This guest post was written by Jigar Shah, the founder of SunEdison and the first chief executive of the Carbon War Room. He currently is chief executive of Jigar Shah Consulting and author of the forthcoming book The Impact Economy.
By Jigar Shah
(Image credit: Getty Images North America via @daylife)
Since the late 1970s the U.S. has avoided creating a comprehensive energy policy. Instead, we have created a patchwork quilt of energy subsidies and tax credits that has bifurcated into two camps: Permanent tax credits for the fossil fuel industry and temporary credits and subsidies for the renewable energy industry.
Case in point: the Production Tax Credit for wind energy, which is set to expire on Dec. 31 unless it is renewed for another two-year run.
Solar is better off than wind but its 30% investment tax credit sunsets at the end of 2016. The last extension was eight years as part of H.R. 1424, the financial bailout bill signed by President Bush in 2008. It has helped jumpstart a $300 billion solar market.
Separately, President Obama has proposed eliminating eight permanent oil subsidies that the Cato Institute’s Jerry Taylor estimates will save $43 billion over 10 years.
Clearly, public support drives the vagaries of government. For example, a Yale-Mason report: Public Support for Climate & Energy Policies in March 2012 showed that since the nuclear disaster in Fukushima, Japan in March 2011, support for building more nuclear power plants declined to 42% from 61% in 2008. A month early in February 2011, there was strong support for nuclear power as part of Obama’s budget. Since the disaster in Japan, talk of nuclear energy deployment in Washington has been muted.
Yet, results from the Yale-George Mason report found that 76% of Americans support regulating carbon dioxide as a greenhouse gas pollutant, and that two-thirds believe the U.S. should pursue policies to reduce its carbon footprint. So there is an appetite to wean us off of carbon producing energy sources with seemingly increasing public support.
I single out these separate energy issues to point out just that – they are separate.
We simply do not have a comprehensive energy plan.
Yet without a comprehensive energy plan, plus uncertainty about energy tax credits and subsidies, what signals are we sending to investors?
Despite our non-existent policy and patchwork quilt approach, investment in renewable energy grew significantly from 2007-2011. In fact, in 2010-2011, Bloomberg New Energy Finance noted that more renewable energy was installed than new natural gas generators. In the face of no national energy policy, renewable energy seems to be the preferred choice of investors. Who would have guessed?
Renewable energy is taking off because it is delivering low risk, stable returns. Beyond being emotionally compelling, these investments provide compelling risk-adjusted returns while meeting rigorous financial discipline.
This year renewable energy investment exceeded $40 billion in the United States and $260 billion globally. But we can’t reach our goals of oil independence, renewable electricity, local job creation, and reduced health care expenses caused by fossil fuels unless we can mobilize investors at $1 trillion scale.
The money exists on the sidelines today and politicians should be looking to deliver a stable comprehensive energy plan to tap into these investment dollars. We cannot have an “all of the above” approach to energy without a clear plan. It leads to stops and starts and investor hesitation.
Plus without a plan, how do we prioritize deployment of the hundreds of dormant technologies that we have invented since the 1970s that can be scaled up quickly?
Examples include cogeneration that lets us use waste heat to produce cheap electricity to power cities along with high efficiency air conditioning, natural gas conversions for heavy trucks powered by diesel and the Carbon War Room’s PACE program to tap financing for a building retrofit program. There are dozens more.
We have not focused on unlocking capital flows for good, solid, measured and controlled-risk investments into infrastructure. In most cases, investors are simply looking for a comprehensive energy plan and policies. A comprehensive plan would provide comfort to investors looking to make long-term investments.
One way to stabilize policies is to level playing field for investment by removing permanent subsidies for all mature energy technologies – whether it is wind, oil, gas, coal, solar, hydrogen or infrastructure retrofits. That would be a start. The next step is to deliver a comprehensive plan that entrepreneurs, corporations, investors and governments can follow.
Is it incomprehensible we do not have a comprehensive energy policy? In a word: Yes. The result is that most often, the financial community is saying, “I am confused” instead of making investments. The result is $1 trillion of investment dollars sit on the sidelines, making no impact.
