After last week's financial bailout whirlwind and ultimate extension of renewable energy tax credits, what is next for the clean energy industry? Will renewable energy projects continue to face challenges due to the economic downturn? During today's OnPoint, Natural Resources Defense Council energy analyst Jim Presswood gives details on the renewable energy tax extensions included in last week's financial bailout package. He discusses the impact the economic downturn will have on private investment in clean energy projects. Presswood also describes what he believes the key energy goals of the Congress and administration should be.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With us today is Jim Presswood, an energy analyst at the Natural Resources Defense Council. Jim, thanks for coming on the show.
Jim Presswood: Thank you for the invitation.
Monica Trauzzi: Jim, the big piece of energy news coming out of last week's financial bailout package was the inclusion of renewable energy tax extensions. Just to start off, what kind of extensions did we see in the package and which industry made out the best?
Jim Presswood: Well, there are a number of extensions for renewable energy and energy efficiency technologies ranging from a renewable production tax credit and extension of one year for wind technologies, two years for the other technologies. Solar did very well. They had an investment tax credit for eight years. It's what the industry was wanting as well as the environmental community, as well as they took off the cap for the investment tax credit, which will be, we think, a very monumental difference. We think that the solar technologies are really going to take off as a result, as well as the energy efficiency incentives. We had incentives for efficient new homes, for commercial buildings, for super-efficient appliances, also incentives for plug-in electric drive vehicles; on balance, a really good bill from the clean energy perspective. Unfortunately, there were some provisions in there that would promote dirty, high-carbon fuels which the environmental community strenuously opposed.
Monica Trauzzi: So, what does this mean for next year, for example, where you have these credits that were only extended for a year? Are we going to face a similar battle during the next session of Congress?
Jim Presswood: I think there will be a turn again to this issue next year. With the renewable production tax credit for wind only getting a year, I'm sure we'll see a renewed effort to get more years. New homes only got a year. Efficiency upgrades to existing homes only got about a year. So there are a number of incentives that not get sort of long-term extensions that we've been seeking. And I think we'll see a renewed effort to try to get that next year to provide more stable market signal for these technologies.
Monica Trauzzi: The big problem all along has been how do we pay for these tax credits? How are they being paid for in the bailout bill?
Jim Presswood: A combination of what we call pay-fors, one is a repeal of an incentive to the oil and gas industry, the section 199. It provides an incentive for manufacturing related expenses and the oil industry was a part of that until this bill, as well as some other incentives dealing with the financial sector. And, in total, you had a fair number of offsets, although it was not fully offset, the extenders package. The alternative minimum tax provision was not offset as well as some of the business extenders, those weren't offset.
Monica Trauzzi: In order to make changes to the way we make energy these tax credits are needed, many people would contend, but also investment from the private sector. And we're seeing a very difficult road ahead in terms of the financial health of the U.S. How do you think renewable energy projects are going to be impacted by what we're seeing happening with our economy?
Jim Presswood: Well, I think one of the drivers for us to get out of this mess, we think, will be investments in clean energy technologies. I mean one of the fundamental drivers behind the run-up in oil prices is obviously the rising price of oil and also that feeds into broader economic problems, rising consumer prices. So what we can do to sort of mitigate that impact, you know, we have oil down at $90 a barrel now, what is it going to be next year? It's so volatile. And so as long as we're basically addicted to this substance, we're going to have difficulties in our financial markets being tied to this commodity. So I think there's going to be a renewed interest next year with either administration coming in potentially. So I think that we'll see additional efforts to try to get at this problem.
Monica Trauzzi: But, if we have difficulty getting loans, are we going to have difficulty -- I mean you see where I'm going.
Jim Presswood: Yeah, yeah, I think we definitely have some of the other factors that are impacting the financial industry, access to capital. Hopefully the bailout will help on that. But, again, I think that there's going to be an effort to address the clean energy industries to try and get them up and running, because that is a key, we think, a key part of a good economic recovery.
Monica Trauzzi: There was a lot of uncertainty for a long time. There was sort of this six-month period where everyone was just waiting to see if these extensions would be renewed. What did that mean for projects? Are there certain projects that suffered because there was uncertainty until the 11th hour essentially?
Jim Presswood: Yeah, there were a number of projects that we've heard about anecdotally, unfortunately, we don't have access to like the real specific data. That's something the companies try to hold tight because it affects their stock market price. But the economics of all these projects are tied to access to these incentives. And when there's like this sort of instability we've had, that compromises these projects and there's been an advocate study that was released saying there were over 100,000 jobs at risk as a result of not extending these incentives. So definitely, anecdotal stories as well as some good analysis showing that the longer we waited to extend these incentives would mean more impact in the clean energy industries. And we wanted to avoid that and it's good that we got some long-term extensions; a lot of these incentives were long-term. We'd like to get long-term extensions for the other incentives as well.
Monica Trauzzi: Did the addition of the tax breaks in the financial bailout make the bailout more palatable for certain members of Congress?
Jim Presswood: Well, that's what we hear. We hear that it definitely helped on the Republican side in the House. You know, it's been a real bipartisan interest in extending these tax incentives. The issue has been on how you pay for them. Everyone loves them. They just don't know how to pay for them in a way that's going to generate unanimous support. So there was definitely the interest. I think the Senate leadership saw that the House Republicans were going to be key and so adding these tax extenders to the package, we think, made a difference.
Monica Trauzzi: It was pretty ironic to watch things as they progressed and see that a Democrat Congress could lift the moratorium on offshore drilling and not pass these renewable energy tax credits until the very last minute. What happened? I mean what was going on behind the scenes that ...
Jim Presswood: Yeah, well, I mean there were definitely issues that were playing out on different legislative vehicles. I mean with the continuing resolution being the vehicle for the moratorium, that being a must-pass piece of legislation, it just got too difficult, apparently, to put other energy policies into the mix there. So they chose to not continue the moratorium on the continuing resolution. But apparently there is some interest in revisiting the issue next year, so we probably will be picking this up again. As far as the tax extenders, it's just been a vigorous game of ping-pong for over a couple of years with the House and Senate passing various iterations of the legislation multiple times. And it looked like, at the end of there, that we weren't going to get the package through, but the bailout package was something the Senate picked up and they were very much in favor of trying to get the extensions done and they attached their version to the bill and the House accepted it as part of a larger piece of legislation, even though the House had very strong concerns about the overall package. Not only were they concerned about how the tax incentives are paid for, but also the dirty fuels provisions that were in there that the community was very strongly opposed to because they could increase global warming pollution. And we were fighting hard to get those taken out, but, unfortunately, they weren't. So the tax incentive package was sort of a mixed bag from an environmental perspective.
Monica Trauzzi: All right, so this leaves the Congress and the next president where in terms of an energy policy? What are the key goals that the next administration should be focusing on?
Jim Presswood: Yeah, first of all, we made some significant progress, this Congress, on energy policy. We had CAFE standards, corporate average fuel economy standards for vehicles adopted, first time in over 30 years. We had a robust renewable fuel standard that included environmental safeguards that the environmental community was very much in support of, although we thought that the RFS was a little bit large. But still, again, that was a good victory to have those performance standards, as well as the tax extenders adopted. So where does that put us for next year? We think that there's a lot of room for improvement. Both campaigns have been talking about energy policies that could be adopted and, of course, we need mandatory cap-and-trade legislation to ensure that we have a good market signal on the technologies that we really need to advance in the next generations. So, I think, next year we're going to see it looks like there's going to be an interest doing something on the economic stimulus side that's related to energy. Senator Reid put forward an amendment to the continuing resolution that contained a number of energy policies, appropriations that could be helpful. There may be a turn to do that in the next Congress, as well is doing the long-term extensions. And who knows, depending upon which administration comes in what kind of energy policies, in addition to those, that you'll have. But I think that those two, there are some fairly broad support for the economic stimulus as well as the tax extenders. So I think that's going to be a component of what they deal with fairly soon out of the gate for the next Congress.
Monica Trauzzi: OK, we're going to end it right there on that note.
Jim Presswood: Thank you.
Monica Trauzzi: Thank you for coming on the show.
Jim Presswood: Thank you.
Monica Trauzzi: And thanks for watching. We will see you back here tomorrow.
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