An Uneasy Time to Be Green (Energy)

by Devashree Saha | August 4, 2011

This summer’s Energy Information Administration (EIA) report on government subsidies to oil, coal, natural gas, nuclear, and renewables in 2010 is causing quite a stir in energy circles. The report finds that U.S. energy subsidies more than doubled from $17.9 billion in 2007 to $37.2 billion in 2010, with all sectors seeing an increase in government subsidy. Renewables saw the biggest increase from $5.1 billion in 2007 to $14.1 billion in 2010.

The single biggest factor explaining the spending increases is the passage of several pieces of legislation in response to the financial slump, including the 2009 American Recovery and Reinvestment Act (ARRA). The ARRA-related programs that account for a large portion of the growth in subsidies for renewables--such as the $4.2 billion in expenditures for grants under Section 1603--are temporary one-time measures and many of them are scheduled to expire in the next couple of years. 

So many federal clean economy tax and related incentives expire, in fact, that the Metro Program’s Sizing the Clean Economy report warns the clean energy industry risks being sent off a funding cliff in the next few years. A look at this graphic shows that several clean energy-related tax provisions will expire by the end of 2011, including the Section 1603 Treasury Grant and the Section 1705 Loan Guarantee Program, while others such as the Production Tax Credits for wind energy projects are set to expire by the end of 2012. As these tax credits and loan guarantees dry up, the U.S. clean energy industry, which in the last few years has witnessed torrid growth, faces an uncertain future with many of its recent achievements poised to take a direct hit.

This week’s debt deal, with its attendant spending cuts, threatens to eviscerate energy and environmental programs and directly undermine the nation’s competitiveness in the clean economy. While it is unclear which programs will take the biggest hit, the deal’s $917 billion in discretionary spending cuts over the next 10 years--with threat of across-the-board spending sequestrations if more cuts are not made by next year--incentives that give the emerging clean energy industry the competitive boost needed to initially enter an energy market replete with distortions and powerful incumbents will almost certainly be targeted. Most likely on the chopping block will be some of the most effective programs: including energy grants, loan guarantees, and the renewable energy production and investment tax credits.

Indeed, the U.S. clean energy industry stands to lose some serious ground in the coming years--what is poised to be an uneasy time to be green.

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