Third Way Perspectives
Archive for the ‘Clean Energy Program’ Category
December 4th, 2013
Consistency. Certainty. Clear expectations.
These are critical elements of any successful regulatory policy implementation. The Environmental Protection Agency’s proposed rule on the Renewable Fuels Standard (RFS) could unravel them all.
In only 6 years, the RFS has driven billions of dollars in private capital toward the development of low-carbon advanced biofuels, and propelled these fuels out of the lab and into the market. This level of investment in emerging technologies requires long-term regulatory and market certainty, and the RFS has provided just that. It has also provided a consistent idea of what is expected of regulated industries.
The RFS was carefully designed to encourage production of increasing amounts of biofuels, without making demands of industry that are not technologically feasible. A perfect example of this flexibility is EPA’s statutory authority to reduce volumetric requirements for cellulosic biofuels annually, to reflect anticipated production. EPA has used this authority multiple times in cases where production has lagged behind the volumes envisioned by the statute.
But EPA’s proposed rule uses a new and very…creative…interpretation of the RFS statute to expand this authority and reduce the required blending levels of a fuel that is in abundant supply. EPA’s interpretation has struck many as counter-intuitive at best, and inconsistent with the law at worst. As market analyst Ben Salisbury explained in a recent Third Way briefing, the RFS offers little certainty to investors if it is implemented in such an unpredictable way. According to Salisbury, “…that has a chilling effect on not just biofuels but all environmental control investments.”
If inconsistent rulemaking has a chilling effect on investment, then legislative adjustments might as well be a meat locker. The odds of passing thoughtful and productive legislative adjustments to the RFS are about as high as getting Congress to gently reopen Obamacare. And if the existing law were simply “eliminated”, it’s difficult to envision some new and improved renewable fuels bill getting signed in the Rose Garden any time soon.
The bottom line is that the RFS has performed as it was intended to. Most importantly, it has driven investment toward technologies that offer exceptional greenhouse gas emissions reductions compared to petroleum fuels, and that are now starting to enter the market. Creating instability, either by regulation or legislation, will only halt this progress at a critical juncture. By continuing to implement the RFS consistently, EPA can provide the certainty investors need to maintain this level of support and help drive further innovation in critically-needed advanced fuels.
This piece was originially published via National Journal.
November 12th, 2013
By 2020, auto analysts expect more than 2 million electric vehicles to be sold every year. That’s a huge leap from the 113,000 electric vehicles that were sold in 2012. It’s also why China has set its sights on trying to win this “new energy vehicle” sector by 2020.
China’s track record is formidable. It launched successful bids to compete in wind turbines, solar panels and personal electronics. However, there are a number of structural problems in how the government and economy work that make it unlikely that a Chinese competitor to Tesla, the Chevy Volt or even the Toyota Prius will emerge any time soon.
November 6th, 2013
Demand for solar energy has outpaced the private sector’s current ability to finance it.
This is a problem.
Renewable projects are still financed based on the expectation of higher-risk investments yielding potentially higher returns rather than lower-risk, income-oriented investments yielding steady returns. This makes conventional financing very expensive. One small tax reform the Obama Administration could make today, without the help of Congress, could reduce the cost of financing and accelerate the deployment of solar. All that’s required, as Third Way (among many others) have advocated, is making a relatively small clarification to the definition of “real property” to include solar as qualifying property for Real Estate Investment Trusts (REITs).
Created in 1960, REITs let the average individual investor buy shares of commercial real estate assets from offices to shopping malls to communications towers. More like buying a stock than buying a house, REITs provide shareholders with the net rents, but also allow shareholders to easily sell their shares they choose to do so. REITs are attractive to many investors because they are required to distribute virtually all of their net earnings to shareholders, and to the extent they do so, they are only subjected to a single level of tax.
So why REITs and why now?
The price of solar panels dropped far more rapidly than industry analysts expected. This has fueled 76% growth in installed solar capacity in the US from 2011 to 2012 and a market that grew 34%, from $8.6 billion to $11.5 billion over the same time frame. According to BNEF, this growth is expected to continue through 2020, requiring an average of $6.9 billion each year to finance the installation of new solar panels in the US.
The liquidity, transparency and tax treatment of a REIT could lower the cost of capital for solar. This would make it a much more attractive way to raise money to help finance large-scale installations. With financing as the bottleneck and the solar investment tax credit set to decrease by 2/3rds by 2017, solar REITs could make up for the growing capital deficit. This is also a rare idea that has bipartisan support. Twenty-nine Members of Congress have expressed their support for including clean energy assets in REITs. Richard Kauffman, chairman of energy and finance for New York State and former senior advisor to the U.S. Secretary of Energy described this change as opening the door to a “wall of money” seeking the kind of stable rate of return that solar REITs would provide.
A growing sector of the American economy needs more affordable capital. And there is an answer that doesn’t require an act of Congress. The Obama Administration has an opportunity today to make a small tweak to the tax rules that could help. Opening REITs to solar would enable the private sector to meet demand without the hurdle of Congressional gridlock or incurring new government spending.
This piece was originally published via The Energy Collective.
September 23rd, 2013
There has been a lot of overheated political rhetoric from the right and the left about the EPA’s emissions standards for new power plants. If you strip that away, however, you’ll find that the new rule is really codifying what’s already happening in the utility sector. Thanks in part to the lower emissions and lower cost of natural gas, this is already benefiting public health, the environment, and the economy.
The bottom line is that for all of the build-up about the new standards, energy sector insiders know that low natural gas prices, the growth of renewables, and little demand growth are already reshaping electric generation. As an AEP spokeswoman acknowledged on September 20 in National Journal, “We have no current plans to build any new coal-fueled power plants both because we don’t need additional generation, and it would be difficult to make an economic case for coal with today’s low natural-gas prices.” The new regulations marry these market trends with intensive stakeholder input from the private sector. The result is a clear roadmap for new electricity generation in the United States.
While administrative actions never carry the democratic appeal of a Congressionally mandated solution, Congress has been unable to agree on a path forward. The Supreme Court required the EPA act, and the regulatory revamping was inevitable.
It would be great if Congress could develop and pass bipartisan legislation to accomplish the same goals as the EPA. That’s extremely unlikely in the current political environment. There’s a lot Congress could do—that’s bipartisan and does not cost much if anything—to create new opportunities in coal states and to ensure we maintain fuel diversity in our electricity fleet. This includes helping the private sector accelerating the development of carbon capture and storage technologies and removing the regulatory uncertainty that surrounds it.
Remember, even the EPA’s new source regulatory decision had to be court-ordered. The regulatory uncertainty for utilities has been a killer, most will tell you, and the business climate has suffered. This is a step forward, both for the environment and the business climate. It had to happen, and it finally did.
This piece was originally published via National Journal.
September 20th, 2013
American clean energy advocates like to tout the latest European energy accomplishments as proof that the United States is falling behind. Clean energy provides 25 percent of Germany’s energy demand! Germany has the greatest share of wind and solar among the G20 countries!
These are important accomplishments, to be sure. But this rapid growth has come at a cost: the highest energy prices in Europe. Are there ways we can achieve the milestones that Germany has reached while avoiding the economic downside of high costs? A new report by the respected German newspaper Der Spiegel provides some hard truths, and a look at three important lessons for us in the United States:
September 11th, 2013
Let’s be clear: the time for energy efficiency is now. We’re beyond the days of comprehensive energy legislation; cap and trade is dead and buried, carbon tax a policy for a far-off political future. In this age of incremental improvements, many issues, from fracking to nuclear, are divisive. That’s exactly why Third Way strongly supports advancing energy policies in smaller, yet still important components. Efficiency is one topic that everyone can agree on – it saves Americans money and makes our economy stronger and more competitive. The Energy Savings and Industrial Competitiveness Act acknowledges the political realities of today and has earned support from both sides of the aisle.
If the time for energy efficiency is now, what could go wrong?