October 12, 2011
National Journal Highlights "Beyond Boom and Bust" in Weekly Forum
The findings and recommendations of our new report "Beyond Boom and Bust" continue to generate a healthy discussion.
The report, widely acclaimed and recently endorsed by the New York Times, is the feature of this week's Energy Experts forum at the National Journal. The forum, hosted by Journal reporter Amy Harder, posed the question "Boom and Bust: Renewable Energy's Future?" The report, which we co-authored with experts at the Brookings Institution and the World Resources Institute, has prompted a lively and diverse exchange, with insightful input coming from industry representatives, policy analysts, and government officials, including "Beyond Boom and Bust" co-authors Alex Trembath and Mark Muro, Pew Clean Energy Program Director Phyllis Cutino, and Department of Energy Loan Program Director Richard Kauffman.
Below we've pasted the contribution from Breakthrough energy and climate policy analyst Alex Trembath, who argues that the clean tech sector's recent successes combined with the looming subsidy cliff demand a reform of federal clean energy policy that prioritizes innovation, cost declines, and competitive markets.
Click here to view the entire National Journal Energy Experts Forum "Boom and Bust: Renewable Energy's Future?"
Clean Tech's Growing Pains
By Alex Trembath
The US clean tech sector has been on a roll. Rapid growth in the last few years has been powered by expanding demand for low-carbon energy and falling prices for key technologies, including solar panels, wind turbines, and advanced vehicle batteries. But these advances bring along mounting burdens for government budgets, with clean tech deployment subsidies ballooning with every new megawatt installed. Meanwhile, the plummeting cost of natural gas, precipitated by the ongoing American shale boom, has pushed back the goal posts for low-carbon power technologies.
Most critically, clean tech's key support policies are on the verge of en masse expiration. As documented in a report we released last month with Mark Muro at the Brookings Institution and Letha Tawney at the World Resources Institute, a majority of federal clean tech subsidies will expire before 2014. By that year, the sector will suffer a 75 percent decline in federal spending, from a high of $44.3 billion in 2009 to only $11 billion in 2014. Our report, titled "Beyond Boom and Bust: Putting Clean Tech on a Path to Subsidy Independence," chronicles this sharp draw-down, and proposes a policy reform platform that will more efficiently drive clean energy technologies to unsubsidized commercial maturity.
The challenges facing clean tech are not harbingers of failure, but growing pains faced by maturing domestic industries. Solar panel prices have dropped 75 percent while annual installations grew 10 times between 2008 and 2011, but American manufacturers are feeling the squeeze of declining margins. The nation's wind turbine manufacturing base has grown with the impressive surge of wind-generated electricity, but the expiration of the federal Production Tax Credit for wind (PTC) at the end of 2012 threatens the industry with factory closings and stunted growth. Electric vehicles have made headway with the release of the Chevy Volt and the Nissan Leaf, but these models have been slow getting to market. And though the Nuclear Regulatory Commission recently approved the first new nuclear reactors in decades, the projects have been plagued by delays and high costs.
The same policies that kick-started these low-carbon energy technologies will not suffice to carry them through to broad market competitiveness. With the looming expiration of federal support programs comes an opportunity to reform American clean energy policy. Our report recommends a set of broad criteria for a national clean energy policy focused on innovation and subsidy independence for low-carbon technologies.
First, clean tech deployment subsidies should prioritize innovation and cost declines. Instead of simply incentivizing production of current technologies, federal support should be indexed to technological improvement and continual innovation. Smart deployment policies will establish competitive markets among technologies at similar maturation stages, avoid technology lock-out to promote a diverse energy portfolio, and maximize the impact of taxpayer dollars by unlocking private investment. Above all, policies will provide sufficient business certainty, and scale down in line with achieved technology improvements.
Second, we must apply the full strength of America's energy innovation system. Annual funding for clean energy R&D should at least triple, and public research institutions should align with regional markets and partner in clusters with clean tech manufacturing and financial entities.
Our federal policy platform has been successful at getting clean tech sectors off the ground, and state-level policies like the popular renewable portfolio standards (RPS) have been effective at driving the deployment of the most mature low-carbon technologies. But as the prices for natural gas have plummeted, even the combination of these policies will prove insufficient to push clean tech to full market competitiveness.
But if clean tech developers look with envy at low natural gas prices, they should also take a lesson from the path the shale gas industry took to achieve commercial maturity. As documented in a Breakthrough Institute investigation, the development of hydraulic fracturing and other critical shale drilling technologies relied on smart and sustained federal government investment, from early basic research and applied R&D to tax incentives for unconventional gas and cost-sharing with innovative gas companies. After 30 years of incubation, shale drilling has become an emergent sector in the American economy, fueling job growth, lower energy prices, and the retirement of America's aging coal power plants.
Decades of government support for shale gas have been relegated to history; with shale drilling at full technological maturity, the shale gas boom continues without the prop of federal subsidies. The shale gas success is a parable for clean tech going forward. Federal policies will work best when they foster competitive markets, drive cost declines and performance improvements, and ultimately expire as industries reach cost-parity with conventional energy technologies. If smart and effective policy reforms are enacted, the growing pains of these young markets will give way to vibrant and competitive 21st century American industries.