Can the United States create better incentives to develop clean energy technologies through cash grants paid directly to renewable energy companies? During today's OnPoint, Kath Rowley, U.S. director of the Climate Policy Initiative, makes the case for retooling the United States' structure for incentives to more directly benefit companies and provide greater security to taxpayers.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Kath Rowley, U.S. director of the Climate Policy Initiative. Kath, thanks for coming on the show.
Kath Rowley: My pleasure. Thank you.
Monica Trauzzi: Kath, climate change was not at all mentioned in the third presidential debate, despite its links to national security. In your view, what is the political problem right now with climate change?
Kath Rowley: I think in a nutshell, concern about how it relates to economic development and growth. I think that there are two different essentially competing paradigms of how the U.S. economy and indeed the global economy can move forward. One is on a low carbon development pathway, and one is on a kind of more familiar fossil fuel-intensive high carbon path. And because it's more familiar, the high carbon path is one that people feel, some people feel more comfortable with, and the anxiety associated with a shift in the development trajectory towards what's perhaps a less known, less certain pathway, a low carbon development pathway, causes anxiety, and people are concerned about what impact that might have on jobs and the economy and growth. That said, there are lots of people, lots of industries, lots of businesspeople and communities who are convinced that a low carbon development pathway is essential, and indeed attractive. It builds also an economy and a community, a society, and a planet that will retain the pre-conditions for prosperity and for good living, but reduce our impact on the environment.
Monica Trauzzi: So, but if it's not politically plausible, does that mean that either administration, a Romney administration or an Obama administration, might not move forward with some kind of carbon policy?
Kath Rowley: I wouldn't say it's not politically plausible so much as just we need to be finding and making better use of the models we have of low carbon growth opportunities. I think that the President's made a lot of effort to highlight the opportunities of a clean energy economy, the ways in which that can create jobs and opportunity, business development for the US, secure a better competitive position in the global economy, and that story certainly has many supporters, and there's still many opponents, including, because there's still a lot of money to be made and a lot of business existing in the fossil fuel industry, and that's a realignment. But I think that the more examples we have of the real opportunities and the real growth attached to a low carbon development pathway, the more likely it is and the more feasible and plausible and easier it will become to put in place the kind of strong climate policies that the world needs.
Monica Trauzzi: Can the U.S. address climate without some kind of price on carbon or a carbon tax, and by just using methods like clean energy technology development and things along those lines?
Kath Rowley: Well, the U.S. is already taking action to reduce its emissions in the absence of an explicit price on carbon, at least at the national level. We've seen some carbon pricing introduced at the state level, and that is important, and it will not be, it will not be ignored. But at the national level, we've seen EPA standards for fuel economy, for emissions intensity for motor vehicles. It's a very important mitigation policy. We've seen a major investment through things like the Recovery Act into clean technology, and we're starting to see the EPA standards under the Clean Air act come in to start to tackle some of the major emission sources. And that is the policy pathway in the absence of a more comprehensive climate effort.
Monica Trauzzi: So when you come to Washington and talk to lawmakers, what do those discussions go like now? How has the discussion shifted over the last few years?
Kath Rowley: Well, I've been with Climate Policy Initiative and working in the U.S. for only the last two years, and so my first trip to Washington was immediately in the sort of aftermath of the failure of the Comprehensive Climate Legislation, and there was a lot of anxiety, confusion, disappointment with how that unfolded. In the last two years, what you've seen is people focus on, well, what tools do we have, and how can we make those work? And so you've seen a lot of groups engage in EPA rulemaking process. You've seen continued investment in clean energy through things like the federal tax incentives. And you've seen people starting to shift to more of a focus on where the kind of most politically salient discussion is right now, which is in the context of the budget deficit, and how there might be some synergies between tax reform and advancing carbon policy.
Monica Trauzzi: And you mentioned incentives for clean energy. You released a report last month suggesting taxable tax grants are a better option than our current system of tax credits for clean energy technologies. Would that help avoid some of the issues that we've seen, like the bankruptcy of A123, the Solyndra issue? Why is this a better option?
Kath Rowley: Okay. The proposal we have is to replace tax credits with cash incentives for the deployment of renewable energy. So we're operating, these incentives operate squarely in the space of technologies where the task is now to achieve learning by doing cost reductions and deployment at scale. And we've seen through global deployment of clean energy that the costs come down dramatically as you start to deploy at scale. And so it's operating in a slightly different space to some of the other federal incentives, which go to early stage innovation or to developing manufacturing capacity, advanced technologies. What we're talking about is large scale deployment of known technologies which need to get that real world experience to pull the costs down. And so things like wind and solar PV are where our report and analysis focus, and currently, those technologies are incentivized to deploy through tax credits. And we find that tax credits have been critically important to the growth of the industry. Indeed, renewable energy projects are still not viable without government support. But we also find that tax credits are not the most efficient way to stimulate deployment. Indeed, what happens is because tax credits need to get monetized, and so you bring in tax equity investors to turn that tax credit into a cash flow for the project, it means that it pushes projects towards more complicated and more expensive project finance. And if the project, if the incentive was delivered in cash instead, then those projects would be able to access debt at a lower cost with simpler project finance, and that would mean that more of the government spend goes to supporting deployment instead of into complicated financial architecture.
Monica Trauzzi: And then what's the net impact on taxpayers, then?
Kath Rowley: Well, what we find is that if you replaced a tax, the current tax credit with a smaller taxable cash incentive for wind, you could save around 42 percent for the federal taxpayer, and so you could reduce the level of the incentive, make it taxable, and you could essentially leave the project whole. It would be able to deliver the same cost of electricity with a much smaller incentive and a much smaller hit to taxpayers. We think that this is a particularly attractive option, because it combines the goals of supporting the continued deployment of clean energy in the U.S. with the associated jobs, air pollution, and other benefits. At the same time, it reduces the hit to the budget, and so it improves the deficit situation.
Monica Trauzzi: An interesting proposal. Thank you for coming on the show. We'll end it there.
Kath Rowley: My pleasure. Thank you very much.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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