Changing the way renewables are funded

Posted: Oct 23, 2017

In the months since Solyndra’s collapse, there have been many inquiries into who knew what and when, and why this particular company was chosen to receive $528 million in loan guarantees. Did the White House hand-pick Solyndra as a quid pro quo for campaign contributions? Did the Department of Energy (DOE) ignore signs that the company was in trouble?

While the factors surrounding the demise are intriguing, they are not particularly relevant to moving forward. If the responses were affirmative, that the White House did play favorites (even though the Solyndra deal was initiated during the Bush administration), and the DOE did try to spin a more positive narrative for a flagging investment, where’s the revelation in that? I would venture to guess that, since George Washington, presidents have scratched backs and tried to show confidence when there was every reason not to. That’s not likely to change no matter how many documents are subpoenaed. 

The politicians perpetuating “Solargate” act as if loan guarantees just landed on this planet in order to fund Democrats’ pet projects, implying that liberals invented such loans as a way to hand stacks of cash to traditional including fossil fuel and nuclear fuel—competitors. Hardly. Take House Speaker John Boehner’s recent endorsement of $2 billion (that’s million, but with a “b”) in loan guarantees for a uranium enrichment plant in Ohio. That is, even though uranium prices are static and there are competing projects that are further along. 

Or, better yet, the $18 billion loan guarantee that Congress authorized in 2004 for the Alaska pipeline, which would pump gas from Prudhoe Bay to Boundary Lake in Alberta. Did analysts at the time anticipate that the global financial crisis would cause banks and capital markets to go belly up like a dead whale? As a result the project was stalled—but not abandoned—and is now projected to cost $32 million to $41 million. If the same proportion of government support holds true going forward, loan guarantees would cover 80 percent of that cost.

But, enough finger-pointing. It’s time to generate more light than heat if alternative energy is to succeed.

And we do need renewable energy to succeed. Access to energy in general is a public good and, for those not in some self-serving denial over climate change, alternative energy has obvious social and economic benefits. Fossil fuels are costing us way more than we pay per gallon for them; the environmental, public health, political and security implications are well known. At the end of the day, with strategic public policy, renewables can bring down the overall price of power. Anybody not wanting to do that has a status quo to maintain, and likely a ski house in Aspen they have their eye on.

In the solar game, there were many reasons to bet on Solyndra—when the cost skyrocketed for silicon, a solar panel mainstay, the company figured out how to do without it. Their technology for flat-roof installation was also way ahead of their competitors. Private investors were moved enough to add $1 billion to the kitty. But then the price of silicon dropped, Solyndra’s competitors caught up on flat-roof installations, and China threw billions of yuan at their own homegrown solar companies.

Regardless of why Solyndra (or the other companies that have secured $16 billion in loan guarantees since 2009) seemed a good bet, the problem is that the main feature of loan guarantees is picking anticipated winners. Even if the wager in a well-analyzed one, it’s still gambling with taxpayer dollars. Once the choice is made, everyone crosses their fingers and hopes those lucky companies will be able to pay back their loans. 

That’s not going to cut it. The growth of greener energy requires new tools, or an overhaul of existing ones. We need to greatly reduce the winner take all (or lose all, in the case of Solyndra) paradigm of loan guarantees, which also goes overboard in its protection of big, private investors. Instead, the focus should be on funding research and development (which would improve U.S. competitiveness and possibly exports), tax incentives to only the lowest carbon-emitting technologies and true enforcement of existing environmental laws. 

Where should the greenbacks to do all that come from? Since Solyndra face-planted, some people have suggested that the renewable energy industry should ‘stand on its own’. No doubt, it would be ideal if environmental ethics alone were honey to investor bees. But, in order to make alternatives competitive, they have to get at least as much help as entrenched energy sources have gotten over the past century.

And that support has been massive. A study funded by the Nuclear Energy Institute shows that, from 1950 to 2010, the oil and natural gas sectors alone received 60 percent of roughly $837 billion in federal incentives. The others—coal, hydroelectric and nuclear got 31 percent combined—leaving renewables with 9 percent.

To be fair, renewables haven’t been around for very long, so looking at the past decade is telling. During FY 2002 to 2008, the mature energy sector (including fossil fuels and nuclear) received $72 billion in federal energy subsidies, according to an Environmental Law Institute (ELI) study. By contrast, renewables got $29 billion over the same time period, and nearly half of that amount went to corned-based ethanol, which has questionable net environmental benefits.

If leveling the playing field means something has to give, big oil and gas are the logical candidates. Traditional fossil fuels received over $70 billion in tax incentives from 2002 to 2008, according to the ELI study. In 2010 alone, oil and gas got $2.7 billion in savings. This is nonsensical, as is the current Republican resistance to the president’s proposal to raise $41 billion over the next decade by eliminating tax breaks to oil and gas companies, reports the Wall Street Journal, “including repeal of a deduction for intangible drilling and development costs and eliminating one method for recovering the capital costs of wells.” It’s not a new idea to reduce tax breaks to energy companies that do not need them, but we’ve yet to actually do it.

Another old, but good, idea is the Clean Air Act (CAA). Too bad we haven’t seen fit to strictly enforce it lately. According to a recent report by the Center for Public Integrity, the U.S. Environmental Protection Agency (EPA) is aware of 1,600 “high priority violators” of the CAA. Earlier this month, the EPA’s internal CAA “watch list” was made public. The list includes 464 facilities (including some owned by BP, Conoco Phillips, ExxonMobil, Shell, Sunoco and Valero) that are serious or chronic violators of the law, and have yet to receive even a slap on the wrist. This means they’re emitting chemicals that can cause birth defects, cognitive impairment, cancer and respiratory diseases.

Forcing polluters to pay for their crimes could help fund state-level enforcement of private compliance to the CAA. (States and municipalities are responsible for enforcing the National Ambient Air Quality Standards.) They could also be channeled into green sector growth on the state level; whatever Colorado, for example, makes on effective enforcement they should get to keep in a Public Benefits Fund (like those in place in Oregon, California and Arizona). They could use that money to implement policies like “feed-in tariffs,” which are proven to be one of the most effective ways to deploy market-ready renewables on the state level.

It takes boldness—and volume—enough to reject suggestions that enforcing existing environmental laws amounts to overregulation in a foundering economy. Especially when the EPA estimates that, for every dollar toxic emitters pay in compliance, there are $4 to $8 in benefits. To drive this point home, a recent study out of the University of Massachusetts at Amherst shows that between 2010 and 2015, capital investments in pollution controls and new energy generation would create an estimated 1.5 million jobs, or 300,000 year-round jobs on average for each of those five years.

One idea that deserves closer consideration on the federal level is a Clean Energy Bank. While the concept has gained traction in the United Kingdom and Australia, the proposed U.S. version—inelegantly called the Clean Energy Deployment Administration (CEDA)—focuses too much on the same broken financing options. By contrast, the Green Investment Banks in other countries are designed to be free of government (similar to how the Federal Reserve Banks in the U.S. function). They are to be run by an independent board of experts in banking, investment management and clean energy and low emissions technologies, thus insulating them from political meddling.

There are other creative ideas floating around for funding renewables. An Ecological Impact Fund, the brainchild of Thomas Pogge, a Yale professor, would be financed by member governments. A panel of brainiacs from the public and private sectors would reward top innovators based on the ecological benefit of their technologies. Those innovators would be ranked and paid according to their ranking, and their inventions would remain in a patent-free pool for 10 years. Manufacturers would then bid to make and distribute the products.

Perhaps the most inspired concept for developing green economies—which has gained widespread support from political leaders, trade unions and industry and investment captains (including George Soros, Warren Buffet and Bill Gates)—is the so-called the Robin Hood Tax. The idea be hind the tariff is to generate billions of dollars from fairer taxation of the financial sector. It’s based on the Tobin Tax (named for the Nobel-prize winning Yale economist who proposed the levy in 1972) which are sales taxes on cross-border currency trades. Over $1.8 trillion are swapped every day and, with a tax of roughly 10 to 25 cents per $100, billions of dollars in revenue could be generated.

Sometime after Thanksgiving, Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy and Natural Resources Committee, will likely hold a meeting on the financial gulf between the U.S. and its competitors in regard to advanced energy technologies. I hope it will be the start of a migration away from federal loan guarantees toward more imaginative, fair and logical alternatives.

~Heather Hansen

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