely what nuclear energy needs moving forward. It will require an agressive push from the White House, and a concerted effort from both parties’ leadership, but the road for forging bipartisan legislation is not an impassable one.

The politician with perhaps the single greatest leverage over the future of nuclear energy is President Obama, and his rhetoric matches the challenge posed by our aging and poisonous energy infrastructure. “This is our generation’s Sputnik moment,” announced Obama recently. Echoing the calls of presidents past, the President used his State of the Union podium to signal a newly invigorated industrialism in the United States. He advocated broadly for renewed investment in infrastructure, education, and technological innovation. And he did so in a room with many more members of the opposition party than at any point during the first half of his term. The eagerness of the President to combine left and right agendas can hopefully match the hyper-partisan bitterness that dominates our political culture, and nuclear power maybe one sector of our economy to benefit from his political leadership.

See also: How Nuclear Fits into Obama’s Energy Goal by Dan O’Connor

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Alex Trembath is a Policy Fellow in AEL’s New Energy Leaders Project and will be a regular contributor to the website.   The views expressed are those of the author and do not necessarily reflect the position of AEL.

Guest contribution by Leigh Ewbank

On the heels of filing a complaint with the WTO against China’s subsidies for its domestic wind turbine manufacturers, President Obama signed an appropriations law that requires the Department of Defense to purchase American-made solar panels. The move appears to be the first instance of America leveraging its WTO complaint to boost its clean technology industry, and shows that the US is beginning to take clean energy competitiveness seriously.

Some will argue that the ‘buy American’ provision smacks of hypocrisy—that the administration is as guilty of the same behavior it has criticized China for. Others will argue that the measure counters the Chinese subsidies and is a legitimate way to bolster the US clean energy sector in an uneven playing field. Regardless of your position on the matter, the move shines a spotlight on the role of military procurement.

Mandating the Defense Department to purchase of ‘American made’ solar panels is likely to comply with international trade rules. Article XXI of the General Agreement on Tariffs and Trade 1994 stipulates that military procurement is excempted from rules designed to prevent preferential treatment of local industries and trade protectionism. While the US government’s preference for US-made photovoltaic cells might anger China and other nations with a stake in the global solar market, there is little recourse for them.

Military procurement serves an important purpose in the domestic political environment beyond its ability to circumvent WTO rules. Key Republicans serving on defense-related committees—Rep. Todd Akin (R-MO), Buck McKeon (R-CA), and Rep. Randy Forbes (R-VA)—have all shown an unwillingness to cut the national defense budget, even marginally. Defense purchases allow the US government to invest in the nascent clean tech sector and escape the wrath of the deficit-obsessed conservatives.

The ‘buy American’ provision taps the US military’s good track record of bringing down the costs of new technologies. As the Breakthrough Institute points out in “Where Good Technologies Come From”, the Department of Defense’s sustained demand for microchips resulted in dramatic cost reductions.

NASA’s procurement of the purpose-built Apollo Guidance Computer microchips during the space race of the 1960s had a similar impact. NASA’s appetite for microchips was so large that manufacturers “…were able to achieve huge improvements in the production process, driving the price of the Apollo microchip down from $1000 per unit to between $20 and $30 per unit in the span of a few years.”

Comparable cost reductions could potentially be achieved for solar PV, in which case American’s would have a more energy independent military, as well as the spillover benefits of cheaper photovoltaic cells and a rejuvenated manufacturing sector.

DOD procurement of clean energy technologies might also be used to pilot the ‘competitive deployment’ policies outlined in the joint Breakthrough/Brookings/AEI report Post Partisan Power. Such an approach aims not only to drive deployment of existing technologies, but also to drive technological innovation and steady reductions in the price of clean energy technologies as they are deployed. This model harnesses America’s strength as a high-tech innovation powerhouse and seeks to create a virtuous cycle for achieving ever cheaper clean energy.

After much inaction America has recently made some swift moves in the clean energy race. How will China respond?

See also: “A New Energy Economics and Security Consensus” By Daniel Goldfarb

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Leigh is a former Breakthrough Generation Fellow.  You can follow him at his blog “The Real Ewbank“. The views expressed are those of the author and do not necessarily reflect the position of AEL.

Politico

“With Republicans controlling the House and ramping up oversight and investigations of the Obama administration, focus at least initially in the next Congress will be on the Senate to lay a potential pathway for legislative compromise on energy and environmental policy.

“The Senate will set the energy agenda especially at the beginning,” said Paul Bledsoe, a senior adviser with the Bipartisan Policy Center and a former Senate Democratic aide.

“We are going to have a run at energy legislation,” Majority Leader Harry Reid said on CNN on Dec. 22.”

This builds on President Obama’s statement in a press conference on Dec. 22 that he plans to “immediately engage with Republicans” in an attempt to pass an energy bill in 2011.

The Politico article continues:

“Lawmakers in both parties have shown interest in establishing a new federal renewable power mandate or a broader one that includes not just sources like wind, solar and geothermal but also nuclear and cleaner uses of coal.

With mandatory carbon controls seemingly off the table, more emphasis may be placed on longtime bipartisan efforts to reduce other major air pollutants stemming from power plants. Oil-state lawmakers will continue to seek the right balance between government oversight and private enterprise in drilling off the nation’s coastline in the aftermath of this summer’s Gulf of Mexico oil spill. And first will be an effort to curb greenhouse gas regulations at the Environmental Protection Agency.”

Of course, as we recently noted, many critical pieces of a new federal energy agenda are unlikely to advance in the next Congress.  Nevertheless, it’s promising to see potential for substantive bipartisan progress.  Stay tuned.

See also:

How Energy Reform Can Break the Partisan Stalemate

Clean Energy Financing: First Steps Towards Post-Partisan Effort

New Directions in U.S. Energy Policy

A 'Wall Stats' visualization of government spending in 2011

Obama’s freeze on federal employee salaries and Republican efforts to eliminate earmarks are two of the tangible signs that deficit reduction has, and will continue to be a hot topic in the near future. The 112th Congress will almost surely take up the issue, making it crucial to understand what impact serious deficit reduction plans may have on the nation’s clean energy industry. An apt starting point for this investigation is the ever-increasing array of deficit-cutting plans that aim to shape the national dialogue surrounding this issue.

Perhaps the most prominent deficit reduction plan released recently has been The Moment of Truth by the President’s National Commission on Fiscal Responsibility and Reform. The commission proposes two major reforms that would directly impact clean energy: cuts to discretionary spending and tax reforms. The discretionary spending cuts amount to an immediate $50 billion and a further $150 billion by 2015, divided evenly between security and non-security spending. The commission specifically proposes eliminating the Department of Energy’s applied research on fossil fuels, saving approximately $0.9 billion; reducing research, development, testing, and evaluation by the Department of Defense by 10%, which could lower the DoD’s ability to procure and develop alternative energy sources; and instituting a 15-cent per gallon gas tax, which would go toward transportation funding but could be a boon for hybrid and electric vehicles.

With respect to tax reform, the commission advocates eliminating $1.1 trillion a year in tax expenditures, i.e. subsidies, for businesses. As Evan Lehmann points out, it’s unclear whether all or only some subsidies would need to be eliminated in order to save $1.1 trillion, but what is clear is that fossil fuel and clean energy subsidies alike could be axed. Eliminating all energy ‘tax expenditures’ would most likely be a net plus for clean energy, given the disproportionate support fossil fuels receive from the government and the instability in clean energy support mechanisms like the Production Tax Credit, but considerable debate surrounds this question.

A second deficit-reduction plan that’s slightly more friendly towards clean energy development is Restoring America’s Future from the Bipartisan Policy Center. This plan takes a different tack than that of the President’s commission, opting to freeze rather than cut non-defense and defense discretionary spending for four and five years, respectively, and capping them at GDP thereafter. As in The Moment of Truth though, DoD RDT&E is targeted for reduction by 18.5%. Notably, the Bipartisan Policy Center considered a CO₂ tax of $23 dollars per ton CO₂, but ultimately did not recommend it for want of unanimous support among the plan’s creators.

Investing in America’s Economy is a third plan developed jointly by Demos, the Economic Policy Institute, and The Century Foundation. Of all the budget-cutting reports, this one is by far the most amenable to clean energy development. For one, the plan proposes eliminating all fossil fuel production credits, a move that would even the playing field in energy production and therefore be a boon for clean energy implementation. A price on carbon is also called for under the plan, either via a cap and trade or carbon tax scheme, which would fund green investment to the tune of $26 billion by 2015 in addition to reducing the deficit. Thirdly, the plan proposes an excise tax on motor fuel, a similarity to The Moment of Truth. Finally, non-defense discretionary spending would be  increased by over $200 billion every year, although Department of Defense spending would be slowly curtailed by a total of $960 billion over 10 years.

While not exhaustive, the above list of budget-cutting proposals illustrates the divergence among policy makers and economists with respect to how best to close the deficit. Of particular interest to clean energy advocates is the disparity between the deficit-reduction plans in how to deal with discretionary spending.

Two approaches to discretionary spending dominate the debate: either immediately reduce spending so as to reap savings as soon as possible, or choose to increase spending in order to boost investment to achieve greater economic growth in the long term, which in turn will drive down the deficit. The latter option would be a much-needed boost at a time when numerous reports indicate international competition in clean energy innovation is becoming increasingly fierce. The additional funds could be put towards infrastructure maintenance and construction, research and development, STEM education, and the creation of public-private collaborative centers, among other projects. All of these uses would deliver much-needed services to a struggling American economy, whether it be by employing skilled laborers or improving the education of future generations. Consequently, while increased discretionary spending is not typically thought of as having bipartisan appeal, it stands a far greater chance of being included in a deficit-reduction package than do options like a carbon price, and so should be the primary focus of clean energy advocates in the run-up to the imminent fight over the deficit.

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Michael Craig is a Policy Fellow in AEL’s New Energy Leaders Project and will be a regular contributor to the website. Michael is a recent graduate of Washington University in St. Louis with a major in Environmental Studies (Biology/Ecology track) with a minor in Environmental Engineering Sciences.  At Wash U he was a researcher at the Center for New Institutional Social Sciences, investigating to what extent three factors drive renewable energy implementation: technology, resource availability, and institutions. He is currently a Campaign Analyst in the Climate Change division at Oceana.

“To win over wavering liberals, Reid has added an ethanol tax credit, which Sen. Tom Harkin (D-IA) supports, and an extension of the Section 1603 cash grant program for the renewable energy industry, which Sen. Sherrod Brown (D-OH) favors.”

The White House has welcomed the news, as has Senator John McCain (R-AZ), who despite having “serious concerns” about the package, plans on supporting it.  Lon Huber and Alex Christensen wrote recently on the importance of extending the Section 1603 grant program, and renewable energy trade groups have strongly supported the measure.  Bolton goes on to note,

“The package includes other green-energy incentives that could win support among House liberals, who are disappointed the Senate failed to take up a comprehensive energy reform and climate bill this year. They include tax credits for biodiesel and renewable diesel; energy-efficient homes; alternative fuels; and a 30-percent investment tax credit for alternative vehicle refueling properties.”

The legislation extends Bush-era tax cuts for another two years, federal unemployment benefits for another 13 months, keeps in place the current version of the estate tax, and provides additional tax benefits for mass transit use, elementary and secondary school teachers, and property owners with land used for conservation.  Today at three the Senate is scheduled to hold a cloture vote, which will begin a showdown with House Democrats.  While it increasingly looks like the legislation will pass, House Democrat Chris Van Hollen of Maryland has made it clear that his caucus views the current bill as “unacceptable”.

Written by Lon Huber with contributions from Alex Christensen

Anyone working in renewable energy will tell you that when it comes to getting a project off the ground, financing is key. Treasury Grant 1603, found in the American Recovery and Reinvestment Act, was designed to address the front loaded costs to entrepreneurs of installing renewable energy. Otherwise known as the Treasury cash grant, this program has been a lifeline for an industry that has had to depend on a complicated tax code and the likes of Lehmann Brothers and AIG for financing. At midnight on December 31st of this year, the 1603 Treasury Grant Program is set to expire, and unless Congress renews it, the young renewable energy industries will be forced to compete in a tax system designed to the advantage of fossil fuels.

Without Treasury Grant 1603 the clean energy industry would not be enjoying the success it is today.  To effectively compete against a fossil fuel industry that is heavily subsidized by the federal government, the renewable energy industry has needed federal help to level the playing field.

Unfortunately, the lack of a strong national energy policy has required the renewable energy industry to become cost effective through tax credits. The problem with trying to stimulate an emerging industry with tax credits is that it fails to eliminate two central problems facing small businesses, large up front costs and lower initial profits meaning lower initial tax credits. Many new clean energy businesses did not have enough income to fully utilize these tax credits, forcing them to turn to large financial institutions like Lehmann Brothers for assistance in realizing the advantages of such credits. After the financial meltdown and the resulting lack of finance, it became next to impossible to take advantage of the tax credits in the same way.

The Treasury cash grant program provided a lifeline by transitioning the unfavorable tax credits to upfront payments not tied to a particular company’s income. This was huge help to renewable energy developers and did not cost taxpayers any additional money – since it merely shifted the tax credit to an upfront subsidy.

The effect of the Treasury grant program was a rapid growth in clean energy deployment and thus job creation:

According to the American Wind Energy Association, the grant program enabled the construction of 10,000 MW of new wind capacity in 2009 – more than double the 4,000 MW that would have been installed without the program

10,000 new construction jobs and 2,000 new permanent jobs were created in 44 states across the country. The American Wind Energy Association credits the cash grants with saving 40,000 jobs in construction, manufacturing, and research and development.

Solar grew by 37% in 2009 and is projected to grow 100% over that this year or 55% even in the midst of a anemic economy and falling fossil fuel prices.

With great help from the 1603 program, clean energy has started to pick up momentum, gain economies of scale, and attract venture capital. In fact, over the past two years, the price of solar modules have declined by roughly 25% and wind turbines by nearly 15%. As of October 26th, the program leveraged $5.4 billion in federal funds to attract over $12.7 billion of outside investment.

Regrettably, the US is on the verge of taking a step backwards and jeopardizing future gains of this magnitude. On a purely economic basis, the US cannot afford to move renewable energy back to a boutique industry with correspondingly high prices. Even the possibility of Congress failing to renew the 1603 Treasury Grant program has been partly responsible for a 70% decline in wind installations. Conversely, if the cash grants are extended by just one year, through 2011, the recipient companies in the clean energy industry would create more than 100,000 new jobs, according to a U.S. Partnership for Renewable Energy Finance report written by clean energy specialists at GE and Deutsche Bank. Furthermore, renewing the grant program indefinitely will create over 58,000 additional permanent jobs in the solar industry and the installation of over 1,600 MW of solar electricity by 2016.

Most importantly, the 1603 program allows small businesses and community investors to participate in this emerging industry by lowering the upfront capital required for renewable energy projects. The flexibility of the 1603 program also allows nonprofits to partner with leasing companies to create small, community based wind or solar energy systems, an act prohibited under the tax credit system.

If the US seeks to become a leader in clean energy technology and reduce its consumption of fossil fuels in a cost effective fashion, an extension of the 1603 program is critical. With a properly designed and stable policy framework, the budding renewable energy industry can finally have the opportunity to compete head to head with fossil fuels. After witnessing increases in cost competitiveness and capacity in renewables over the past two years, it is obvious why the fossil fuel industry wants renewable energy to return to fighting with one arm tied behind the back. Creating certainty in the market is necessary for clean energy entrepreneurs, and the extension of the 1603 Treasury Grant program is critical to a vibrant American renewable energy industry.

The current negotiations surrounding the Bush era tax cuts and unemployment benefits provide a unique opportunity for extending the 1603 tax credits, and it looks like there is a major push under way to do so. Today Reps. Earl Blumenauer (D-OR), Mike Thompson (D-CA), Rush Holt (D-NJ) joined with representatives from the Solar Energy Industries Association (SEIA), American Wind Energy Association (AWEA), Environment America, and the Blue Green Alliance to announce a letter from 80 members in support of extending the program.  Additionally, the Hill’s Energy and Environment blog is reporting that Senator Ben Nelson is optimistic about the chances for a deal, “I hope that they will be in there and I believe they probably will be based on what I am hearing.”  Because of the importance of this issue, we would like to urge everyone to contact their representatives to show support for a program which has and will continue to create jobs, make America more energy independent, and help abate climate change.  You can very easily send your representatives an email here by simply typing in your home address and personalizing a pre-prepared letter.

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Lon Huber is a Policy Fellow in AEL’s New Energy Leaders Project and will be a regular contributor to the website. Lon is currently pursuing a master’s degree in business administration at the University of Arizona – where he serves on the President’s Campus Sustainability Advisory Board and as the chair of the UA Green Fund. Lon has worked in Washington D.C. as a congressional solar energy fellow and as a policy advisor for candidates seeking public office in Arizona. After working in energy policy research for two years at the Arizona Research Institute for Solar Energy, Lon became the governmental affairs liaison for Technicians for Sustainability, an Arizona based solar energy integrator. Outside of policy, Lon works in renewable energy finance.

Alex Christensen is a Contributor in AEL’s New Energy Leaders Project and his work will be regularly featured on the website. Alex is a senior at Washington University in St. Louis studying economics, political science, and institutional social analysis. He is currently conducting research on comparative energy policy in the Center for New Institutional Social Sciences, focusing on the interaction of government institutions and wind energy in Denmark and Ireland.

This is the first article in a series by Alex Trembath detailing opportunities for bipartisan cooperation on energy policy.

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Energy reform is quickly heading towards a hyper-partisan stalemate. As the Republican party takes control of the U.S. House, some advocates of a progressive energy agenda are calling for Congressional Democrats to regroup and “conduct guerrilla warfare” against the status quo. A consortium of climate scientists has recently rallied together to “to challenge disinformation and misinformation deployed in the policy wars over global warming.” All signs point to an intensifying battle between “climate hawks” and “climate zombies,” but little progress will be made if advocates continue to reinforce this hyper-partisan environment. Despite rampant cynicism, opportunities for bipartisanship exist, and the greatest potential for aisle-crossing lies in financing mechanisms for clean technology innovation.

Public funding and financing for technology-focused clean energy projects presents unique political opportunities that other government efforts lack. Unlike pollution regulations and top-down industrial mandates, financing for business has long enjoyed broad support from both ends of the political spectrum. Various policy tools aimed at ramping up federal dollar flow towards clean energy projects include feed-in tariffs, loan guarantees, credit enhancement, direct grants and tax credits. Many of these policies carry the potential for bipartisan support in Congress.

The American Recovery and Reinvestment Act (ARRA) temporarily provided the largest federal support for clean technology investment in the history of our nation. However, as stimulus projects expire, clean technology innovation is approaching a funding cliff that will need to be averted if Congress is serious about decarbonization. Hypothetical broad-based subsidies and renewable electricity standards will be insufficient in targeting the specific projects required for technological innovation. Vestigial targeting elements of the 2009 stimulus bill have received support from both sides of the aisle. Sec. 1603 of ARRA, for instance, has provided grants for specific clean energy projects in lieu of tax credits. Senators Jeff Bingaman (D-NM) and Olympia Snowe (R-ME) recently co-sponsored a bill (S. 3935) that would extend the tax code calibrations established by the stimulus act. The grants established by this legislation are diverse, but not broad; instead of blanketing industry with blank-check subsidies, they target projects in storage, solar, wind, fuel cell, and other clean energy technologies.

New programs based on tax credits and incentives could also attract Republican co-signers. Sander Levins, the Chairman of House Ways and Means, has introduced alternative legislation to cap-and-trade that includes roughly $6.5 billion in tax credits for manufacturing of clean technologies, in addition to extending credits for other alternative fuels. Like S. 3935, Levin’s Domestic Manufacturing and Energy Jobs Act of 2010 would include extensions of stimulus programs, in this case Sec. 48C, another tax credit provision of ARRA. As Daniel J. Weiss reported recently, “the 48C programs is also included in S. 2857, co-sponsored by Bingaman, Hatch, Lugar, and Debbie Stabenow”–two Democrats and two Republicans. Unlike past efforts by Democrats such as health care, in which they crafted legislation and then courted Republicans, programs like S. 3935 and S. 2857 can trace bipartisan support to their original authorship.

These initiatives are certainly smaller-scale than the original and subsequent drafts of the American Power Act, this summer’s climate/energy effort spearheaded by Senators Kerry, Graham and Lieberman. Despite its “tri-partisan” coalition of authors, APA was a stark demonstration of the political intractability of cap-and-trade. Even with a high-profile Republican working on the bill for six months and concessions by Democrats on nuclear and clean coal technology, conservatives in the Senate dropped the bill before picking it up. Instead of pursuing an agenda built around cap-and-trade with ornaments for conservatives, advocates must encourage their lawmakers to draft innovation-focused legislation from the ground up, with across-the-board political support for various traditionally conservative and progressive financing mechanisms.

Americans for Energy Leadership has already publicized an op-ed in Politico by Senators Stabenow (D-MI), Hagan (D-NH), and Udall (D-CO) calling for a new strategy on energy reform. Citing a report by Third Way, they note that “energy innovation is not a partisan issue–it’s an American imperative.” The path to a decarbonized economy cannot find success if either party adopts energy reform as a partisan agenda, used to re-elect their own members and wedge the ranks of the opposing party. Economic growth, energy security and the protection of our soliders are not partisan issues–they are core American goals.