ACORE's Eckhart, CEI's Lewis debate tax incentives for renewable energy projects

OnPoint looks at the governmental role in promoting adoption of renewable energy technologies. E&E Daily reporter Ben Geman is joined by Michael Eckhart, president of the American Council on Renewable Energy, and Marlo Lewis, senior fellow at the Competitive Enterprise Institute, for a lively debate over whether or not these technologies deserve tax incentives and other government support.


Ben Geman: Hello, I'm Ben Geman and this is OnPoint. I'd like to thank our guests Michael Eckhart of the American Council on Renewable Energy and Marlo Lewis of the Competitive Enterprise Institute. Michael, I'd like to start with you, your organization recently declared that, what you called Phase One of renewable energy policy in America was complete and it's time to launch into Phase Two. Now, first of all, what was Phase One and what needs to happen in Phase Two?

Michael Eckhart: Well look, we live in a great country and we're in economic boom and the consequences of having such economic growth means we have these oil imports and we have environmental consequences of what we're doing. Phase One was started in the 1970s by Presidents Ford and Carter, and actually to some extent Nixon, creating an energy technology R&D program that was really a core part of the original DOE and carries on today. This R&D program was to create technology options with which our country could address its energy and environmental challenges. Well, in these 30 years we have invested $100 billion through this DOE program, 50 in nuclear, 25 in fossil fuel technologies, 14 in renewables and 11 in efficiency. And we observed, at the American Council on Renewable Energy, that, what did we do with the $14 billion? Our group concluded it's been a success. We've really developed a range of wonderful technologies in these 30 years that are either commercial or near commercial in wind power, solar energy, hydropower, geothermal, biomass and biofuels. Now it's time, in what we declare is Phase Two, so let's put them into use.

Ben Geman: So what would Phase Two entail specifically to get them, to get them into use? What would some of the options be?

Michael Eckhart: Well, in Phase Two we shift from the idea of developing technologies to solving national problems. We shift a little from pushing technology solutions to now solving the problems. The problems have to do with energy supply, national security, national energy security, the environment and of course the environment means human health, economic development, investment and creation of jobs. So we want to use these technologies now to solve these societal challenges. That's the idea of Phase Two; put them into use throughout our society. That was the original idea to begin with.

Ben Geman: And what might be a couple of examples of federal policies, White House policies that could sort of foster the development of this phase?

Michael Eckhart: Well, when you're solving problems you really have to call upon the country to solve that problem. Government can't solve the problem itself. You have to ask the people to do that job and to give them in incentives or purposes to do that. But even the government itself could be utilizing renewable energy technologies. The DOD, the Department of Interior, could be using them on federal lands or allowing them to be developed. The Department of Education could be fostering their use on schools, higher efficiency in renewables. So even the government has a role here, but in the main, we want industry and commerce and people in their homes to be using these technologies to make a better society.

Ben Geman: OK. Marlo, I wanted to turn to you, several of the major renewable energy advocacy organizations, including some of the members of ACORE, have recently said that it's time for, among other things, somewhat more aggressive federal policies. These would include incentives such as increased research and development funding as well as expanded renewable energy tax incentives and we're hearing that increasingly, I think. I know your organization, and some of your own writing, has said this is not an appropriate policy. Given how much activity there's been around this recently, what is sort of wrong with this picture?

Marlo Lewis: Well what's wrong with this picture is this, Michael has characterized what he calls Phase One, as a success, or as an interim success and now we have to build on that success. I would call it a failure. If you look at the big picture here we got 30 years of federal support for research and development in wind technology, solar, geothermal, biomass and so on and the result of that, after 30 years, is that today we get about 1.5 percent of all of our electricity from these technologies. Now it is the case that more of the total federal R&D budget has gone into some other technologies, but if you look at it in terms of bang for the buck, in terms of the kilowatt hours produced per dollar invested, wind technology, for example, is the most heavily subsidized. It's the king of federal energy technology subsidies, and I think that if it's really the case, as Michael is saying that these technologies now matured and they're ready for wider deployment then there is no need to further subsidize them at taxpayer expense. And if they can't succeed on their own merits, why are we trying to pour more money into them? Isn't that just good money after bad? Throwing good money after bad?

Ben Geman: Um-hmm.

Marlo Lewis: And so, I see this whole Phase Two proposal as, well the motto of it should be something like this, "If we can't sell renewables let's mandate them." Because as you know one of the major proposals of groups, I'm not exactly sure if ACORE itself is pushing a renewable portfolio standard, a national renewable portfolio standard, but many of the advocates of wind energy and other renewable energies are calling for this. You know, there was even a bill introduced in the Senate a few years ago calling for a 20 percent renewable portfolio standard. I think though, Michael referred to the 1970s and 1980s when this federal support for technology, for alternative energy technologies began. Well, there was a wonderful book written about this subject by three men at MIT, Ben Ball Jr., Richard Tabors and another co-author, and what they said about the lessons from the '70s and '80s, and I think this is absolutely correct, is that if an energy technology is commercially viable, no government support is needed. If it's not commercially viable, no amount of government support will make it so. I think 30 years and $14 billion, just of direct federal subsidies, not to mention billions of dollars additionally in ratepayer and taxpayer subsidies at the state level, adding up to 1.5 percent of all the electricity that's generated in 2002, that's the EIA figure, proves that this is an uneconomic use of the nation's resources.

Ben Geman: OK. Michael, I'd like to get a response to that. I mean what I think I hear Marlo saying is that renewable energy has not adequately shown that it can survive without substantial federal intervention and consequently should not survive without federal intervention. I know that some things that were discussed at the recent conference that ACORE held included the appropriate levels of federal research and development, potential use of expanded tax incentives and some other, some other efforts. You know, could you address that? I mean, should there be an expanded federal role here?

Michael Eckhart: Absolutely and actually Marlo's point is my point. You know, when Microsoft invents a new piece of software and they've just introduced it, Bill Gates doesn't say, "Well why bother with that? It only represents 1 percent of our revenues." Well of course at the point of introduction it's not big yet.

Ben Geman: Right.

Michael Eckhart: And that's why we're saying, now is the time to start putting these technologies into use so that in, by 2020, they will represent 20 percent and Marlo will then be very happy with us, or 25 percent by 2025, or 50 percent by 2050.

Ben Geman: Sure.

Michael Eckhart: These are the numbers we're working on. So we do want to achieve your goal, and believe me, we will make you very happy.

Marlo Lewis: Michael!

Ben Geman: Does that level of deployment, are we likely to see that level of deployment without a continued, if not expanded, federal role, be it for R&D or tax incentives or perhaps at the state level renewable portfolio standards, which seem pretty dead federally?

Michael Eckhart: Well, what we're seeing here is a sandwiching of state and local policy and federal policy, and we want to bring these two together. It's not one or the other anymore. In the past, in Phase One, it was the federal government in the lead with the R&D program. And what we've seen is in utilization the states are actually beginning to take the lead. What we'd like to see actually is a direct connection between the federal powers and the state powers to cause this to accelerate. That's what it's gonna take to make it work. Now, as to the economics and all that argument, we're in the middle of a transition on two issues, the oil imports and national security and the environmental. And just quickly on national security, I mean I gotta say, Marlo, we don't need $87 billion, you know, to guard, you know, the pipelines for solar energy. We don't need that money, so we can stop spending that money. So, the oil industry sure, it has its own incentives. It also has the U.S. government and the Defense Department taking care of it. That's an expense we bear in oil. We don't have to do that with renewable energy. Those costs will come way, way down.

Marlo Lewis: May I respond to that?

Ben Geman: Sure, I mean I just want to say, I think that's a great point that Michael makes.

Michael Eckhart: I want to come back on the environmentals.

Ben Geman: Sure, absolutely. I think that's a great point that Michael makes though, which is that, if you look at all the forms of energy that are most widely used today, be it for electricity generation or transportation fuels, there's been a very strong federal role in the past. Isn't a program to enhance renewable energy development simply allowing those technologies to catch up to the older technologies?

Marlo Lewis: Now if you look, EIA actually produced a report in 1999 on federal energy technologies. The total for that year was $4 billion and actually the amount that went into renewables was $1.1 billion, the amount that when into petroleum industry related research and development and tax breaks, when you added it all up, I think it was $312 million or something like that. So even in absolute terms, the renewable industry is not being starved. It's not the black sheep of the federal R&D portfolio. But just getting to Michael's point about national security, I won't, Michael, I think that's a really dubious argument for the simple reason that petroleum is a transportation fuel. OK, wind energy, geothermal energy, solar and all of the renewables you're talking about are electricity fuels. These two types of fuel do not compete with each other. We could have a totally renewable electricity generation sector, and we would still be importing the same amount of oil in order to run automobiles because you can't power automobiles with windmills.

Ben Geman: Of course, but some of the renewable fuels are also transportation fuels such as some of the bio-based fuels and I think some of the --

Marlo Lewis: Ethanol, which, okay, but still if you look at, and this gets to one of your points that you raised earlier, if you look at EIA's latest report, the 2005 Energy Outlook, it projects that by 2025 the amount of electricity we're going to get from wind is 6/10 of 1 percent of all the electricity generated, up from 3/10 of 1 percent today. So yes, we're going to, the baseline projection is doubling and that assumes all of the state programs that currently exist. But you see, what Michael would like is to multiply those state programs, add more federal programs, he would like to coerce taxpayers and ratepayers at both the federal and state level. And I say, "No, let the marketplace decide which types of fuels or energy sources are used to generate electricity." A lot of people love the idea of renewables because they think, "Oh my gosh, you know, it's nonpolluting and it doesn't come from the Middle East and so on." So if you asked them in a survey, "Would you like to see more renewables?" They'll say, "Yes." But if you give them the option to purchase green power from their local utility, you know how many people actually do? Only 1 percent nationwide actually seizes the opportunity to voluntarily purchase green power. In some states it may be as high as 1.5 percent, but nationally it's only 1 percent. He would like to force 20 percent of the country to consume these uneconomic technologically challenged electricity fuels.

Ben Geman: There's something you mentioned in your response though which I think we've skirted over a little bit, which is that as you note, they are nonpolluting and I don't wanna downplay that too much.

Michael Eckhart: I'd be happy to address that after he gives you his two cents.

Ben Geman: Michael, how important is the environment in the Phase Two debate?

Michael Eckhart: Well, it's half of it. Let me say that renewable energy includes renewable fuels which directly reduce oil imports and renewable electricity. They're two families within what we work with. So in dealing with oil imports and national security, what we're working on there is renewable fuels, which is corn-based ethanol, cellulosic ethanol and of course biodiesel. And when the trucking industry goes after biodiesel in a big way it's going to sweep, not 20 percent, it's just gonna go boom 100 percent. Now on the environment, one of the things we have to do as responsible adults, and I know in the conservative wing of our country we talk about being responsible adults and yet the conservative wing of our country seems to disavow any responsibility for the environment and environmental consequences of our economic actions of our industry. What we're arguing for is it's time to accept responsibility for the consequences of what we're doing. You know, waste, whether it's trash out on the street or it's pollution up the stack, it's damaging the environment and we've accepted some responsibility. Well, we don't have to do it in a negative way anymore. We can do it in a positive way because what renewable energy technologies do is generate fuels and electricity without the environmental degradation. There's nothing negative here at all. In fact, it's a positive solution and so when the, when conservatives say, "Hey give me a solution, don't just complain." Now, I'm presenting you with a solution and you're saying you don't like it. Now, what do you like? If you don't like a solution to the problem, what's our alternative?

Marlo Lewis: OK, it's not me who says what I like or don't like, it's the utilities themselves. They, all the utilities depend, in varying degrees depending on how old they are, are subject to various Clean Air regulations and given their druthers they will not invest in renewables in order to meet those requirements. Just to give you an example, an EIA study which came out in the year 2000, it was the first EIA report, that's the Energy Information Administration, on multiple, multi-pollutant strategies, argued that if you were to mandate over and above all the Clean Air Act regulations that exist an additional requirement to reduce nitrogen oxides and sulfur dioxides 75 percent below 1997 levels, it would raise the cost of electricity nationwide by only 1 percent and that would not be enough, EIA concluded, to trigger a shift from coal and natural gas to renewables. Similarly, EIA found that even if you had a 90 percent reduction requirement on mercury emissions it would beat the stuffing out of coal. You'd see a lot of coal-based generation shut down, but most utilities would prefer to switch to natural gas than invest in renewables. Renewables are not economic. So my point is, yes, you want environmental quality, fine, set a goal for environmental quality that's based on real health considerations and then let the utilities figure out for themselves the most economical way to get there. Don't prescribe renewables just because that happens to be the industry that you're in.

Ben Geman: Would you like to respond?

Michael Eckhart: I love the idea that somehow I'm prescribing this and the states are doing what I want them to do.

Marlo Lewis: Well to be fair, some of your members have called for strong incentives and renewable portfolio standards and such.

Michael Eckhart: I want to draw a line between advocates calling for something and state governments or federal governments, elected officials, acting on it. They don't act on it because we asked them to. They act on it because of democracy. There are two free markets in this country, there's the economic market that we tend to call the free market, but the real free market is democracy. And what you see here is the people in these states are demanding that their state elected officials pass RPSs and incentives for what they want, because they can't get it through the economic 'free' market, so they're getting it through the other, political free market. And a good example is in Colorado, which in the November elections passed actually a referendum.

Ben Geman: Right.

Michael Eckhart: The utilities and oil companies wouldn't give them renewable energy, the Legislature didn't get it done, the governor's office didn't get it done, the people literally voted over their government, "We want this." And it won. So it's not me Marlo, it's actually the people and we believe in democracy. Don't you?

Marlo Lewis: I believe it's the people misled by organizations like yours. The people, sure in a democracy the people should get what they want, but what they want is not always in their long-term best interests. I think we know that.

Ben Geman: Well I think what's going to be interesting on Capitol Hill is to see what some of the representatives in this democracy are going to do coming up. We are seeing a very strong push to craft a comprehensive energy bill. Again, it's obviously stalled for several years now.

Michael Eckhart: Can I give you one really cute fact about the environmental aspects of this? I think this is really interesting. Harvard business school, which should know better because they're a business school and they're supposed to be teaching people how to make a profit, got a $147,000 grant funded from public benefits charges, in other words, taxes on fossil fuel generated electricity, in order to purchase a solar photovoltaic generating system for the business school. The total amount, they say, is going to be $365,000 over 20 years. I believe that was 20 years. Anyway, they're very proud of this because of all the emissions they claim they're going to be avoiding, but if they were to take that same money and invest it in low, in high-efficiency 27 watt light bulbs and replace 100 watt light bulbs and run those 27 watt light bulbs only two hours a day, they would save 70 times the amount of electricity over that 20 years as that solar plant will produce. So which is the more environmentally friendly way to use the money?

Ben Geman: You know, I think both efficiency and renewables are going to be two of the titles that are up for debate in the energy bill. I think we are starting to run out of time, but I did once ask both of you to do a little bit of predicting. What type are we going to see in the comprehensive energy bill and what type of renewable title will there be in it? And I think I have a sense of what type of titles you believe should be in it, but what are we gonna see on the Hill?

Marlo Lewis: I'll let Michael go first. He's more, he's more plugged in as a lobbyist than I am.

Michael Eckhart: Well Ben, we're going to see a comprehensive energy bill passed very quickly coming up this spring. It is going to be comprehensive. There's efforts to load it up with more pork and gifts for different industries and there's an effort to slim it down. How that works, I don't know. But what we're doing is, what can be, our trade associations are working that front. What ACORE is doing is working for the next round, which is where we going now over the next decade with renewable energy policy?

Ben Geman: OK.

Michael Eckhart: And where we're going is this Phase Two, which is a framework for a whole set of new policies that are democracy friendly, that are economic, that deal with the monetization of the environmental benefits of what we're doing, the monetization of the national security benefits of what we're doing so that Wall Street gets these incentives, not because they're political gifts, but because they're justified on social benefit. So we see the bill happening this spring and we see a lot more coming in the future.

Ben Geman: OK. Thank you. And Marlo, what do you, I mean you've been very critical of some of the renewable and climate provisions, or discussions of climate provisions in past legislation on the Hill, what are you seeing this time?

Marlo Lewis: Well I don't think there will be any climate provisions, again, --

Ben Geman: Right, it's really not in the energy bill.

Marlo Lewis: Not in the energy bill, and we're very happy about that. I think there will be a push for a renewable portfolio standard, a national one. I don't think it's going to happen. You know, one of the reasons it's not going to happen is, I think, because a lot of the legislators and senators are internally conflicted over this. Some of them like the idea a national renewable portfolio standard, but when there's opposition to a wind farm in their own backyard, as in Nantucket, Massachusetts --

Ben Geman: Right.

Marlo Lewis: They're unwilling to stand with the wind farm developers against their own constituents. So I don't see a big future for Phase Two and I'm quite happy about that.

Ben Geman: Well I think we are going to give you the last word, but I think the issue's not going anywhere. I'd like to thank you both very much. Again I like to thank our guests and thank you for joining us. I'm Ben Geman and join us tomorrow for another edition of OnPoint.

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