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What Could Be The Energy Policy Decisions In An Election Year?

By Marianne de Nazareth

21 April, 2012
Countercurrents.org

Renewable power technologies are inherently capital-intensive, with relatively high construction costs and low operating costs, say Paul Schwabe, Karlynn Cory and James Newcomb, in a paper called ‘Renewable Energy Project Financing: Impacts of the Financial Crisis and Federal Legislation'. For this reason, renewable power technologies are typically more sensitive to the availability and cost of financing, than for example are natural gas power plants. In the United States , the bulk of renewable project finance in recent years has been provided by “tax equity investors” which are large investment banks and insurance companies, who partner with project developers through highly specialized financing. These structures have been designed primarily to capitalize on federal support for renewable power technologies, which has historically come in the form of tax credits and accelerated depreciation deductions. The number of tax equity investors active in the renewable power market has declined alarmingly, as a result of the financial crisis that began unfolding across the globe in the summer of 2008. The resulting shortage and increased cost of project financing has, in turn, slowed the development of new renewable power projects, leading to layoffs throughout the entire industry supply chain.

In another paper called, ‘An Analysis of the Choice Facing Renewable Power Projects in the United States ,' by Mark Bolinger and Ryan Wiser from the Lawrence Berkeley National Laboratory- renewable energy project financing is being reshaped by several extraordinary market conditions. The two primary sources of project capital investment are tax equity investment and debt, which are currently limited and are, therefore, a constraint on new project development. New investment is expected to be supported by the broader eligibility for tax equity investment, under the Emergency Economic Stabilization Act of 2008, and the substitution of Department of Treasury cash grants for tax credits under the American Recovery and Reinvestment Act of 2009. The loan guarantees offered in ARRA and administered by the Department of Energy, may increase the availability of debt to finance renewable energy projects.

Tax credit incentives have been a principal driver of investment in renewable energy projects, but have become largely ineffective in the current economic climate. U.S. federal legislation passed in February 2009, in response to the economic downturn included two key renewable energy provisions aimed at increasing the availability of financing for renewable energy projects:

• temporary grants provided in lieu of tax credits, and

• loan guarantees for innovative and commercial projects.

Overall, the financial crisis will impact the U.S. renewable energy project development most acutely in the short term; however, major changes introduced by federal legislation hoped to stimulate growth in the future. As the financing provisions from EESA and ARRA are fully implemented, experts are optimistic that the rate of renewable energy project development will accelerate, say Mark Bolinger and Ryan Wiser.

Impacts of the financial crisis and federal legislation on renewable energy project development

Looking back, to 2008, the Obama Administration set a target that the U.S. would reduce greenhouse gas (GHG) emissions to 17% by 2020 (compared to 2005 levels). According to the World Resource Institute a non profit organization that supports environmental stewardship and sustainable development, their 2010 analysis says that the 17% target for the US,is still within reach, but it will require a sustained effort in 2012 and beyond.

In 2012, the Obama Administration has significant opportunities to cut emissions says WRI but it remains to be seen, how far it will be willing to go, especially as this is an election year. One is unsure on whether the Administration will be aggressive, without considering the political context even more than usual. Looking at the US at the state level, California has plans to build the foundation for their new cap-and-trade program; and the RGGI states will be doing a program review in 2012.

With the U.S. Presidential Election looming ahead, it is amazing how quickly things can change in politics. If one looks back at 2008, both Democratic and Republican candidates supported national action to address climate change. Now, the important scenario to watch is the importance environmental issues will get in the 2012 campaign. Naturally, this will, set the stage for what happens in the next presidential administration. Will President Obama leverage his environment and public health record and position himself in contrast to the more extreme strains of the GOP (Republicans)? Will he lean further and strengthen these issues or distance himself from them? On the Republican side, will the presumed candidate embrace anti-EPA rhetoric, using it as a prime example of government overreach? Or will he pivot back toward more moderate positions as the general election begins?

According to Roger Bezdeck of Worldoilonline.com, the November elections will have huge implications on US energy policies for the coming year.President Brack Obama, the Democratic party candidate who is running for re-election and the four candidates currently campaigning in the primary elections for the Republican party nomination, all have differing stands.

Obama who opened up the US to the idea of clean energy, is expected to continue promoting clean energy policies. His raison d'etre is simple, he wants the US to cut back its dependence on oil imports and also to tighten regulations in the aftermath of the Gulf Oil spill. There is also public concern about natural gas fracturing and the Obama administration is very keen on hauling back on Green House Gas (GHG) emissions. Infact in March 2011 President Obama had released a “blueprint” for a secure energy future by outlining these goals. The Us Administration is working on the plan to double renewable energy generation above 2008 levels by 2012. Infact in his 2011 State of the Union speech, Obama proposed that as much as 80% of electricity production in the US should come from clean energy sources and ofcourse nuclear, ‘clean coal' and natural gas by 2035.

Under the Obama administration according to Worldoilonline, the Environmental Protection Agency (EPA) has pursued the regulation GHG's and fuel economy standards were stipulated of 39mpg for cars and 30 mpg for lighter trucks in the 2007 energy bill. The proposal also stated more stringent standards of 54 mpg for cars by 2025. In 2010 Obama announced the opening of federal lands and coastal areas to prospect and produce oil, but the Gluf spill has placed restrictions on drilling permits and thankfully stricter standards are in place with stricter agencies to oversee the production. Obama too is in favour of removing tax breaks given to oil and gas companies which his administration says will achieve $41 billion savings.

Sadly, all the Republican candidates- Mitt Romney, Newt Gringrich, Ron Paul and Rick Santourum, according to Worldoilonline.com, advocate diagonally opposite policies from Obama unfortunately. They favour expanded oil and gas drilling, relaxed contraints on the environment and there is complete oppositon to GHG controls.

Mitt Romney wants to bring in a new EPA regulatory framework to preserve environmental gains without affecting and ‘paralysing' industry. Romney supports ethanol subsidies and believes its an important part of the energy solution for the US . He criticises Obama's green jobs stand and believes that the fossil fuel energy sector – oil, coal, gas etc have job creating potential that is better. He also advocates increasing fossil fuel production in the US including shale gas along with Mexico and Canada . “ The Romney administration will pave the way for construction of additional pipelines that can accommodate the growth in the Canadian supply of oil and natural gas in the coming years,” says a statement. This is critical of Obama's position on the Keysotne XL pipeline and the offshore drilling mortorium after the 2010 oil spill.

Newt Gringrich former US House of representatives speaker, is very clear with his ‘six point energy plan' that clears the red tape to oil and natural gas production and clean energy research is funded by royalties on oil and naural gas and wants the ban on shale oil development to be removed. He wants to replace the EPA with the Environmental Solutions Agency that uses incentives and cooperation to ‘achieve better environmental outcomes.' His loudest call is to support all energy subsidies including ethanol and as he succinctly says, “ Its' better for money to go to Iowa than to Iran , Better for money to go to South Dakota than to Saudi Arabia .”

Ron Paul out of the House of Representatives, Texas , said, he believed in free market energy solutions. In his book, regulations, corporate subsidies and excessive taxation was the cause of the increase of energy prices and distorted the market, making the guys incharge play games of favourites. He has suggested repealing regulations and wanted to lower energy taxes. He was however against subsidies on ethanol which he called ‘corporate welfare for big agriculture.'

The former Senator from Pennsylvania Rick Santorum, favours expanding oil and natural gas development. He believes in ‘opening up energy in America ' and running what he calls a ‘free market of energy production'. But he is very clear about discontinuing energy subsidies amd opposes any incentives for the energy which ‘the government supports'.

As a grand finale, to cap all the arguments, I quote from an interesting article by the US Solar Energy Industry. They say that the last presidential election campaign polarized the United States . It wasn't a question for voters of whether or not one side had some good ideas and some bad. It was a complete split in ideologies on all issues across the board save one. Solar and other forms of renewable energy were part of the platforms of both presidential candidates- Obama and John McCain. Their individual stances on the issue were so identical that you heard very little about it. There was nothing to debate, however, they forsee that this election will be different.

In the four years since the last election, the viability of solar energy as a primary power source has gone from questionable to inevitable, they say. The Chinese are now making solar panels so cheap that even a proposed one hundred percent tariff doesnt guarantee US competitive advantage in the renewable energy market. This disparity in what has become the next major energy race will need to be addressed during the 2012 election campaign. Is that a political opinion they ask? No, its reality and they believe that leaders are chosen according to their ability to handle the current issues and affairs of today's world, not by how well they understand the policies of yesterday. The American voter is savvier today by far than his counterpart of a few decades ago. Information and education on any topic is available at the click of a mouse or by doing a simple search on a smart phone. This year, the hot button issue will be energy. They believe all types of RE will take centre stage of the campaign.

In their arguments they say, they are not talking strictly about the presidental candidate alone. There are plenty of seats up for grab in Congress and on city and state levels also. Where do those candidates stand on energy is the question. The common point brought up by all political candidates in every race, local and national, will expound on the US dependence on foreign fossil fuels and how it needs to end. The question is - what are they going to do to help end it? As is open knowledge, subsidies and powerful lobbying efforts, keep fossil fuels in the forefront of American energy options.

This year's election, if all of the experts are correct, should mark the beginning of a change in that philosophy and fingers crossed, the right candidate is voted in.

Marianne de Nazareth is Registerd PhD Scholar, adjunct faculty St. Jospeh's College Bangalore and freelance journalist




 


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