Giving Annual Tax Breaks to Clean Energy is Crazy
Photo: langalex, Flickr, CC BY-SA
... Though Not as Crazy as Doing Nothing
As the controversial deal for extending the tax cuts to middle class and wealthy Americans drew closer to become reality, some feared that the true loser would be the clean energy sector, which relies on tax breaks that must be annually renewed by Congress. Those tax breaks were initially absent from the deal, leading to speculation that their absence would cause the industry to shed jobs and lose its already fragile footing. The breaks are back in now, but this whole debacle gives us an opportunity to examine the dubious nature of this short-sighted approach to stimulating clean energy growth -- in other words, this is why the policy of extending tax breaks every year is crazy.The primary problem with the current model of renewing tax breaks for alternative energy every year (if you can call it that a model at all) is that it provides no security for potential investors in renewable power companies. These tax breaks are sizable -- they account for 30% of upfront costs -- and most upstarts rely on them to compete with cheaper fossil fuel-burning companies.
If it's unclear whether or not the tax break will be in place, it's unclear whether or not renewable companies can compete in the long run. This discourages the robust investment that clean energy has seen in other industrialized countries. Here's Dave Roberts at Grist:
Longer term, this is just an insane way to drive a transition to clean energy. Everyone in Congress will tell you that they don't want to "pick winners" (read: give money to someone else's constituencies) on energy, but they have steadfastly refused to pass proactive, performance-based energy policies with long time horizons. Instead America limps along, as it has for some 30 years, with energy policy based on tax goodies renewed every year or two, a far shorter period than the investment horizon for big solar and wind installationsI agree -- though the only reason that our clean energy policy is so crazy is that a powerful minority of senators simply don't want there to be one at all. The proposed renewable energy standard, which would have gone lengths towards solving this problem, was shot down by a move to filibuster by Republican senators. And that's to say nothing of the comprehensive climate and energy bill that died at the hands of the same filibuster-threatening minority.
... the uncertainty canard is absolutely true for domestic clean energy industries. Congress makes life-or-death decisions about them with punishing regularity, which makes for boom-and-bust cycles, hesitant investors, and an unhealthy obsession with currying political favor. They desperately need predictability ... In my ideal world, clean energy policy wouldn't be based on tax credits, grants, and the whims of an increasingly dysfunctional Congress. But if we're going to do them, let's at least implement them with 10-year horizons, so investment and hiring decisions can be made with confidence.
Until the GOP can be convinced that an enduring, coherent clean energy policy should be a priority (most likely after it's not one of Obama's) I'm afraid we're stuck with our boom-and-bust mess.