Energy Financing

Overview

To subsidize, or not to subsidize,  that is the question. In today's economic and political climate, subsidizing any form of energy has become a highly political and polarizing topic. I the clean-energy arena, the issue has been complicated by the recent Solyndra debacle. That bankruptcy called into question the effectiveness federal loan guarantees to solar energy, and the value of subsidizing any renewable energy development.

The Center argues that continued financial investment from the federal and state level is necessary to realize the advanced energy economy goal.

Background

Federal and state governments can finance or subsidize renewable energy in a number of different ways. Among other strategies, governments may make direct payments to producers or consumers, reducie tax liabilities to producers or consumers, underwrite research and development, or provide loans or loan guarantees.

Government at the federal and state level can also provide indirect financing through much broader policies that promote business development.

Policy Issues

The Congressional Budget Office finds that, if the government wants to encourage changes in energy production and consumption, government investment is necessary in the energy sector. Despite that finding, there is significant debate in Congress regarding whether financing renewable energy is necessary or beneficial to society. Typically, Republican legislators promote the idea that the energy market should be allowed to operate freely, and the government should not pick winners and losers. Democrats argue that incentives are needed to bring renewable energy technologies to commercial scale, so they can compete with entrenched fossil fuel sources.

Clean-energy advocates point out that fossil fuel industries continue to enjoy high subsidies from federal and state governments. Recently, both Democrats and Republicans have considered repealing fossil fuel subsidies in order to level playing the field between fossil fuels and alternative sources. In the event, the oil and coal industries staged a series of well-funded lobbying campaigns, and repeal of fossil-fuel subsidies went nowhere. 

In today's political climate, it appears that fossil fuel interests will retain their subsidies. Thus, subsidies are necessary for renewable energies to compete. Note that most fossil fuel subsidies are permanent policy; some form of federal subsidy for oil production has been in place since 1914. By comparison, renewable energy subsidies are temporary and must be renewed by Congress, usually in each session. It's easier to allow a temporary subsidy expire than to repeal a permanent one, and the fate of subsidies for renewable energy development depends upon political winds in Congress. Meanwhile, the temporary nature of renewable-energy incentives engenders uncertainty in the renewable energy market, making investment risky and sustained development difficult to achieve.

What We Do

The Center believes that predictable and sustained financing is critical in achieving an advanced energy future. As the Solyndra case illustrates, not all innovative energy development succeeds. However, direct investment has produced countless success stories. The National Renewable Energy Laboratory (NREL)  and Department of Energy (DOE) have a spectacular record in bringing renewable energy technologies to commercial scale and subsequent profitability. Many states have successfully promoted financing of new and emerging advanced energy sources.

The Center works to broaden and enhance financing programs where feasible, practical, and effective. In pursuit of this goal, the Center provides policy advice to state and federal policymakers. In addition, the Center’s Advanced Energy Legislation Tracker provides a database of pending state policy proposals and legislation to finance the new energy economy.

Go to our Advanced Energy Legislation Tracker for information about current energy bills in all 50 states.

For Further Information:

Policy Discussions

Congressional Budget Office: Federal Financial Support for the Development and Production of Fuels and Energy Technologies.
http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-06FuelsandEnergy_Brief.pdf.
 
Brookings Institute: Beyond Boom and Bust: Putting Clean Tech On a Path To Subsidy Independence.
http://www.brookings.edu/research/papers/2012/04/18-clean-investments-muro.
 
Environmental and Energy Study Institute: Fossil Fuel Subsidies: A Closer Look at Tax Breaks,
Special Accounting, and Societal Costs.
http://www.eesi.org/fossil_fuel_subsidies_062311.
 
Environmental Law Institute: Estimating Government Subsidies to Energy Sources 2002 – 2008.
http://www.elistore.org/Data/products/d19_07.pdf.
http://www.eli.org/pdf/Energy_Subsidies_Black_Not_Green.pdf.

State Policy

financingGo to our Advanced Energy Legislation Tracker database to see current energy bills in all 50 states.

Comprehensive Listing of State Energy Financing Opportunities
http://www.dsireusa.org/incentives/.

National Policy

Historical Energy Subsidy Policy (Congressional Research Service)
http://www.nationalaglawcenter.org/assets/crs/R41227.pdf.
 
Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010.
http://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf.
 
Comprehensive Listing of Federal Energy Financing Opportunities
http://www.dsireusa.org/incentives/?State=US&ee=1&re=1 

References